RJ Lehmann on Home and Auto Insurance in California and Florida
ICLE Editor-in-Chief R.J. Lehmann was quoted by the Washington Examiner in a story on the role that home and auto rate increases could play in the 2024 election. You can read the full piece here.
“California’s Prop 103 regulatory system makes it extraordinarily difficult for insurers to achieve rate increases, and after enormous wildfire losses, a number of the largest carriers have either threatened to exit the market or have actually done so,” Ray Lehmann, editor-in-chief of the International Center for Law and Economics, told the Washington Examiner in an email.
He added that after “decades of state officials sticking their head in the sand about the nature of the problem, the governor and insurance commissioner have in the past year attempted to enact a series of reforms that would liberalize the market somewhat and keep the remaining companies from heading for the exits.”
…“According to the U.S. Bureau of Labor Statistics’ Producer Price Index (PPI), the average monthly cost of private passenger auto insurance has risen 18.8% from $164.50 (or $2,290 annually) in July 2020 to $190.80 (or $2,720 annually) in July 2024,” Lehmann said. “By contrast, the increase from July 2016 to July 2020 was about 16% and from July 2012 to July 2016 was 13.1%. So, auto has been on a path of steeper increases over time.”
According to the same metrics, homeowners insurance has climbed 14.3% “from $213.40 ($2,561 annually) in July 2020 to $243.96 ($2,927 annually) in July 2024.” That came on the heels of a very modest increase of 4.3% for the previous four years.
…One unanticipated advantage of Republicans picking Trump over Gov. Ron DeSantis (R-FL) in this election cycle is that the Sunshine State has created a serious hazard with its own property insurance market. “Florida and California have been the notable basket cases,” Lehmann said.
After storms devastated the state in 2004 and 2005, Florida adopted the strategy of loading a “huge amount of risk onto the state-backed insurer, Florida Citizens, and the state-backed reinsurer, the Florida Cat Fund.”
Consequently, the state market has “been dominated in the years since by dozens of tiny, thinly capitalized, domestic insurance companies that only wrote homeowners and only wrote it in Florida,” he said.
The state lucked out with a hurricane-light decade between 2006 and 2016 but has been hit hard in recent years. Homeowners insurance litigation plus those hurricanes have meant that “more than a dozen domestic insurers have already been declared insolvent and dozens more are on the brink.”
…“DeSantis and the legislature have passed reform legislation intended to address the runaway litigation issues, but it remains unclear whether that will be sufficient to stabilize the market” or if a few more bad storms ruin it for all 23 million and counting Floridians, Lehmann said.