If California Becomes the Insurer of Last Resort for Everything, Who Insures California?

Earlier this month, my sister concluded her campaign for California Insurance Commissioner as part of California’s jungle primary. From the beginning, we understood the challenge of taking on one of the state’s most established political machines. Although she finished third, she accepted the results with grace but not resignation. Her campaign may have ended, but her commitment to improving California’s insurance marketplace continues. It is a commitment shared by our entire family.

For more than forty-five years, insurance has been woven into the fabric of our lives. After our father was killed in an automobile accident, the insurance industry provided my mother with the opportunity to build a career while raising five children. We learned early that insurance is far more than policies and premiums. It is a promise. It helps families recover from tragedy, allows businesses to rebuild after devastating losses, and provides the financial certainty that enables people to move forward after life’s most difficult moments.

Today, California may be approaching one of the most consequential public policy decisions in its history.

Increasingly, some policymakers appear willing to move the state toward becoming the insurer of last resort across broader segments of the insurance marketplace. Before California assumes that responsibility, one question deserves careful consideration: If California becomes the insurer of everything, who insures California?

Insurance is not simply another industry. It is one of the foundations upon which California’s economy rests. More than $12 trillion in real estate depends upon functioning insurance markets. Mortgage lending, commercial development, automobile ownership, agriculture, manufacturing, trucking, healthcare, professional services, and the formation of small businesses all rely on the ability to insure risk. Without available insurance, much of modern commerce simply cannot function. Insurance is the lubricant that keeps the economic engine running.

One of the most overlooked contributors to rising insurance costs is crime. Insurance premiums are built upon one fundamental principle: expected losses. When losses increase, whether from wildfires, automobile accidents, fraud, vandalism, organized retail theft, or cargo theft, the cost of providing insurance rises as well. Insurance companies cannot ignore those losses because claims must ultimately be paid.

Across California, retailers increasingly face organized theft, repeated vandalism, burglary, and property damage. These losses affect far more than the businesses directly impacted. Higher claims lead to higher insurance premiums. Businesses respond by investing in private security, surveillance systems, reinforced storefronts, and additional employee safety measures. Those costs eventually become part of the price consumers pay every day. Insurance does not create these costs. It simply reflects them.

Business investment follows the same logic. Large employers evaluate crime rates, employee safety, regulatory stability, litigation exposure, property protection, and insurance availability before deciding where to expand. When these risks become more difficult to measure or insure, capital becomes more expensive and less willing to invest. Insurance often serves as one of the earliest indicators because it converts every form of uncertainty into a measurable financial cost. The impact is perhaps greatest on California’s small businesses. A neighborhood grocery store, pharmacy, restaurant, or hardware store often operates on narrow margins. When repeated theft or vandalism drives insurance premiums higher, owners have few choices. They can raise prices, reduce staffing, absorb lower profits, or close their doors entirely. Insurance is not the cause of those economic pressures. It is the financial reflection of them.

If California eventually assumes responsibility for insuring more of these risks through government programs, the underlying losses do not disappear. They simply move from private insurance company balance sheets to the state’s balance sheet. The economic cost remains exactly the same. The difference is who ultimately pays the bill. Instead of shareholders absorbing losses, taxpayers increasingly become responsible through higher taxes, greater borrowing, or reductions in other public services.

Insurance is sometimes criticized as though it creates economic problems. In reality, insurance simply measures them.

When wildfire risk increases, premiums rise. When earthquakes become more likely, premiums rise. When litigation expands, premiums rise. When organized retail theft becomes more common, premiums rise.

When fraud increases, premiums rise.

Insurance companies do not create these risks; they price them. No insurance system, whether public or private, can permanently charge less than the actual cost of risk. If premiums are held artificially low, someone else eventually pays the difference through taxes, debt, reduced public benefits, or higher costs elsewhere in the economy. That is not an ideological statement. It is simply the mathematics of risk.

In many ways, insurance serves as America’s economic report card. Every major public policy decision eventually appears in an insurance premium.

More crime results in higher commercial premiums.

More litigation increases liability costs.

Poor forest management contributes to higher homeowners insurance.

Unsafe roads increase automobile premiums.

Weak building standards produce larger catastrophe losses.

Inflation raises claim costs.

Regulatory uncertainty reduces competition among insurers.

California already has a preview of what a shrinking private insurance market looks like through the California FAIR Plan.

As private insurers reduced their exposure in wildfire-prone regions, hundreds of thousands of homeowners found themselves with few alternatives. What was originally intended as a safety net has increasingly become, for many Californians, the only available option. Families often pay substantially higher premiums while receiving more limited coverage and purchasing supplemental policies simply to obtain protection that once existed in the competitive marketplace.

Government-administered insurance programs frequently face greater bureaucracy, slower decision-making, and higher administrative costs than competitive markets. Competition encourages innovation, operational efficiency, customer service, and product development. The FAIR Plan was designed to be an insurer of last resort, not a permanent replacement for a healthy private insurance market.

The experience of the Affordable Care Act also offers lessons worth considering. The ACA successfully expanded health insurance coverage to millions of previously uninsured Americans. At the same time, it introduced a highly complex regulatory system. For many individuals purchasing coverage without significant subsidies, premiums and deductibles increased substantially as insurer participation declined in certain markets.

Regardless of one’s political views, the experience demonstrates that expanding government involvement in insurance often produces trade-offs that deserve careful evaluation.

California does not need to replace private insurance. It needs to repair the marketplace.

That begins by encouraging more insurers to compete while modernizing regulations so rates can more accurately reflect real-world risk. Consumers should be protected from unfair practices, particularly after catastrophic events, but regulations should also encourage capital to remain in California rather than drive it elsewhere.

The state must also confront the underlying causes of rising losses. Better forest management, expanded water storage, stronger utility management, improved wildfire mitigation, and investments in flood and earthquake resilience would reduce future claims before they occur. Consumers who invest in making their homes and businesses safer should receive meaningful premium discounts. The FAIR Plan should remain exactly what it was intended to be—a true insurer of last resort rather than a substitute for a competitive insurance marketplace. Finally, Californians deserve greater transparency so they can better understand how risk, pricing, and mitigation are connected.

California now stands at an important crossroads. The choice is not simply between public insurance and private insurance. The real question is whether California wants to concentrate more financial risk on the state’s balance sheet or continue relying upon a competitive marketplace supported by global capital. That debate should rise above partisan politics.

Insurance is not a Republican issue or a Democratic issue. It is an economic issue. The decisions California makes today will shape the affordability, stability, and resilience of our state for generations to come.