One very plausible outcome of this process is that State Farm Group will end up putting State Farm General, its California subsidiary, into bankruptcy. Doing so would protect State Farm members outside of California (as a mutual company, State Farm does not have shareholders; insured parties are, in effect, the “owners”, with the benefits of ownership reflected in premiums). Insurance is regulated on a state level in the US and insurance companies typically have subs in states like NY, NJ, and CA where insurance regulation is challenging to shelter their business in other states from the actions of NY, NJ, CA, etc regulators. Unless State Farm Group has provided specific guarantees of capital support to State Farm General, the parent company may conclude that it has a duty to protect its non-California members from the consequences of actions taken by the California regulators. Last time I checked, the board of State Farm Group was comprised of people who, with one or two exceptions, are not California residents….
Any rational carrier would plan to exit California as soon as possible. Why should the insurance companies backstop FAIR? Who sets FAIR's rates (don't tell me)? Any systemic risks that would bankrupt FAIR would likely negatively impact the carriers. So now California wants to raid funds that are protecting other states. Why does anyone stay there?
I think the system is backwards. Retail insurance companies, e.g. Allstate or State Farm, should be the base of the system . They have the personnel and experience. However, they can not assume extraordinary risk as happens with earthquake or large scale fires. These retail companies need to have a statutory upper limit of liability per policy. Then, the State FAIR Plan becomes the re-insurance factor for catastrophic aggregate loss. The FAIR plan should be financed with a statewide tariff levied through property taxes. If all 40million Californians paid a few cents per $1,000 of valuation, there would always be sufficient monies for compensation.
It's seemed to me for a while that the cost of insurance was going to lead to resilient building and movement away from high-risk areas. Alas, no. The lemmings rush to the seas continues. Next stop on the insurance company bankruptcy train: Florida. A pleasing symmetry, no?
“This situation highlights the voters’ wisdom in having an independent, elected Insurance Commissioner making decisions to uphold market integrity in response to evolving threats.” It certainly does highlight the voters' wisdom, I couldn't say it better.
One very plausible outcome of this process is that State Farm Group will end up putting State Farm General, its California subsidiary, into bankruptcy. Doing so would protect State Farm members outside of California (as a mutual company, State Farm does not have shareholders; insured parties are, in effect, the “owners”, with the benefits of ownership reflected in premiums). Insurance is regulated on a state level in the US and insurance companies typically have subs in states like NY, NJ, and CA where insurance regulation is challenging to shelter their business in other states from the actions of NY, NJ, CA, etc regulators. Unless State Farm Group has provided specific guarantees of capital support to State Farm General, the parent company may conclude that it has a duty to protect its non-California members from the consequences of actions taken by the California regulators. Last time I checked, the board of State Farm Group was comprised of people who, with one or two exceptions, are not California residents….
Any rational carrier would plan to exit California as soon as possible. Why should the insurance companies backstop FAIR? Who sets FAIR's rates (don't tell me)? Any systemic risks that would bankrupt FAIR would likely negatively impact the carriers. So now California wants to raid funds that are protecting other states. Why does anyone stay there?
Just one more example of the scale of incompetence in Sacramento.
I think the system is backwards. Retail insurance companies, e.g. Allstate or State Farm, should be the base of the system . They have the personnel and experience. However, they can not assume extraordinary risk as happens with earthquake or large scale fires. These retail companies need to have a statutory upper limit of liability per policy. Then, the State FAIR Plan becomes the re-insurance factor for catastrophic aggregate loss. The FAIR plan should be financed with a statewide tariff levied through property taxes. If all 40million Californians paid a few cents per $1,000 of valuation, there would always be sufficient monies for compensation.
It's seemed to me for a while that the cost of insurance was going to lead to resilient building and movement away from high-risk areas. Alas, no. The lemmings rush to the seas continues. Next stop on the insurance company bankruptcy train: Florida. A pleasing symmetry, no?
“This situation highlights the voters’ wisdom in having an independent, elected Insurance Commissioner making decisions to uphold market integrity in response to evolving threats.” It certainly does highlight the voters' wisdom, I couldn't say it better.
In Cali, the Insurance Commissioner is elected - unlike in most states
You're not going to find a lot of climate change deniers in the reinsurance business. They have documentation of it going back for decades.