Opinion | Why California and Florida Have Become Almost Uninsurable (2023)



Subscriber-only NewsletterPeter Coy

Opinion | Why California and Florida Have Become Almost Uninsurable (1)
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As different as California and Florida are, they share one big problem: Insurance companies are curtailing business in the two states. Some aren’t writing new policies. Others are going further and not renewing policies as they expire. I’m picturing vans pulling out of Sacramento or Tallahassee filled with sad-looking insurance mascots. Geico’s gecko. Jake from State Farm. The bandaged-up Mayhem from Allstate. The bald guy in the tweed jacket from Farmers saying “we’ve seen a thing or two.”

This shouldn’t be happening. It’s a sign of governmental dysfunction when insurance companies give up on what should be a mutually beneficial relationship: profitable for the companies and useful for the customers who need insurance. Californians and Floridians are scrambling to find replacements for the coverage they desperately need, particularly homeowners insurance.

State Farm, which insures more homeowners in California than any other company, announced in May that it would stop accepting applications for property and casualty insurance in the state (but would keep selling auto insurance). A week after State Farm’s move, Allstate, California’s No. 4 property and casualty insurer, confirmed by email that it had “paused” selling new home, condominium and commercial insurance policies in the state last year. Then No. 2 Farmers Insurance, which is headquartered in Los Angeles, said it put a cap on how many homeowners policies it will write monthly effective July 3. Geico switched its California operations to online-only last year, laying off branch staff. Chubb and AIG, which insure expensive homes, said last year they were retrenching.

In Florida, despite a different political climate, the story is similar. This month Farmers said it would stop selling Farmers-branded homeowners, auto and umbrella policies in Florida, which account for 30 percent of the company’s policies in the state. Some smaller companies have pulled out of Florida in the past year and others have gone out of business.

What went wrong? Several things at once, and not just climate change. (I refuse to call this a perfect storm.) Some of them, to be sure, were beyond the control of either the insurance companies or their regulators. Wildfires in California and hurricanes in Florida produced lots of claims. Housing prices and bills for construction and repairs have gone up, making claims larger. And insurance companies have had to pay more for reinsurance: Worldwide, average rates for reinsurance rose by a quarter last year and by another third this year, according to the London-based reinsurance broker Howden Tiger, an arm of Howden Group Holdings.

Other wounds, though, are self-inflicted. Fraudulent claims pushed several small insurers in Florida to or over the brink, partly because state law made it easy for professional fraudsters to inflate values and win big claims by suing. The state Office of Insurance Regulation said last year that Florida accounted for 79 percent of the nation’s homeowners insurance lawsuits over claims filed while making up only 9 percent of the nation’s homeowners insurance claims. The legislature has tightened the rules but claims are still being filed under the old standards, according to Nancy Watkins, who manages the San Francisco property and casualty consulting practice of Milliman, a consulting company.

In California, the bigger problem has been a culture of keeping rates low at all costs. California is the only state that won’t allow insurers to use rising reinsurance costs to justify rate-hike requests. It’s also the only state that won’t let insurers base their requests on projections of rising costs. Regulators look backward at claims experience over the previous 20 years. So even though climate change is likely to cause more losses from wildfires, mudslides and the like, the state excludes it from consideration. Proposition 103, passed in 1988, allows public interest groups to contest requests for hikes of 7 percent or more. That drags out and sometimes stymies the approval process. Delays in the process are especially costly when inflation is running hot. No wonder insurance companies are cutting back in the state or getting out.

California homeowners who lose their coverage can try to get a replacement policy in the excess or surplus line market, whose rates aren’t regulated by the state. If that fails, as a last resort they can get coverage from a state-run pool. California’s FAIR Plan, short for Fair Access to Insurance Requirements, is backed by all the insurers licensed to operate in the state. (They have no choice but to participate.) In a sign that the standard insurance market isn’t working for everyone, the FAIR Plan accounted for 3 percent of the state’s policies in 2021, nearly double the share from 2015 to 2018.

If the FAIR Plan loses money, the state is entitled to assess the private insurers. That means the customers they chose not to serve could still come back to cause them trouble if FAIR suffers massive losses in some future catastrophe. Rex Frazier, president of the Personal Insurance Federation of California, which represents many of those insurers, told me that’s a ticking time bomb: “It’s all right there in front of us, so we shouldn’t be surprised if it happens.”

