Four myths about insurance in California
California’s insurance crisis isn’t caused by greedy companies or climate change alone, four persistent myths keep lawmakers and residents from facing the real math.
California’s home insurance market is collapsing under the weight of lawsuits, wildfires, and outdated regulations, yet the public conversation remains stuck on comforting falsehoods. Insurers aren’t simply fleeing because they hate regulation or love profits above all else; the data shows they are losing money on property coverage in the state at record rates.
Myth one, that insurance companies are raking in windfall profits while abandoning Californians, ignores the numbers buried in regulatory filings. For the past several years, the combined ratio for homeowners insurance in California has exceeded 100 percent, meaning carriers paid out more in claims and expenses than they collected in premiums. One major insurer reported a 137 percent combined ratio on its California book last year, according to Department of Insurance data.
Myth two pins everything on climate change as if it appeared yesterday. Wildfire risk has always existed, but the state’s explosion in litigation costs, skyrocketing construction expenses, and decades of underpriced premiums created the breaking point. Insurers point to jury awards and legal fees that have multiplied claims costs far beyond the physical damage from flames.
Myth three insists stricter regulation always protects consumers. In reality, price controls that prevented insurers from charging risk-reflective rates left many unable to cover losses, prompting them to stop writing new policies or exit the state entirely. The result: a surge in the FAIR Plan, the insurer of last resort, whose policies now cover more than 400,000 homes and carry premiums often triple those of the private market.
The final myth, that the solution is simply forcing companies to stay, overlooks how that approach failed in Florida and is now repeating here. Lawmakers have spent years tweaking disclosure rules and offering limited reinsurance backstops, yet the underlying mismatch between premiums and risk remains unresolved.
Until Sacramento confronts the gap between what properties actually cost to insure and what politicians allow companies to charge, the private market will keep shrinking and the state’s exposure will keep growing. The myths feel better than the math, but the math is winning.
Original reporting: CalMatters.
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