PLATFORM : A Shaky Policy

This situation goes back to Proposition 103 in 1988, which gave an elected insurance commissioner power to cap insurance rates. The Northridge quake triggered the insurance slowdown when losses forced companies to consider raising premiums, which the commissioner would block.

Take Farmers’ experience as an example: Farmers has collected about $450 million in earthquake premiums since it has been in business. Farmers’ quake payouts over the past few years, including Northridge, are more than $3 billion. It doesn’t take a rocket scientist to see that $450 million in premiums can’t pay $3 billion in losses.

The state’s insurance crisis sure isn’t helping economic recovery. What can be done?

Let insurance companies squirrel away 100% of the earthquake premiums they collect, without penalty or tax, to cover future quake claims. Allow insurance companies to pool their resources to pay for The Big One by changing laws that stand in the way of such cooperation. And, of course, abolish the commissioner’s power to fix the price of insurance.