Florida has a different flavor of market intervention. The state-run Citizens Property Insurance Corporation, which has turned into the fastest-growing insurer in the state, serves about 17 percent of insured Florida homeowners. People are eligible for Citizens if the only quotes they get from private insurers are 20 percent or more above the Citizens offer. But even Citizens’ rates are high (so as not to undermine the private market), so some people give up and go naked. About 15 percent of Florida homeowners have no property insurance, the highest share of any state, the Insurance Information Institute estimates.

In both states, the nightmare would be that insurance markets fully unravel and the state government has to take over entirely. There’s a precedent on the federal level. In 1968, Congress set up the National Flood Insurance Program because the private market wasn’t doing the job. Five years later, Congress began to require flood insurance for people living in zones at high risk of floods. Rates, however, were subsidized. Phasing out those subsidies has been politically difficult. And taxpayers are still getting hit. In 2017 Congress forgave $16 billion in debt that the program incurred so that it could cover losses from Hurricanes Harvey, Irma and Maria. The program is seeking cancellation of another $20.5 billion in debt now. People who have been flooded repeatedly account for a disproportionate share of claims. In one case, a $69,000 Mississippi home was flooded 34 times in 32 years, resulting in $663,000 in claims.

Returning to California and Florida: Watkins, who is an actuary, told me that insurers need to know that when they put in for a rate increase, “something rational will happen,” and customers need to know that “companies will be around to pay their claims over the long term.” She added, “I think what California and Florida have in common is an unreliable environment.”

Michael Soller, the deputy commissioner for communications at the California Department of Insurance, told me that the department held a four-hour workshop on July 13 on how to set rates. It looked at the two approaches that are common in other states: taking reinsurance costs into account and looking forward to assess risks, not just backward. The insurance commissioner, Ricardo Lara, whose position is elected, has not decided yet if he’s in favor. “I would say this is a top priority right now,” Soller said. “Everything is on the table.” Florida, meanwhile, is working to “depopulate” Citizens by getting private insurers to take over some of its customers.

Allowing private insurance companies to charge more would keep the market functioning, but it’s politically challenging. “People just don’t like to buy disaster insurance,” Yanjun Liao, an economist and fellow at the think tank Resources for the Future, told me. “That is a fact that is documented across the world.” Governments want insurance to be both affordable and available, but when it’s more affordable it’s less available and vice versa. “That tension is very hard to resolve,” Liao said.

One way to resolve that tension is to reduce the riskiness of living in California and Florida so that claims are smaller on average and policies can be cheaper and more available. To their credit, both states are strengthening building codes and rewarding homeowners who take extra measures to protect themselves. Florida, for example, offers free wind mitigation inspections and has approved about $200 million in matching grants to help people strengthen their homes.

There are bigger ideas for the long term. In 2017, the economist Enrico Moretti wrote an essay for The Times arguing that zoning laws should permit more density in urban areas, where wildfires are infrequent, so that fewer people would need to build homes in fire-prone places. Matthew Kahn, an economist at the University of Southern California, told me this week that allowing insurance companies to raise prices a lot in fire-prone areas would help instigate such a change.

Right now, though, Californians and Floridians are grappling with how to get insurance companies to stay or come back, right away. The notion that the insurers are bluffing to win higher rates is ridiculous, Watkins told me. Giving up market share that they fought hard to gain would make no sense if the business really was profitable, she said.

“Both states have to make it more attractive for capital to come in,” Rod Fox, the executive chairman of Howden Tiger, told me. “Insurance companies are not making massive amounts of money.”

The Readers Write

You wrote, “The government’s money used to be backed by real stuff like gold and silver.” What intrinsic value does gold or silver have? Most everybody could live their entire life without it. Economists’ ignorance of the social contract buried deep in our social fabric is debilitating.

Michael P. Smith
Los Angeles

If we’re talking in terms of pure efficiency and how the government should expend incentive dollars, nothing beats public transportation. When local transport becomes safe, convenient and readily accessible, we’ll have less need for cars and more room for living. I don’t think Toyota looks forward to that future.

Silvio Nardoni
Pasadena, Calif.

Quote of the Day

“What I’m saying to you this morning is communism forgets that life is individual. Capitalism forgets that life is social. And the kingdom of brotherhood is found neither in the thesis of communism nor the antithesis of capitalism, but in a higher synthesis. It is found in a higher synthesis that combines the truths of both.”

— Martin Luther King Jr., “Where Do We Go From Here?” Aug. 16, 1967

Peter Coy has covered business for more than 40 years. Email him at coy-newsletter@nytimes.comor follow him on Twitter. @petercoy


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Why California and Florida have become almost uninsurable? ›

In California, the bigger problem has been a culture of keeping rates low at all costs. California is the only state that won't allow insurers to use rising reinsurance costs to justify rate-hike requests. It's also the only state that won't let insurers base their requests on projections of rising costs.

