Has there been enough flight from California? The people, the retailers, the manufacturers, the venture capital firms?
No, there's alway room for one more U-Haul.
Which brings us to this embarrassment of California's governance, from today's Wall Street Journal:
State Farm is stopping the sale of new home-insurance policies in California effective Saturday, because of wildfire risk and rapid inflation in construction costs.
The move by one of California’s biggest insurers is a blow to the state’s efforts for years to maintain a vibrant market for homeowners in the wildfire-prone state. Nationally, inflation has been a serious problem for home and car insurers since last year, and many have posted underwriting losses as they continue to seek regulatory approvals for rate increases that they say they need for catching up with the surging costs.
They specifically cited the state's thicket of regulations that makes insuring a home from wildfires a losing proposition.
What's more, rates are already sky high in the outskirts of California's cities, often in newly constructed homes at wilderness's edge, which is where the wildfire risk is greatest. And according to the Journal, many large home insurers have already cut back or pulled out.
"Insurers declined to renew 235,000 home-insurance policies in 2019, up 31% from prior year, state insurance regulator says," the Journal's subheadline reads.
And yes, it was what they called "market conditions," which is to say, California's onerous regulatory regime.
In its statement, State Farm said it takes “seriously our responsibility to manage risk.” It said it was “necessary to take these actions now to improve the company’s financial strength. We will continue to evaluate our approach based on changing market conditions.”
Market conditions as in the regulatory thicket it takes to so much as construct a new home in California; or the greenie regulations that foster overgrowth and uncleared brush which creates conditions for wildfires (notice that Mexico next door without those regulations doesn't have many wildfires), or the regulations that make operating any business in that state a hell-on-earth experience? Yes, indeed, market conditions.
But the response from California?
“The factors driving State Farm’s decision are beyond our control, including climate change, reinsurance costs affecting the entire insurance industry, and global inflation,” Soller said in a statement following the interview.
Global warming did it. Which is laughable. Nevada, Arizona, and much of the rest of the western part of the U.S. shares the same climate conditions as California, but only California, with its big lucrative market for State Farm, got the pullout.
As for inflation, note that California's minimum wage is significantly higher than the rest of the country, as are its union-labor requirements. This, while not a true monetary phenomenon, sure as the sun rises, drives up costs.
Now it's going to be harder than ever to insure a new home in California, which ought to do wonders for people's willingness to move here, and even more wonders for people's willingness to move out. It's getting ever more third-world out there in California.
Gavin Newsom, the governor of the state, has made it his business to traipse to other states telling the locals that California is the "model" for the rest of the country. With this high-profile pullout going on, chalk it up to another instance of reality biting. Yes, that's something for him to be embarrassed about, as if he didn't already have enough. He won't be, but with the possibility out there that he may have to bail out these uninsured homes in the event of a wildfire, watch what he does.
Image: Jeff Head, via Flickr // public domain