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Why is California Giving Insurers an Easy Way Out?

California’s wildfire problem has placed an insurance crisis on the horizon. Due to the number of claims from wildfire damage, many insurance companies are choosing to no longer renew their contracts in California. Ricardo Lara, the California Insurance Commissioner, is proposing to allow insurance companies another way to raise their rates by using a catastrophe model. 


This proposal seems only to make homeownership more difficult for Californians. Homeownership is important for the economy as it provides stability for the population. This puts the Californian government in a difficult place, as the need for proper home insurance is becoming more important as California continues to have problems with wildfires. 


The insurance commissioner appears to be giving the insurance groups a lot of leeway, especially compared to his actions as commissioner when he placed a moratorium on insurance companies not renewing policies. This way of allowing insurers to raise rates is a departure from previous more consumer-friendly policies regarding wildfire risk. 


There are also worries about the accuracy of the model being used. Catastrophes are generally unpredictable and there are worries that a simulated model could result in faulty changes in rates. Florida has used catastrophe models to determine rate increases but is also facing an insurance crisis like California


This is a situation that doesn’t have a simple solution. Commissioner Lara may not be able to have another non-renewal moratorium as many major insurers have already announced their plans to no longer work in California. There is a definite need to satisfy the insurance companies due to the risk of many Californians losing their houses in a wildfire and not getting any compensation. 


The current proposal regardless may not work as Commissioner Lara intends. This policy appears to shift the burden of the ecological issues in California onto civilians. California is slated to have some more serious problems instead of a comprehensive solution, with the wildfire problem not appearing to lessen.


Acknowledgment: The opinions expressed in this article are those of the individual author.

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