Tangle - Why are insurers fleeing California?

Episode Date: June 5, 2023

California home insurers. Last week, State Farm said it would stop selling new insurance policies to homeowners in California as of May 27, citing "historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market." The decision leaves Californians without one of the largest insurers in the country and the leading provider of homeowners insurance in the state, worsening the problem for residents already struggling to keep up with costly home insurance. Liberty Mutual and Allstate, other prominent homeowners insurance companies, have also left California.Tickets are officially live (and public!) for our event in Philadelphia on Thursday, August 3rd. Thanks to all the folks who bought tickets — we're off to an awesome start, and on track to sell this baby out! Remember: Our goal is to sell out the venue, and then take Tangle on the road. Please come join us! Tickets here.You can read today's podcast ⁠here⁠, today’s “Under the Radar” story ⁠here⁠, and today’s “Have a nice day” story ⁠here⁠. You can read the Vox article we reference in the Listener question here, and you can also check out our latest YouTube video here.Today’s clickables: Matt Lewis (0:54) Quick hits (2:23), Today’s story (4:25), Left’s take (6:31), Right’s take (10:15), Isaac’s take (14:16), Listener Question (17:22), Under the Radar (19:29), Numbers (20:26), Have a nice day (21:18)You can⁠ subscribe to Tangle by clicking here⁠ or drop something⁠ in our tip jar by clicking here.⁠Our podcast is written by Isaac Saul and edited by Jon Lall. Music for the podcast was produced by Diet 75.Our newsletter is edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight.

Interior Chinatown is streaming November 19th, only on Disney+. Chinatown is streaming November 19th, only on Disney+. From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle Podcast, the place we get views from across the political spectrum, some independent thinking, and a little bit of my take. I am your host, Isaac Saul, and on today's episode, we are going to be talking about the insurance issues in California. A little bit of a wonky story, but also something that touches a lot on climate change, regulatory policy, some of the things that are happening in California that might start

happening in other states. It's actually really interesting, though it seems pretty dry and boring on the face of it. Before we jump in, though, I do want to start with a little clarification. Over the course of the last year, Tangle has cited the work of the Daily Beast's Matt Lewis on at least three occasions in the newsletter and the podcast under what the left is saying. Several readers have pushed back on this placement, arguing that Lewis's track record as a conservative should dictate that his writing be included under what the right is saying. His opinion pieces in the last year or so have mostly been critical of Republicans a conservative should dictate that his writing be included under what the right is saying. His opinion pieces in the last year or so have mostly been critical of Republicans and former President

Trump, and Lewis contributes to the Daily Beast, a very solidly left outlet. However, his career has centered on conservative advocacy and commentary, and he describes himself as a center-right critic of American politics. Therefore, we'll include Matt's commentary under what the right is saying in future editions. Tangle's policy, to be clear, is to categorize arguments based on the ideological history of the writer, not the publication or specific argument they are making in a given place, and our categorization of Matt's heterodox arguments was an oversight. We wanted to take a moment to explain our editorial decision and to thank the readers and listeners who brought this to our attention. It speaks to

the interesting and fun challenge of sussing out the political ideology of writers we cite and, of course, of organizing arguments for this podcast. All right, with that out of the way, we'll start off with our quick hits. we'll start off with our quick hits. First up, President Joe Biden signed a bill suspending the debt limit for two years, passing it just 48 hours before the Treasury Department's June 5th deadline to avoid defaulting on the debt. Number two, the U.S. Air Force scrambled F-16 fighter jets to respond to a small aircraft with an unresponsive pilot, causing sonic booms across Washington, D.C. and the Virginia area. The plane eventually crashed in the mountains in Virginia.

Number three, Chuck Todd, the host of NBC's Meet the Press, said he is stepping down and will be replaced by Kristen Welker. Number four, a Chinese warship came within 150 yards of a U.S. destroyer in the Taiwan Strait on Saturday. Number five, former Vice President Mike Pence, New Jersey Governor Chris Christie, and current North Dakota Governor Doug Burgum are all expected to announce they are running for president this week. State Farm is no longer accepting applications for homeowners insurance in

California. The new policy went into effect Saturday. The insurance company cited wildfire risks and the skyrocketing costs of construction. State Farm is the largest home insurance company in the country, according to the National Association of Insurance Commissioners, with more than 78 billion direct premiums written. It is getting more difficult to get homeowners insurance here in California, and if you do get it, it will cost more. All state insurance has announced it will no longer write new homeowners policies in California. The announcement follows State Farm's similar decision earlier this week.

