Put the blame where blame should be - price regulation
The California fires are a terrible tragedy for many. Pointing fingers while disasters are still happening is not usually helpful - nor meet. Yet it is, sadly, necessary to intervene in the story about insurance before myths become established.
California is “becoming uninsurable” as wildfires leave a $50bn (£41bn) trail of destruction in Los Angeles, experts have warned.
JP Morgan analysts said the wildfires ripping through Hollywood would cost insurers an estimated $20bn – “even more if the fires are not controlled” – while the total economic loss stemming from the fires could reach two and a half times that.
US-based experts have warned that California has become increasingly uninsurable, with home insurers cutting coverage in the state in recent years owing to the risks involved.
Well, sorta, to the point of, well, no.
Everything is insurable - at a price. If insurers are not allowed to charge that price then the desired insurance will not be available. Which is what has been happening.
CA ranks 50th in rate suppression - approving rates 29% below what actuaries show is needed for homeowners insurance.
In plain English: regulators force insurers to sell WAY WAY below cost.
Therefore they do not sell. A full paper on the subject is here.
Stopping the fires, consoling those who have lost, then working out how to stop having them, that’s the correct sequence of actions. But it is still necessary to point out that the lack of insurance is because no one is allowed to charge the price that insurance costs.
Does everyone remember when Venezuela decided to set the price of toilet paper? It’s an essential, after all. So, the government set the price of toilet paper nice and low. At which point there was no toilet paper.
That.
Sorry about this but despite the simplicity of Econ 101 it is in fact true. When the price setters set prices nice and low then supply vanishes. This is simply what happens among humans.
The lack of property insurance in California is because the price of property insurance has been set nice and low. Something for all to remember for it applies to everything.
Tim Worstall