Q&A with Dave Jones
Former California insurance commissioner weighs in on a federal backstop for property market climate woes.
From January 2011 to January 2019, Dave Jones led the California Department of Insurance, the largest consumer protection and regulatory agency in the state, overseeing 1,300 employees.
If his name sounds familiar, it might be because he was a go-to expert source during the height of the wildfires in California, explaining the nuances of property insurance, reinsurance, and insurance regulation to readers and viewers of The New York Times, MSNBC, The Wall Street Journal, Los Angeles Times, and Newsweek, among many others news sources.
Presently the director of the Climate Risk Initiative at UC Berkeley Law, Jones sat down to discuss property insurance affordability. The following Q&A has been edited for clarity and concision.
Q
What role does climate change play in today’s property insurance affordability problems for small businesses and homeowners?
A
In addressing wildfires and other natural disasters like hurricanes, tornadoes, and so on, the focus should be on the cause and not the symptoms. There is no way we can regulate or deregulate our way out of this problem. We must transition faster away from fossil fuels and greenhouse gases and get out from under [the political pressure] of the fossil fuel industry. They know that burning their products contributes to climate change, creating higher temperatures and dry conditions that fuel fires. One idea I proposed to The New York Times is to hold them accountable for the massive costs [of natural disasters]. I think that insurers and affected homeowners and businesses should sue them for their share of the aggregate bill.
Q
As you know, reinsurance rates continue to go up for catastrophic losses sustained by private insurers, even in states that have substantially deregulated their insurance markets. Consequently, private insurers in California and across the country are writing less property insurance and non-renewing policies in risky areas. Has the time come for some sort of federal intervention?
A
I’ve gone on record of supporting the concept of a federal reinsurance program for state FAIR Plans, helping to shore them up as more people and businesses populate this market of last resort. There are 35 states that have FAIR plans, in both red and blue states. A federal reinsurance program would reduce the cost of purchasing private reinsurance for the plans, helping reduce FAIR Plan costs to reduce the amount of needed rate increases as catastrophes worsen. The likelihood the plans would need to assess private insurers when claims exceed reserves would lessen. In turn, that should reduce the issues compelling insurers to non-renew policies or to decline to write them at all.
Q
The insurance industry is not a fan of federal insurance or reinsurance programs, pointing to taxpayer bailouts of the federal flood insurance program over the years.
A
We can avoid the problems confronting the flood program by creating a federal reinsurance program that does not seek to make profits. While U.S. taxpayers would fund the program’s reserves, the goal is to offer reinsurance at a lower price than private reinsurers, with better terms like lower attachment points and more coverage that reinsurers are willing to take on at the moment. We can’t sit still and think we can simply rate-increase our way out of the climate crisis.
Q
You’ve also said that we are marching toward an uninsurable future in this country and across the globe. What can homeowners do now to forestall this possibility?
A
Assuming they have the financial means, they can fortify or harden their homes against wildfire and hurricane risks. We know that mitigation works. Creating defensible space, landscape management, non-combustible siding, tempered glass windows, and other ways of home hardening that emphasize resilience against potential hazards are effective deterrents of damage. The problem is that you can meet the Fortress Home standards in a state to make your home survivable from hurricanes, but the insurance industry doesn’t recognize that.
State legislatures need to stand up to the industry and require their [underwriting] models to account for mitigation and the money spent [by homeowners].
Q
There is increasing evidence that many economically disadvantaged homeowners across the country are either going bare, without insurance, or buying minimum coverage, due to higher premiums and the cost of other household necessities in a time of high inflation. Aside from a federal reinsurance mechanism to promote lower reinsurance costs for insurers that pass the savings on to consumers, how can we slow the rising tides of underinsurance and uninsurance?
A
I appreciate that there are many lower income people getting slammed with rising insurance costs, but forgoing insurance is not a solution. It is absolutely essential that people who own homes buy property insurance. If you can’t get private insurance, you will end up in the FAIR Plan in the 35 states that have them, which will cost more for less [coverage]. [The Federal Emergency Management Agency] is not going to rebuild your home; the federal government doesn’t help people cover the cost. You need insurance to do that. If you have a mortgage lender and stop buying insurance, the lender will force place the coverage, costing even more. You simply cannot go bare, or you risk losing everything.