Tonight, sources tell 7 on your side a third insurance carrier is now limiting policies for new customers. The latest one, Farmers Insurance. We reported that State Farm Insurance stopped selling new homeowner policies in California on Saturday. Earlier today, another major carrier, Allstate Insurance, confirmed it ended new home policies in the state last year. Last week, State Farm said it would stop selling new insurance policies to homeowners in California as of May 27, citing, quote, historic increases in construction costs, outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market. The decision leaves Californians without one of the largest

insurers in the country and the leading provider of homeowners insurance in the state, worsening the problem for residents already struggling to keep up with costly home insurance. Liberty Mutual, another popular homeowners insurance company, has also left California. Insurance costs aren't just rising in California either. In Louisiana and Florida, several insurers have gone bankrupt in the wake of major floods and hurricanes. Global insurers are facing a difficult road ahead in 2023, as reinsurers, the insurance companies who insure the insurers, have already hiked rates as much as 200%. Those reinsurers have pointed to natural rates as much as 200%. Those reinsurers

have pointed to natural disasters like Hurricane Ian in Florida, losses from conflicts like the war in Ukraine, and rising interest rates. California, however, faces unique challenges in worsening wildfire seasons and state-specific insurance regulations. It has already had its first major blaze of the season this April, a sign there may be more extreme wildfire activity this summer and fall than usual. It also operates under a quote-unquote prior approval insurance system, where rate hikes have to be approved by the state insurance commissioner, Ricardo Lara. The state also created the California Fair Plan, a privately run insurance pool designed for high-risk homes.

While some are blaming climate change and variables like the war in Ukraine for State Farm's decision, others say over-regulation in California has tied the hands of insurers on how they can adjust prices to account for higher risk. Today, we're going to take a look at some arguments from the left and the right about why this is happening, and then my take. First off, we'll start with what the left is saying. Many on the left say the primary issue is climate change, which is causing more wildfires and catastrophic natural events. Some note the issue is not unique wildfires and catastrophic natural events. Some note the issue is not unique to California and will worsen in other states too. Others argue the proper regulatory response is to start punishing companies that contribute the most

to climate change. The Los Angeles Times editorial board said climate change is making California more expensive. State Farm deciding it's too risky and expensive to sell new policies in the state is bad news. It's even worse news that State Farm simply publicized what other insurance companies have been doing quietly for several years by refusing to renew policies and pulling out of communities at risk for wildfires. While there are still more than 100 insurers writing new policies, State Farm makes up 21% of the market. The company's decision is worrisome because it shows the continued instability in the market for homeowners insurance, which is essential for people to get a mortgage and to protect their assets, the board said.

It's another sign that climate change is driving up the already high cost of living in California, and lawmakers need to be far more aggressive in building safer communities. Home insurance has risen more steeply in states facing climate-fueled disasters like Texas and Florida, but California lawmakers need to make it easier to build new housing within existing communities rather than force new housing into high-fire risk areas. In Curb, Delisa Walker said California is becoming uninsurable. It's getting too expensive to rebuild homes lost to the state's increasingly destructive wildfires, and the largest property insurance company in the country retreating from the country's largest property insurance market isn't just an inconvenience for potential homeowners.

It's a sign of what's to come, Walker said. Wildfires have destroyed 25,000 homes since 2018, driving $11.7 billion of claims in the state. But even when homeowners manage to avoid the flames, they often emerge from disaster only to learn their properties are no longer covered, Walker said. The state has tried to help by creating its own high-risk insurer or offering stipends to build fire-resistant homes. But the ultimate solution that would save lives and homes has been a political third rail. The state should simply not allow people to live in high-fire-risk areas in the first place. What happens in California is often a harbinger for

the rest of the United States, and insuring the uninsurable in the face of increasingly pervasive climate risk will be a challenge everywhere and not just for wildfires. of climate risk will be a challenge everywhere and not just for wildfires. In the Hill, Stuart McIntosh said insurers are fleeing the state due to climate realities. Republican politicians cannot change the climate and related insurance risks, which the firms must factor into their business decisions, McIntosh said. Six insurers in Florida and eight in Louisiana went broke last year, while parts of Florida and Louisiana will soon become uninsurable too. This is reality-based economics driving sensible commercial decisions. California's weather extremes will not get better, only worse.

State attorneys general, if they really care about their constituents' futures and want to ensure better economic prospects and outcomes, should start suing the worst greenhouse gas polluters, the firms and actors making an increasingly bad situation worse, McIntosh said. State attorneys general should be pursuing stringent net zero goals in their states, not badgering insurers. They should be changing the local rules and regulations, toughening building standards, cutting local and city-level GHG emissions, changing incentives, and punishing freeloaders and those who would risk a livable tomorrow for a fast buck today.

