Insurance is meant to protect people when disasters happen. It’s supposed to help families rebuild and prevent financial ruin after events like fires or hurricanes. Insurance has shifted towards making profit, often at the cost of those it’s meant to protect. State Farm, California’s biggest home insurer, is a good example of this. The company recently asked for a 30% rate hike for homeowners’ insurance, claiming it needs the extra money to stay financially stable. Yet, a closer look shows that this financial “need” might be a result of choices that put profit before policyholders.
State Farm has been purchasing reinsurance, which is supposed to help protect the company from massive losses in case of a disaster, from its own parent company, State Farm Mutual Automobile Insurance Co., rather than from independent companies. Typically, reinsurance helps spread risk so that one company doesn’t carry all the burden when something big happens, like California’s major wildfires. However, instead of getting a fair return on this reinsurance investment, State Farm General allegedly only recovered about 20 cents on every dollar spent on reinsurance from its own parent company. This setup raises concerns about whether State Farm is really trying to protect its policyholders or simply boosting profits within its own corporate structure.
State Farm isn’t the only insurer raising rates or limiting policies, especially in wildfire-prone areas, but the way it handles reinsurance is unique. Other companies that used external providers received better returns on their reinsurance investments, which helped them cover claims and protected their policyholders more effectively. State Farm’s practice of keeping these costs within its own “family” of companies means customers end up paying more without getting the full benefits they’re promised. While California’s insurance regulators recently approved reforms to help stabilize the market, if companies use these rules just to make more money, it’s the customers who suffer.
Nationalizing insurance could change this by making it a system that focuses on helping people instead of making profits. A national insurance program would allow reinsurance costs to be managed in a way that’s fair and transparent. Instead of each company charging high rates to cover their own costs, a national program could set fair prices and remove the incentive for companies to pass down extra costs to customers. Without the push for profit, rates would be based on actual risks and needs, not on how much money a company wants to make.
The State Farm example shows how private insurance companies, when focused on profit, might charge people more without fully protecting them. With a national system, funds could go directly to helping people recover from disasters instead of lining corporate pockets. Insurance would finally become what it was meant to be: a safety net that helps people rebuild, not a way to make money off people’s hardships.
