Ready for even higher homeowner insurance rates and gas prices to fill up your SUV?
In an interview with the Bay Area News Group, former California Insurance Commissioner Dave Jones called for insurance companies to “bring lawsuits to recover money associated with the oil and gas companies’ contributions to climate change.”
This was his idea for how Californians can deal with soaring home insurance prices.
Jones blamed insurers for not bringing the lawsuits themselves. “[T]hey can and should bring lawsuits to recover money associated with the oil and gas companies’ contributions to climate change,” he said. “Why are they not bringing these lawsuits? I suspect it’s because they have over half a trillion dollars invested in the oil and gas industry.”
As an aside, one obvious explanation is that suing companies they invest in would reduce the insurers’ net worth, bringing shareholder lawsuits.
To prompt such lawsuits against Big Oil, Jones said the state should “pass laws” to make the insurers sue oil and gas companies to reclaim money lost from claims supposedly caused by climate change.
Setting aside the challenge of parsing how guilty oil companies are for natural catastrophes, Jones doesn’t stop to consider that any such costs would be passed along to consumers. Think gas prices are high now? Wait until energy producers are blamed for everything.
Jones also insisted the state pass laws “to require that insurers transition their investments out of oil and gas.”
But if oil companies turn out to be more profitable than other investments, the insurance companies’ value would drop.
To make up for that loss, they would have to increase premiums on homeowners.
No matter how Jones tries to spin things, his solutions are half baked and costly.
The real crisis in homeowners’ insurance costs in California is not whatever is happening with the climate.
In January, when the Pacific Palisades and Eaton wildfires boosted home insurance premiums, Ryan Bourne and Sophia Bagley pointed out the actual problem with California’s insurance system.
Rate regulations, imposed by Proposition 103 in 1988, “led to rules preventing companies from recalibrating prices to fully reflect what they believed were higher future wildfire risks after 2017.”
Cato also noted the California Department of Insurance imposed price caps on policies, keeping them cheap, thus artificially encouraging building in fire-prone areas. It’s a classic case of unintended consequences at work.
“Market prices thus serve as signals, telling homeowners, policymakers, and developers about the true costs of building and living in wildfire-prone areas, “By capping insurance rates below what market conditions demanded, California muted these warning signals for some homeowners, forcing companies to price below expected cost and making consumers feel safer than they were.”
Between 2017 and 2022, the first two years of which Jones was commissioner, the department was the most draconian of the 50 states in imposing “rate suppression.” In other words, Jones himself helped spark the home insurance crisis by tampering with prices.
Then consider the litany of other government failures in preventing and responding to natural disasters like wildfires, including abysmal state investment in prevention.
It’s a lot easier to scapegoat Big Oil, we’re sure, but Dave Jones is quite obviously the wrong person to be listening to. His vision is one of perpetually ineffective insurance markets and even more expensive energy. That’s precisely the wrong approach for California.