All right, that is it for the left is saying, which brings us to what the right is saying. Many on the right say the primary issue is California's insurance regulations, not climate change. Some argue that wildfires are worsening in California because of poor land management. Others say California regulators could solve the problem by changing the state's rules. The Wall Street Journal editorial board said the culprit isn't climate change, as the media claims, in parroting Sacramento talking points. The cause is the Golden State's hostile insurance environment, the board said. State Farm can't accurately price and increase its rates to cover ballooning liabilities. Other property and casualty insurers, including AIG and Chubb, have also been shrinking their California footprint after years of catastrophic wildfires, which are becoming more common owing to drought and decades of poor forest management. Wildfires in 2017 and 2018

wiped out two times the underwriting profits that insurers had accrued over the prior 26 years, but the state insurance commissioner won't let insurers raise premiums to account for more risk. California is the only state that requires insurers to set premiums based on historical experience, the board said. That means insurers must abase rates on prior decades when wildfires were less frequent and intense, and they can't consider how drought will increase their future probability. While progressives demand that businesses account for climate change, California's Democratic leaders won't let insurers do so. Who are the climate deniers? With fewer insurers, there is less competition and more customers will be forced

into a state-established insurer of last resort, backed by insurers, that provides skimpier and more expensive coverage. Season of chaos and all through the house, not one person was stressing. Holla differently this year with DoorDash. Don't want to holla do the most? Holla don't. More festive, less frantic. Get deals for every occasion with DoorDash. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime,

Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. In Washington Examiner, John Miltimore said the real reason state farm won't sell home insurance anymore is poor land management and state policies. California has struggled mightily with wildfires in recent years, but it's a myth that wildfires are at historic highs in the United States. The truth is wildfires are not a serious problem in most parts of the U.S., and it's not because the climate change gods are fickle, but because these states practice better land management, Miltimore said. In a 2020 ProPublica article, journalist Elizabeth Wheel pointed out that California officials have turned the state

into a tinderbox through years of fire suppression. Property rights also play a role, as roughly 48 million acres are owned by the federal government, which is so bad at land management that it managed to lose some 15 million acres of public land. The state also has various price controls that prevent insurers from raising prices to meet surging costs without the written approval of the California Department of Insurance. Many will cling to the theory that climate change is the real culprit. Those who favor this theory should be asked why California is particularly prone to the externalities of climate change. In the R Street Institute, Stephen Greenhut said California's insurance market is burning down. In January, I predicted that California's rigged insurance market was careening towards a crisis and leading some companies to pull out of the state, or at

least to reduce their activity here, Greenhut said. He wrote that the state's price controls leave consumers more vulnerable to disasters. Yes, inflation has boosted rebuilding costs, wildfire seasons have become more intense, and state officials often say they will get even worse because of climate change. Reinsurance, which is the insurance that insurance companies buy, thus enabling them to write more policies by reducing their capital exposure, has become pricier for a variety of reasons. But the real reason State Farm is leaving is the absurd prior approval insurance system and the way recent commissioners have implemented those rules. In a functioning market, companies compete for customers and set their rates as they choose. The role for insurance regulators is to ensure insurers pay out

legitimate claims, but these policies shift pricing decisions into the political world. Even Republican insurance commissioners have been reluctant to approve rate hikes. All right, that is it for the left and the right are saying, which brings us to my take. I love reading about debates like this because the answer seems so obvious to me. It's all of the above. Climate change and ineffective regulations are intersecting to create a crisis. It's hard to qualify the blame, but when considering root causes, I actually think California's wildfire management and housing policies are every bit as significant as its

insurance regulation. The Los Angeles Times editorial board, under what the left is saying, pointed out that it is still too hard to build new housing in existing communities in California. The result is that builders are developing cheaper land near or in the foothills, which includes forests and grasslands most prone to burning. As the Times noted, half of the buildings destroyed by fires over the last 30 years were constructed in this wildland-urban interface. Meanwhile, the state's cities continue to fall short of housing construction goals. And yes, California is very bad at managing its forests. The pattern is a form of insanity, journalist Elizabeth Wheel wrote in 2020. We keep doing overzealous fire suppression across

California landscapes where the fire poses little risk to people and structures. Until California starts preemptively burning combustible material that's already on the ground and fuels those fires, the situation will keep getting worse. So California is making it hard to build more housing where people already live and cheaper to build near places that are at risk of wildfires. Now enter the two main issues so many writers have focused on. First is regulation. Insurance companies are operating a business. They need to be able to price their product commiserate with the risk they are taking on, and right now they can't do that. And since State Farm is going to stay in

the state for existing homeowners, they can't come out and attack the state's policies. But you don't have to be an insurance expert to understand the problem. California homes are becoming riskier to insure and costlier to rebuild, so reinsurers are raising rates. But California won't allow insurance companies to price in those increased risks. Then there's climate change. The state prices insurance based on the last 20 years of an insurer's wildfire losses, which means the state can't predictably model risk as well as insurance providers. If droughts and fires are getting worse due to climate change, which clearly they are, the pricing is not accounting for how much worse it has been over the last five years.

