Insurance Gerrymandering: The "La La Land" Tax Hitting Many Americans

In the world of policy, there is a recurring pattern where a small group of influential leaders—the "Anointed"—decide that their personal vision for society is more important than the hard facts of the market. They don't see themselves as politicians; they see themselves as rescuers. Their vision is simple: "We can make dangerous places feel safe by making them artificially cheap to live in."

But in economics, there is no such thing as a free lunch. When the Anointed decide to ignore the real cost of living in a wildfire zone or a hurricane path, they don't actually make the risk go away—they just find a way to make someone else pay for it.

Whether you live in Virginia, Ohio, Indiana, Tennessee, or any of the many other states with moderate environmental risk and moderate consumer regulation, you need to realize that you are the one currently paying for that vision. You are living in a place where the rules generally reflect reality, yet because of how the insurance market has been distorted, you are being forced to subsidize a "La La Land" lifestyle for people in much riskier states.

About the author:  Jeff leads Personal Finance Reimagined, a decision-making and financial education organization. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions.

Jeff is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM.

The "La La Land" League: Markets vs. Hubris

California is the current poster child for this challenge, but it has plenty of company. Florida, Texas, and Louisiana are all playing the same game. These states have created state-backed insurance pools—like California’s FAIR Plan or Florida’s "Citizens" insurance—designed to provide coverage in areas where private companies have rightfully fled.

Why did the companies flee? It’s basic math: they can no longer collect enough premiums to cover the peril risk inherent in these locations. In response, the "Anointed" in these states cite "market failure" as their justification for intervention. They claim the private sector is broken, using this as a pretext to actively suppress prices. They tell their voters, "We won’t let the big insurance companies hike your rates."

This is the height of political hubris and political theater. To claim the market has "failed" because it refuses to ignore environmental costs is a fundamental misunderstanding of how markets operate and their role as a feedback loop. It is akin to a person spending all day in the blazing sun without protection, getting a severe sunburn, and then blaming a "sun failure" for the pain. Instead of admitting they should have worn sunscreen or moved to the shade, they demand the government "fix" the sun.

In reality, the market isn't failing; it is speaking. It is signaling that certain areas are too dangerous to inhabit at the current price. By imposing a rate ceiling, the Anointed aren't solving a problem; they are muffling the alarm.

For the insurance business to work, insurers must be able to collect enough premiums to cover the insured risks. This artificial price suppression acts exactly like a tariff: it creates a massive national distortion that benefits a few high-risk homeowners at the expense of the many responsible ones. It is a "La La Land" policy that forces the rest of the country to pay for the "sun tan lotion" of those who refuse to move out of the heat.

The Mechanism: Re-insurance and "Insurance Gerrymandering"

You might wonder how a fire in a California canyon affects your mortgage payment in a stable, moderate-risk state like Ohio. The answer lies in re-insurance and a tactic that functions much like "Insurance Gerrymandering."

Insurance companies don't just "absorb" losses; they buy their own insurance to protect themselves from catastrophes. This is called re-insurance. It is a global financial network where massive companies provide a backstop for your insurance carrier. When the Anointed in high-risk states refuse to let companies price risk accurately at the local level, those companies still have to pay massive claims when disaster strikes. To stay in business, they turn to the global re-insurance market. Because the risk in "La La Land" hasn't been priced correctly for the people living there, global re-insurance rates skyrocket for everyone to cover the shortfall.

But it goes deeper. National carriers often engage in a form of "Insurance Gerrymandering" to hide these subsidies. Just as politicians redraw voting districts to dilute your voice, insurance companies redraw "risk pools" to dilute your savings.

While insurance companies often claim these price hikes are simply due to "diversification" or "global climate change," the data tells a different story. A 2024 study by the Federal Reserve Board provides the "smoking gun" for insurance gerrymandering.

The study found that when "La La Land" states use aggressive regulation to cap insurance prices below the actual cost of risk, insurance companies don't just eat the loss. Instead, they shift the burden. The Fed researchers documented that insurers increase premiums in "low-friction" states—places like Virginia, Ohio, and Indiana—to offset the losses they are forced to take in high-risk, highly regulated states.

In short, your higher premium isn't just a reflection of your risk; it is a documented cross-subsidy used to balance the books of national carriers. As the Fed study notes, this creates a massive "geographic redistribution of wealth" from the responsible to the subsidized.

Keep in mind, "cross-subsidization"—the technical term for Insurance Gerrymandering—is generally restricted by state laws that require rates to be based on local risk. In a perfect world, your premium should only reflect your likelihood of a claim.

