Private insurers are holding CA homeowners hostage

By Eduardo Vargas, especially for CalMatters

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As the first anniversary of Southern California’s devastating wildfires approaches, CalMatters asked candidates for the 2026 state insurance commissioner race to share thoughts on what the state can do to help victims and stabilize insurers. This is the sixth answer. Read other candidates’ answers here, here, here, here and here.

Guest Comment written by

During the holiday season, California’s insurance commissioner, Ricardo Lara, quietly approved a 6.9% rate increase. for Mercury insurance and CSAA insurance.

Rate increases are currently expected for Farmers Insurance Group and the FAIR plan. Last year, after the Los Angeles wildfires, State Farm received approval from the insurance commissioner to raise rates by 17 percent for the average homeowner.

The latest wave of rate hikes in the insurance industry was directly encouraged by regulators and politicians from both political parties. Caught in a hostage situation — where the insurance industry is threatening to leave the state unless they get higher rates and less regulation — California politicians are forcing the average consumer to pay the ransom, leaving us with an increasingly unaffordable and exploitative insurance market.

A manufactured crisis

Climate change has dramatically increased the likelihood of devastating wildfires and other climate-related disasters. After the catastrophic wildfires of 2017 and 2018, the insurance industry is trying to change California’s insurance regulations.

Insurers took aim as they looked for ways to reduce the cost of repairs and reconstructions related to climate disasters without compromising their profit margins and long-term solvency.

With Lara’s “Sustainable Insurance Strategy,” they finally have their chance. At the core of that strategy is deregulation, a promise to approve rates and less red tape in exchange for bringing the insurance industry back to California and writing new policies in high-risk areas again.

Through a coordinated boycott of California, the insurance industry got the essence of what it wanted: public policy and regulation that allowed it to pass the cost of the climate crisis onto everyone but itself.

With the collective withdrawal from the California market in 2022 and 2023, the insurance industry appears to have all the leverage.

Even now, most candidates for insurance commissioner say that unless the needs and wants of insurers are met, they will continue to leave the state until there is no insurance available to homeowners. Regulators, unable to see beyond the horizon of the private insurance system, caved to this pressure.

Private insurers also use internal claims procedures to pay policyholders as little as possible after disasters. Hundreds of Los Angeles fire survivors said the same insurers demanding rate hikes still haven’t adequately compensated them for damage caused by last year’s fires.

Adjusters are instructed never to submit written denials of coverage and are pressured by management to offer low settlements. Insurers prematurely ended benefits for survivors whose homes were contaminated with carcinogens, forcing homeowners back into unsafe living situations. Rather than measuring the true degree of household pollution, insurers rely on sketchy studies funded and designed by the insurance industry to reach the conclusions the insurers desire.

Although stories like this happen after every major wildfire, regulators usually turn a blind eye for fear of challenging the power of the insurance industry.

Freeze rates and hold insurers accountable

Californians need to ask themselves: Why are ordinary people expected to bear the brunt of the damage and destruction caused by climate change?

As the saying goes, “If you break it, you buy it.” Those responsible for disrupting our climate should be those who cover the costs of mitigation or repairs associated with climate disasters. The fossil fuel industry, utility companies and their billionaire owners have destroyed our climate and caused these disasters; it’s time they paid to fix it.

As insurance commissioner, I will freeze any further rate increases. I will lead the market research department of the top 10 property and casualty insurance companies in California. Investigations will reveal the exploitative nature of internal claims procedures, unfair competition or illegal coordination between insurance companies.

The fact that insurance is a commodity sold in the private market, not a right, is precisely why we are in this situation. As climate change progresses, disasters become more likely for all of us. We all deserve the right to recover.

Public provision, not “market stabilization”

California already provides a de facto right to home insurance through the FAIR plan for all those who cannot find insurance. However, the FAIR plan is not a public, taxpayer-funded plan for all Californians.

In 1968, the state of California directed the private insurance industry to establish the FAIR plan as an insurer of last resort, funded based on each insurer’s share of the market. Profits and losses through the FAIR plan are managed by such private insurers as AAA, Farmers, Mercury and others — the same companies that deny policies to begin with.

Public insurance in California will not be modeled after the FAIR plan.

Without the motive for private insurance, which is structured to reject and limit claims as much as possible, a public insurance plan would allow maximum coverage by taxing those responsible for the climate crisis. California without billionaires could finance a public insurer.

The insurance crisis cannot be solved by maintaining the current structure of the private insurance industry. Such a major crisis needs bold solutions. And I will work alongside every fire survivor and homeowner to make these proposals a reality.

Candidate guest comments are published in the order they are received.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.