Poor governance, not climate change, endangers California home insurance.

Tristan JusticeJune 6, 2023

California Insurance Crisis: Incompetent Governance or Climate Change?

California’s insurance market is in crisis as two of the state’s largest providers, Allstate and State Farm, have stopped offering new coverage to property owners. While many are quick to blame climate change, the real culprit is poor public policy and incompetent governance.

“The pause began last year but appeared to receive only a passing mention in industry publications,” the Chronicle reported. That Allstate and State Farm are ceasing coverage on the West Coast “signals that insurance woes in the state may be more severe than the public is aware of.”

Residents in fire-prone areas have already struggled to guarantee home insurance from companies wary of the potential wildfires that set the state ablaze every year. High-end insurers AIG and Chubb pulled back coverage in California last year, citing fire risk.

The True Culprit: Incompetent Governance

While headlines blame the property owners’ predicament on the existential “climate crisis,” the real issue is poor public policy. California’s annual devastation is preventable with proper land management. More than 100 years of fire suppression, however, has left forests in the American West overgrown, presenting nearby residents with massive tinderboxes ready to flare up into massive conflagrations that send smoke as far as Europe.

“Academics believe that between 4.4 million and 11.8 million acres burned each year in prehistoric California.” Between 1982 and 1998, however, state bureaucrats only burned an average of 30,000 acres a year. That number

It’s time for California to take responsibility for its own mismanagement and enact policies that will prevent future disasters. Until then, residents will continue to struggle to find affordable insurance coverage.

Insurance Giants Cease Coverage

Allstate and State Farm cover more than 13% of California’s property and casualty market share. Allstate told the Chronicle the firm paused new policies “so we can continue to protect current customers.” Meanwhile, residents in fire-prone areas have been forced to turn to the state-backed FAIR Plan, an “insurer of last resort” that usually costs more and covers only fire damage.

Allstate and State Farm have ceased offering new coverage to property owners in California.
High-end insurers AIG and Chubb pulled back coverage in California last year, citing fire risk.
Residents in fire-prone areas have struggled to guarantee home insurance.
The state-backed FAIR Plan usually costs more and covers only fire damage.

California’s Insurance Disaster: Mismanagement, Labor Laws, and More

California’s insurance industry is in crisis due to a combination of factors, including mismanagement, labor laws, and environmental policies. The state’s forest management has been severely lacking, with the number of acres falling from 1999 to 2017. Environmental prohibitions on roads and salvage logging have also hampered firefighters’ access to burning areas, making it harder to combat wildfires.

[READ: California Wildfire Devastation Was Entirely Preventable Through Proper Land Management]

State and federal officials are years behind in California forest management, causing insurers to flee. Even Democrat Gov. Gavin Newsom cut the state’s budget for wildfire prevention and resource management by more than 40 percent.

State Law Is Punishing Providers

Public policies are making it harder for insurance companies to operate economically in the fire-prone state. A ballot measure passed in 1988 has led insurance companies to calculate rates based on the prior 20 years instead of forward-looking projections. Insurers have canceled or declined to renew policies in wildfire-prone areas, leading to a significant increase in cancellations or nonrenewals in recent years.

State law also de facto caps how high companies can lift insurance premiums, making it difficult for insurers to establish premiums that account for wildfire risk.

Labor Laws Threaten the Goats

Even California labor law will make it more difficult to sustain a healthy insurance industry, let alone healthy land. Regulations passed by the state legislature in 2016 will spike overtime pay for goat herders and threatens to put them out of business. Targeted grazing, wherein livestock devours vegetation and thus clears out wildfire fuel, is a primary instrument of land management. But the new state labor regulations will treat goat herders under the same category as other farm workers, making it unaffordable to provide goat grazing services.

Fewer goats mean fewer animals to clear out overgrown vegetation, leading to even larger fires, more destruction, and higher insurance costs.

Media, lawmakers, and corporate America can blame the so-called climate crisis all they want, but it’s clear the real offenders in California’s insurance disaster are those mismanaging the state.

Tristan Justice is the western correspondent for The Federalist and the author of Social Justice Redux, a conservative newsletter on culture, health, and wellness. Follow him on Twitter at @JusticeTristan or contact him at [email protected]. Sign up for Tristan’s email newsletter here.