The Addiction to the Tax Base

Why do politicians in these high-risk states fight so hard to hide these costs? It isn’t just about "compassion"; it’s about protecting their own revenue streams. Local governments in these states are addicted to the property tax base. If insurance were allowed to reflect the actual risk—the "Red Pill" reality—home values in those dangerous areas would drop significantly as the cost of ownership rose.

When home values drop, property tax revenue vanishes. And when the revenue vanishes, the politicians can no longer afford the expansive social programs, the massive bureaucracies, and the salaries they’ve grown accustomed to. Their incentives favor keeping the "La La Land" vision alive because the alternative is a budget crisis that starts in their own office.

The Sam Kinison Fix

The late comedian Sam Kinison had a famous bit where he screamed at people starving in a desert: "You live in a desert! Move to where the food is!" Today, we need to apply that same blunt honesty to homeownership and insurance. Move to where the fire breaks—and the high ground—are!

It is not "extreme" to suggest that people should move. Our country was built on the idea of moving toward opportunity and safety. If a home is in a high-risk area, the most honest thing a government can do is let the price of insurance tell the truth.

If the truth is that the home is too dangerous to protect, the solution is to allow that family to see the real cost so they can choose to move to a safer, more affordable area—rather than taking money from the rest of America to keep that family in the path of a wildfire.

What You Can Do: Vote with Your Feet

If you are living in a state that still deals in reality, you are the one being taken for a ride. You are the responsible citizen paying for the "Anointed" vision. Here is your playbook:

• Stop being a passive payer: Don’t just accept your annual insurance hike. Shop your policy every single year. Force the market to recognize that you live in a moderate-risk environment and refuse to pay the "La La Land" surcharge. There are regional insurance carriers that intentionally avoid exposure to high-risk, "high-friction" states.

• Recognize the reality: Understand that the price of your insurance is being disconnected from your local risk by re-insurance costs and "gerrymandered" pools driven by political decisions in distant states.

• Vote with your feet: If your own local leaders start talking about "subsidizing" high-risk development or "capping" premiums in a way that hides risk, recognize it for what it is—a raid on the wallet of all Americans. It is bad economics.

The U-Hauls are coming. You can either be the one driving toward a more rational, secure life, or you can stay behind and keep paying the bill for a vision that was never meant to work.

Resources for the Curious

1. The Vision of the Anointed by Thomas Sowell

The philosophical backbone of this discussion. Sowell critiques how a self-selected elite—the "Anointed"—champion policies based on "good intentions" while remaining insulated from the disastrous real-world consequences. It explains why leaders double down on failing insurance models: because their "vision" is more important than the empirical evidence that it is failing.

Citation: Sowell, Thomas. The Vision of the Anointed: Self-congratulation as a Basis for Social Policy. New York: BasicBooks, 1995.

2. Pricing of Climate Risk Insurance (Federal Reserve Board)

The "smoking gun" for the insurance gerrymandering argument. This 2024 working paper demonstrates how insurers in "high friction" states (like California) are unable to raise rates enough to cover losses, leading them to quietly hike premiums in "low friction" states (like Virginia or Ohio) to balance their books.

Citation: Kruttli, Mathias S., Brigitte Roth Tran, and Sumudu W. Watugala. "Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies." Finance and Economics Discussion Series 2022-064. Washington: Board of Governors of the Federal Reserve System, 2024.

3. Wildfire and Insurance (Headwaters Economics)

A data-driven look at the "Cascading Crisis." This report details how state-mandated "FAIR" plans inadvertently encourage development in high-risk zones, further inflating the national re-insurance costs that eventually hit your doorstep.

Citation: Barrett, Kimiko, and Lisa Dale. Wildfire and Insurance: Options for Homeowner Coverage. Bozeman, MT: Headwaters Economics, 2025.

4. Facts + Statistics: Insurers of Last Resort (III.org)

The raw numbers behind the shell game. The Insurance Information Institute provides comprehensive data on the explosive growth of state-backed plans. Seeing the sheer billions in "unpriced risk" held by these entities makes the need for the "Sam Kinison Fix" (moving to where the safety is) much more urgent.

Citation: Insurance Information Institute. "Facts + Statistics: Insurance Floridas Citizens and Californias FAIR Plan." Accessed February 24, 2026.

5. Understanding Disaster Insurance by Carolyn Kousky

Dr. Kousky explains the re-insurance layer of the shell game. Her work provides a clear-eyed look at how the global "backstop" for insurance works and why the current system of "blended" national risk is becoming a ticking financial time bomb for the average American.

Citation: Kousky, Carolyn. Understanding Disaster Insurance: New Tools for a More Resilient Future. Washington, DC: Island Press, 2022.