Surprise, surprise: An insurance crisis is upon us

Perhaps the greatest financial risk faced by Californians today has nothing to do with rising interest rates or a looming recession. Rather, it is the loss of access to products they rely upon to protect their most valuable assets: auto, homeowners and commercial insurance.

While many may not yet be aware, an insurance coverage crisis is upon us – where consumers and businesses are having difficulty accessing the coverage they need to protect themselves, their property and businesses. That’s because Insurance Commissioner Ricardo Lara has not done his job to ensure a balanced and thriving insurance marketplace.

Commissioner Lara has failed to carry out his constitutional responsibility to ensure that insurance rate plans adequately reflect the cost of covering consumer and business claims.

Without access to homeowners insurance, lenders will stop issuing mortgages.

Instead, Lara is playing politics with the insurance coverage of all Californians by failing to approve adequate rate filings and by implementing policies that have applied unsustainable pressure on coverage providers.

Historic inflation and supply-chain delays have raised the cost of auto, homeowners, and commercial insurance claims.  Commissioner Lara is not keeping up with the cost of claims.  He has not approved dozens of auto rate filings in over two years.  Commercial rating plans have also sat unapproved for over a year.  Homeowners insurance is under extreme pressure from wildfires made more frequent and severe by climate change.

As a result, coverage options for consumers and businesses are being restricted.

Allstate, the nation’s fourth-largest insurer, recently instructed agents to pause offering new homeowners policies. American International Group (AIG) exited the California homeowners market altogether, and another leading insurer just announced they are pausing direct sales. California’s insurance market is at a tipping point.

Unless Insurance Commissioner Ricardo Lara acts quickly, homeowners, drivers and businesses will continue to lose access to affordable coverage – a reality that will hurt those who can least afford it.

The fact is that insurance rates must be sufficient to cover the costs of paying claims. That’s how the system is designed to work.

Without access to homeowners insurance, lenders will stop issuing mortgages. Without access to auto insurance, drivers will be burdened with finding other modes of transportation. Commercial insurers are also pulling back coverage options, adding limited, costly insurance to the pile of disruptions like inflation and supply-chain delays already challenging California’s small businesses.

This looming crisis is entirely manmade, and it can be avoided. It’s time for the Commissioner to start doing his job.

The fact is that insurance rates must be sufficient to cover the costs of paying claims. That’s how the system is designed to work, and the only way it can function. No one likes price increases, but if a small business had to consistently sell her product for less than she paid for it, she wouldn’t be able to stay in business very long.

That’s what is happening with insurance coverage in California, and as a consequence, the market is drying up. Soon consumers and businesses will have less access to the insurance coverage they need.

The Commissioner’s inaction and failed policies have left California’s insurance market broken. If left unfixed, it will blossom into a full-blown crisis that will be felt by all California’s drivers, homeowners, and businesses.

The simple remedy? Commissioner Lara needs a new approach to managing California’s insurance marketplace. He should work with providers to find innovative solutions that can tackle the current problems caused by climate change, inflation, and supply-chain delays.

The time has come for Commissioner Lara to press the reset button and start addressing the growing problems facing California’s insurance market, or consumers and businesses will be left to deal with the consequences of his inaction.
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Editor’s Note: Julian Canete is the president and CEO of the California Hispanic Chambers of Commerce.