California’s statewide races for constitutional officers went as expected, as Democrats defeated Republicans by overwhelming margins. One exception was the race for insurance commissioner, where two Democrats vied for the office. In the race to succeed term-limited Ricardo Lara, former San Francisco Supervisor Jane Kim defeated state Sen. Ben Allen of Santa Monica, 54% to 46%.
This is a potentially shocking result that could have broad ramifications for the state’s struggling property insurance market. Ahead of the general election, we endorsed Allen, who backed the state’s Sustainable Insurance Strategy — reforms that have slowly but surely encouraged insurers to step up underwriting. In the primary, we endorsed Patrick Wolff, a genuine insurance expert who in a just world would be the insurance commissioner. Both Wolff and Allen understood the importance of market-based solutions, while Kim’s top-down government approach is sure to create unintended but foreseeable consequences.
California has faced an insurance crisis after a series of costly wildfires. The root cause is the state’s inflexible insurance-regulation system, approved by voters in 1988 via Proposition 103, which ties the hands of insurers. That may be politically popular, but it ignores the consequences. Unable to adjust rates to meet risks, some insurers stopped writing new policies. That left Californians unable to find coverage, facing steep price increases or reliant on the state-created, bare-bones insurer of last resort called the FAIR Plan. It’s a mess.
Kim, who was state director of the progressive Working Families Party, campaigned on a “Natural Disaster Insurance for All” platform that would create a single-payer system to cover such disastrous events. That would leave homeowners dependent on private companies for typical house fires and other claims, but would shift the burdens for wildfires and floods to taxpayers.
Public agencies are notoriously bad at setting rates based on risk given that such decisions are made in the political arena. They are inefficient, as they build large bureaucracies filled with highly compensated employees who belong to public-sector unions. From a consumer perspective, imagine dealing with the equivalent of the DMV after a devastating event.
Her idea would require legislative approval, but she might find support for it in a Legislature that is going further Left. In the meantime, the big question is whether she’ll stay the course on current reforms — or resort to the strategy pushed by self-styled consumer activists, who seem more interested in restricting rates, lambasting insurers and running up their intervenor fees (legal fees they’re paid to challenge rate hikes proposed to the Department of Insurance). If she does the latter, we fear a repeat of an insurer exodus.
In our interview, Kim didn’t strike us as particularly knowledgeable about insurance, but she is personable, smart and ambitious. It wouldn’t serve her political aspirations to be at the helm of a collapsing insurance market.
In fact, some consumer activists actually endorsed Allen, so that could free her to focus on shaking up the current bureaucracy in the right way — by further speeding up rate reviews and cutting intervenor fees. She should also focus on other, unobjectionable parts of her platform, such as ensuring fast and fair claims and looking for ways to expand coverage, especially in high-risk regions.
We wish Kim the best, as she faces a big challenge. We’d urge her to start by finding advisors who understand the nuts-and-bolts of insurance regulation and the changes needed to make the current system work better. If she needs Wolff’s contact information, we’d be happy to provide it.