Is California Insurance going over the cliff?
Why are insurance carriers leaving the state?
INSURANCE COMPANIES LEAVING CALIFORNIA
The situation in which the California insurance industry now finds itself did not just happen overnight and to be honest, the same situation we find ourselves in could be brewing in other states, due to the major players involved.
The following is a listing of the carriers who have decided to withdrawal from the property insurance market in this state:
Allstate Insurance is not writing new home insurance policies in California.
State Farm Insurance is no longer accepting new applications for homeowner insurance in California.
USAA has developed new formats for writing homeowner policies in wildfire areas.
Travelers Insurance and Nationwide Insurance have placed greater restrictions on writing homeowner policies in California.
Recently Farmers Insurance announced it will have a more restrictive underwriting approach for new homeowner policies in the state.
Chubb Insurance is no longer writing homeowner policies in high fire risk areas.
Safeco Insurance has indicated they will drop policies in the San Francisco Bay area.
MAJOR ISSUES:
A review of the major issues causing the insurance carriers to leave are:
1. Climate Change
2. Wildfires
3. Proposition 103
4. Removal of dead trees from forest areas
5. Inflation
As I review these issues, I see some of the reasons as viable, and some are not. One particular reason that is left out is the fact that the insurance companies are in abusive economic control of the market, let me explain.
A THREE-PRONGED PROBLEM
When I first began my Property Adjusting career with one of the large carriers, we were trained to write our own estimates for damages. Then we would review the estimate(s) submitted by the insured’s contractor and arrive at an agreed price to complete the repair work. We did not consult with a technology company, such as Xactimate, to provide prices set by selected contractors.
The following is a textbook definition of the Xactimate function:
“Xactimate is a software tool widely used in the insurance industry for property claims estimation. It helps adjusters and insurance companies to accurately and efficiently document property damage and calculate repair and rebuilding costs. The software allows for the creation of detailed estimates that include sketches of property details and loss estimates. It’s designed to streamline the claims process, from receiving and sending estimates to valuation assignments, and even offers a 3D View tool for a more comprehensive look at the structures involved in a claim.”
When I first became aware that Xactimate provides cost for repair I wondered where does Xactimate obtain their prices? The answer was very eye opening—the prices are obtained from the General Contractors in any given area. The corporation which today owns Xactimate is known as Verisk Analytics, which is described as follows:
Verisk announced two new collaborations with insurance technology companies designed to bolster fraud detection and analysis in the insurance claims process. Verisk's ClaimSearch® platform includes the world's largest property and casualty (P&C) claims database containing over 1.7 billion claims from throughout the U.S www.verisk.com.
In addition to ownership of Xactimate Estimating, Verisk also owns the Insurance Services Office. Insurance Services Office, Inc. (ISO), a subsidiary of Verisk Analytics, is a provider of statistical, actuarial, underwriting, and claims information and analytics; compliance and fraud identification tools; policy language; information about specific locations; and technical services. ISO serves insurers, reinsurers, agents. Essentially the Insurance Services Office will write and prepare new policy forms calling for the increase or decrease in coverage amounts and if a particular peril is insured at all.
Verisk Analytics controls the language of policies as well as pricing for repair work through Xactimate. The fox is in charge of the hen house.
CONCLUSION
The five reasons that insurance companies are leaving California, or reducing coverage, is control of the insurance market by one company, Verisk Analytics. The reasons given for departure are nothing more than symptoms of a problem, not the problem itself. The problem is the lack of a free market system for the repair of Homeowner and Commercial property for the best price.
If you have questions concerning this article I can be contacted at nwlambe@gmail.com
Respectfully,
Norman Lambe