California has been facing a years-long insurance crisis, which has become more pronounced after last year’s wildfires around Los Angeles. The situation is slowly improving, but remains dicey. Now we have a race for insurance commissioner that could determine whether California continues climbing out of its crisis — or throws the system into chaos. The stakes couldn’t be higher given that a competitive, functioning insurance market is crucial to homeownership and to bolstering the state’s business climate.
Thanks to 1988’s Proposition 103, the state has a prior-approval insurance system whereby the elected insurance commissioner has the power to approve or even roll back rates. These function as price controls that limit the ability of insurance companies to set their rates to reflect their risks. After several years of costly wildfires, insurers slowed and even stopped new underwriting — and some insurers exited the state.
That meant fewer available policies and an overreliance on the costly state insurer of last resort, the FAIR Plan. Insurance Commissioner Ricardo Lara, however belatedly, implemented reforms that sped up rate reviews and let insurers use forward-looking catastrophe models to price policies. Voters must choose whether to stay on this path — or to back a candidate whose ideas could destroy the market.
Based on polling, the leading candidate is former San Francisco Supervisor Jane Kim, who had served as state director of the far-left Working Families Party and is endorsed by democratic socialist Sen. Bernie Sanders. Not surprisingly, her agenda is ominous. She is proposing a single-payer disaster coverage system. As her campaign website explains, “Coverage would be automatic and universal. … A nonprofit program doesn’t need to generate shareholder profits or fund marketing budgets.”
Granted, she can’t just impose it by edict, but if California moves in this direction and she takes control of the rate-setting process, it will encourage insurance companies to again reduce their underwriting or leave. We fear an exodus of insurers. If her ideas came to pass, we would all be dependent for insurance on our state’s wasteful and bureaucratic agencies. Kim also wants a “public option” for auto insurance, which could precipitate a similar crisis in that market.
In the top-two primary system, Kim is likely to advance to the final round given that she has consolidated support from progressives. If the state GOP-endorsed candidate, insurance agent Stacy Korsgaden, comes in second, then that will assure a Kim victory given the state’s partisan political dynamics. That leaves us dependent on Kim’s three main Democratic challengers: Sen. Ben Allen, D-Santa Monica, former Sen. Steven Bradford, D-Gardena, and financial analyst Patrick Wolff.
Allen and Bradford are competent, but we endorsed Wolff, who has the right ideas to jump start competition in the market. He’s not a legislator looking for a political perch, but someone with a deep knowledge of and experience in the insurance industry. Other major publications with very different points of view than ours, including the Sacramento Bee and the San Francisco Chronicle, also have endorsed him.
We want to reiterate the high stakes if voters get it wrong. This is not the race to offer a protest or partisan vote. We urge voters to consolidate behind Wolff and give the market a chance to recover — rather than experiment with hare-brained ideas that could create shortages, a bureaucratic government-run system and soaring prices.