California E&S Insurance

So, insurance works because they pay actuaries to calculate the risk for all policies needing to actually be paid out, then the actuaries calculate what premiums need to be for a policy given the expected payout for that property, etc etc. This way, the company is expected to come out positive after paying out all the money given the expected amount of insured properties are destroyed in a given time period. In mass disaster zones (California burning yearly, Florida being a bowling alley for hurricanes), the necessary premium is too high for consumers to bear. They're uninsurable, so the state gives fake insurance policies. They pay out to replace losses (which is good), but the premiums are subsidized to keep them affordable (which is bad) because it has some undesirable market effects. State insurance schemes subsidize building homes in risky areas because people aren't paying the full premium to cover the expected payouts. It's been distorting risk perceptions for homebuyers, and it has also discouraged developers and city planners from taking natural disaster risk into account when planning developments, which just makes everything worse by causing risk to rise further. I don't think it's necessarily "wrong," but it's definitely been skewing market dynamics in a way that encourages upping risks, which means the costs of these schemes keep going up and up. They're not a long-term fix for uninsurable property with climate change.

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