Why does Florida have an insurance problem? ›

The insurance industry insists that the state's risk from hurricanes is only part of the problem, and points to a legal system it says promoted litigation abuse and excess claims. “This is a man-made crisis,” said Mark Friedlander, spokesperson for the Insurance Information Institute, who is based in Florida.

What would make a house uninsurable? ›

Living in a high-risk location, having hazardous home features, home maintenance issues, your home's history of insurance claims, and more can be reasons an insurance company may determine a house to be uninsurable.

Why is State Farm pulling out of California? ›

Those looking to insure a new home or property in California may be out of luck — insurance giants State Farm and Allstate have backed out offering wildfire insurance in the state. Both companies have said they will no longer offer new policies due to climate change-fueled disasters and high building costs.

Why are some risks uninsurable? ›

An uninsurable risk could include a situation in which insurance is against the law, such as coverage for criminal penalties. An uninsurable risk can be an event that's too likely to occur, such as a hurricane or flood, in an area where those disasters are frequent.

Why is Florida called a no-fault state? ›

The basis of Florida's no fault system is that every licensed driver in Florida is required to carry at least $10,000 of Personal Injury Protection, or PIP, and $10,000 in Property Damage Liability, or PDL.

What is the problem with Florida healthcare? ›

(The Center Square) – Florida's health care system is among the nation's worst in access, affordability, avoidable use, consistent pediatric care and overall costs, especially for the privately insured, according to a recently published analysis by The Commonwealth Fund.

Why are so many insurance companies pulling out of Florida? ›

The litigation costs proved to be too much for local, residential-only insurers and prompted seven of them to become insolvent. For national insurers, the costs have translated to higher premiums or fewer policy offerings. Florida's hurricane risk has also played a role, as extreme weather has in many other states.

Why are insurers leaving Florida? ›

And it's the latest sign that extreme weather is threatening the nation's insurance market, with risks for companies growing as climate change increases the strength of hurricanes and the intensity of storms. At least six insurance companies went insolvent in Florida last year, according to The Associated Press.

Is California becoming uninsurable? ›

California is becoming uninsurable. Two insurance giants will stop issuing new policies for California homes. CalMatters reporter Ben Christopher and Vox's Umair Irfan say insurers have determined what homeowners refuse to accept: Climate change has made some parts of the country too risky to live in.

What are 5 risks that are uninsurable? ›

An uninsurable risk is a risk that insurance companies cannot insure (or are reluctant to insure) no matter how much you pay. Common uninsurable risks include: reputational risk, regulatory risk, trade secret risk, political risk, and pandemic risk.

Why are insurers leaving California? ›

The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes and higher reinsurance premiums,” Allstate said in a statement.

Why is it hard to get homeowners insurance in California? ›

In part due to fire risk, Californians are having a harder time getting affordable home insurance. Since March, Kevon Cottrell has had a hard time finding coverage for his home in South Lake Tahoe after Connect Insurance canceled his plan, citing fire hazards.

What insurance companies left Florida? ›

Farmers Insurance is now among Bankers Insurance, Centauri Insurance and Lexington Insurance, a subsidiary of AIG, in withdrawing from the Florida market since last year. The Florida Department of Financial Services website lists 14 companies that are currently in liquidation in the receivership process.

Is Geico leaving California? ›

Geico closed its sales offices in California as of August 2022 and is also no longer selling insurance over the phone to California customers. Geico is still offering car insurance to California residents online, and Geico says that the closing of their California locations will have no effect on existing policies.

Why are there so many uninsured drivers in Florida? ›

According to PIFF, the high percentage of uninsured drivers in Florida is caused by high insurance premiums, which it attributes to “well known litigation abuse.” Unfortunately, insurance companies feel abused whenever they are sued.

Why does Florida not require bodily injury insurance? ›

Florida is a no-fault state. No-fault law means that, regardless of who is at fault, your own personal injury protection insurance will step in to provide coverage up to the policy limits. Unlike most other states, residents of Florida are not required to have bodily injury liability.

Is California penalizing for no insurance? ›

Several states have since created mandates to bring the uninsured penalty back. California is one of those states, which added a tax penalty for uninsured people and businesses starting with the 2020 tax year. Many people already have qualifying health insurance coverage.

Is California still penalizing for no insurance? ›

In 2023, you are no longer required to pay a federal tax penalty for remaining uninsured. However, that may not apply to you if you live in a specific state. For those in California, you are still required to have health insurance and could be subject to a fee should you remain uninsured.

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