Who’s to Blame for the Home Insurance Crisis in Los Angeles?

Los Angeles is on fire, and thousands of homeowners are left without insurance. We blame insurance companies, but the real question is: is it really their fault, or does the problem lie with the government?

The Role of Prop 103

In 1988, California passed a bill Prop 103. The law was created to prohibit price gouging by insurance companies and introduced a new government position, the State Insurance Commissioner.

The issue is that, like any politician trying to stay in office, Insurance Commissioners often reject premium increases to keep voters happy. But as wildfires grew and risks increased, insurance companies couldn’t charge enough to cover the rising costs.

Insurance Companies Are For-Profit Business

Insurance companies are businesses, not charities. If they can’t charge enough to stay profitable, they’ll leave the state–and that’s exactly what happened in California. The state’s regulations made it impossible for insurance companies to keep up with rising claims, so they simply pulled out of the California market. 

Los Angeles has 806,000 homes that are uninsured. California home insurance premiums have risen 48% in the past five years. Homeowners are left vulnerable, and the market is in shambles.

Who’s Responsible? 

It’s easy to point fingers at insurance companies, but they’re not the ones who made it impossible to operate. The real problem lies with the system created by Prop 103. By focusing on short-term affordability instead of long-term sustainability, California’s government inadvertently pushed insurers out of the market.

Of course, insurance businesses aren’t the most ethical business. They’ve left homeowners in a tough spot, but they’re not wrong for pulling out of a system that doesn’t work while trying to maximize shareholder value….

What’s Next?

The wildfires in LA highlight the need for reform. If California wants to keep homeowners protected, it needs to rethink its approach to insurance regulation. Striking a balance between fair pricing for consumers and sustainability for insurers is the only way forward–maybe alongside ensuring that fire hydrants work properly in a state with some of the highest taxes in the country.