The irony of California's state insurance regulators not accounting for climate change is deep. So yes, it is everything. It is the intersection of more serious climate-related weather issues with poor state policy and nonsensical price controls. But it also isn't just California. The risk of more floods, more wildfires, more hurricanes, and more serious versions of each is going to make ensuring homes more expensive in cities and states across the country. Lawmakers everywhere should take note of this reality and start preparing legislation to address it. note of this reality and start preparing legislation to address it.

All right, that is it for my take, which brings us to your questions answered. This one is from Thomas in New York, New York. Thomas said, a Vox writer named Peter Kafka argued there is no evidence Americans truly want just the facts down the middle news despite their protestations. What inspires your conviction that people actually want media like Tangle versus feeling good in their echo chambers? So actually, I think it's kind of hard to argue with Peter Kafka's case he makes in this article, which is linked to in today's newsletter and episode description. While Americans say they want unbiased or centrist news, the most avid news consumers still gravitate toward ideological outlets. They follow opinion writers or pundits they love and they get their news from sources that are often not shy about their ideological

tilt. Like Kafka, I'm also skeptical every time I hear of a new media outlet claiming to be quote-unquote down the middle. My conviction is actually a little different. It isn't that people want unbiased, down-the-middle, and often boring centrist news. It's that they want to feel like they're getting the whole picture, a wide range of arguments, and a real understanding of an issue. I think the Tangle format works because we share a range of opinion pieces paired with a neutral, down-the-middle explanation of a news event. That allows people to get everything—explanatory journalism, opinion, and then personalization of my take—all with some balance. It's also true that, for various reasons, Republicans tend to trust news outlets a lot less. Consider this. Democrats even trust right-leaning

news outlets like the New York Post, the Daily Caller, the Wall Street Journal, and National Review more than Republicans do. In that sense, I think news outlets have a much bigger challenge winning back the trust of more right-leaning Americans than they do of Americans as a whole. To me, that's just part of the reason chasing down the middle may not work. There's a difference between shooting for the center and shooting to represent a wide range of arguments. I suspect the former is much less interesting to me and may not work. There's a difference between shooting for the center and shooting to represent a wide range of arguments. I suspect the former is much less interesting to me and most Americans than the latter. All right, that is it for your questions answered. Next up is our under the radar

section. The New York Times is out with a new piece titled, quote, Inside the Complicated Reality of Being America's Oldest President. The Times highlights the juxtaposition of Biden's age and his role. One day, he is waking in the middle of the night to manage a crisis after a missile strikes Poland. Another day, he is struggling to remember how many grandchildren he has. One minute, he is being complimented by the Republican House Speaker for being very smart and very tough on their debt limit deal. The next minute, he tripped over a sandbag at the Air Force commencement speech falling to the ground. Mr. Biden is the chief executive of the world's most powerful nation and has just embarked on a campaign asking voters to keep him in the White House until the age of 86, the Times reported.

The New York Times has the full story, and there's a link to it in today's episode description. And next up is our numbers section. The number of buildings destroyed by wildfires in California in 2019 is 3,560. The number of buildings destroyed by wildfires in California in 2020 is 11,116. The number of buildings destroyed by wildfires in California in 2022 was 772. The current cost of flood insurance for single-family homes nationwide was $888, according to FEMA. The expected cost under new risk-based pricing that is going to be phased in during the coming years is $1,808. The amount of land in acres that has been burned by wildfires

in California since 2016 is $8 million. Excluding land, the average cost of building a new home in California is $1.35 million. All right, that is it for our numbers section. So last but not least, our have a nice day story. A mother-daughter duo who fled Syria are now receiving diplomas with honors from William Patterson University in New Jersey. Stani Habiji and her daughter Raka Ahmad fled the Syrian Civil War in 2014. Ahmad, who was chosen as the student speaker, said her mom inspired her to pursue her undergraduate degree as it would help secure her future and allow her to find work after college. Taking this journey with my mom has been special for both of us, she said during her commencement speech. Even better, Bassem Ahmad,

her father, was able to come home from Syria to watch them graduate after spending years behind caring for his ailing father. The messenger has the story and there's a link to it in today's episode description. All right, everybody, that is it for today's podcast. As always, if you want to support our work, please go to readtangle.com slash membership and consider becoming a member. tangle.com slash membership and consider becoming a member. Don't forget to also check out our YouTube channel and our event, which is coming to Philadelphia on August 3rd. There are links to the tickets in today's episode description. You can also find them at tangle.com slash live. We'll be right back here same time tomorrow. Have a good one. Peace. Our podcast is written by me, Isaac Saul, and edited by John Law. Our script is edited by Ari Peace. For more on Tangle, please go to readtangle.com and check out our website.

Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history, and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+.