By
Warren Beatty
With the California fires, consumer advocates have redoubled their atacks on the
"greedy" insurance companies. California congressman
John Garamende said from his eight-year experience as insurance commissioner that the insurance companies will "'lowball' and deny claims." Carmen Balber, executive director of
Consumer Watchdog, adds that home insurers in California are more profitable than the nationwide average (I guess Balber thinks insurance companies in California make too much money). Even Kamala Harris chimed in: "Many insurance companies have
canceled insurance for a lot of the families... which is only going to delay or place an added burden on their ability to recover."
When someone buys an insurance policy he/she is buying into a risk pool (an insurance policy is not a savings account) where everyone in the pool shares the risk assumed by that pool. It's the shared risk concept that makes insurance work. The insurance companies are literally betting that a specific home won't be destroyed. If the home is destroyed everyone in the risk pool pays a small (because of sharing) amount for its replacement.
Insurance companies' use
actuarial tables to guide them when making decisions about risk pools. They are essential in the field of insurance, provide a statistical basis for assessing risks and making policy decisions. These tables provide data on critical factors (such as the probability of a home being destroyed by fire in a specific location (the 1% above) to predict future events with greater accuracy. Their importance cannot be overstated. They provide financial stability of insurance companies by enabling precise calculations of premiums and claim payout amounts.
However, California, between 2017 and 2022, had
the largest gap in the country between actuarial table indicated rates and the rates approved by regulators. California's laws limited insurers' ability to reflect new risks of wildfires.
Insurance Commissioner Ricardo Lara's office in the California Insurance Commission announced that California now
requires insurance companies that ceased providing home coverage to hundreds of thousands of Californians in recent years as wildfires became more destructive (due to government neglect of forests and inaction due to conservation group threats) to provide policies in fire-prone areas if they want to keep doing business in California. The new requirement will
force home insurers to offer coverage in high-risk areas, something the state has never done before. Lara's office said in a statement that insurers will have to start increasing their coverage by 5 percent every two years until they hit the equivalent of 85 percent of their market share. Got that? Write more policies in fire-prone areas.
