When insurance companies are legally forced to choose between providing insurance at a loss and not providing it at all, they'll predictably choose the latter. I have to wonder: who on earth thought those price-restriction laws were a good idea?
I thought, the way insurance worked was, I take a little money from a lot of people, and when some rare event happens, I pay out that one person whose house burned down. I don't know the math off the top of my head to calculate how likely a lightning strike, or bad wiring or whatever might cause a house to burn down, but I'm sure such tables exist. So I bet every month that no more than one house will burn down. If no houses burn down, I'm in great shape and put that money in the stock market or whatever and get a better return. Maybe I get unlucky and have to rebuild 2 houses.
The sort of sense I get is, the insurance companies can't calculate the probability of catastrophic weather. So there's no way to pick how much to charge for premiums.
I get that it's a continuous curve. But if the cost of the premium is half the cost of rebuilding the house, why buy insurance? If I can squeak by one year without having to rebuild, I should just keep the money and rebuild out of pocket.
Perhaps I'm way way wrong. But insurance is cheap. If it's not cheap, why bother? if it's annually a big chunk of the total value of the asset, is there any point? Why put a $100 lock on a $50 bicycle?
There's always a price where it makes sense to offer insurance. It's possible that nobody wants to pay that price, though.
Like in your example, if the annual premium is half the cost of rebuilding the house, it implies that the insurance company expects the house to get destroyed every 2 years (maybe a bit less because profit & overhead). The rational thing to do there isn't really to bank the premium into your rebuilding fund (unless you're really wealthy and really want to live there), it's to move. Continuing to stay in a house that gets destroyed every 2 years is what we consider an exercise in futility. And that's the situation that climate change puts us in: some areas that were previously populated are economically uninhabitable, because the cost of rebuilding so frequently becomes greater than the benefit of continuing to live there.
The issue with price restrictions is that in some places, the response to "it's becoming more expensive to keep rebuilding and insuring these places" has been "well, there should be a law to limit how much those greedy insurance companies can charge." And the predictable response to that is "if it costs me more in insurance payouts than we can charge in premiums, we are just going to stop doing business in this state." And so even homeowners that would've been willing to pay the higher premiums simply can't get insurance.
I wonder what it take to convince people some of the coast of Florida, much of California and other disaster areas are uninhabitable. I definitely wouldn't want to live in a home that is not insured or have insurance that is exceedingly expensive. Also places in the middle of the desert that are going to literally run out of water.
It'd take their uninsured home getting destroyed when they don't have any money for a replacement. That's usually how market mechanisms work: you can no longer do something when you run out of money for it.
(Also, I'm not convinced that the vast majority of houses in California and Florida are economically uninsurable. There's a wide variety in actual climate risk: houses in the middle of an urban area don't realistically have much more risk from wildfires than they do from an ordinary house fire, while houses in Central Florida are, as another commenter mentioned, much less vulnerable to hurricanes than houses on the coast. As I mentioned to another commenter, the rational response to everyone leaving an area, if it's not actually economically unviable, is to start your own insurance company and fill the void they left. There may be a business opportunity for startup insurers with better risk models than the insurers that are leaving the area.)
> There may be a business opportunity for startup insurers with better risk models than the insurers that are leaving the area.
Insurance is one of the most regulated areas in business, and for good reasons - too many cases of shady or undercapitalized companies going belly-up and leaving the customers stranded, or being outright scams. Besides, even the largest insurance companies don't shoulder all the risk themselves - no company can survive getting hit by a few "century events" in too short order, so they purchase reinsurance, and even if your risk model may be "better", your reinsurance rates will still be based on the classic risk model.
In any case I seriously doubt it that any startup could be a threat to the established giants of the insurance world with hundreds of years of experience in drawing up risk tables - Lloyd’s of London dates back to the 17th century [1] for a reason.
When the house is destroyed, the government must then buy the parcel and lock it up so it’s never developed again. Otherwise, someone else will build and come with their hand out when the next catastrophic event occurs.
I’ve thought that ever since I was a kid reading news reports about the trailer park at the mouth of a local river getting junked every few years when Southern California got more rain than average. Let FEMA help people, sure, but it should be a one-time conversion to national forest not an “act of god” which happens multiple times per decade.
What happens is the insurers are only allowed to insure by large areas (perhaps the entire state) so they normally handle the uninsurable areas by charging insanely high for those places - but that is being prohibited.
So they either need to be allowed to let prices float or declare areas smaller than a state as “unisurable”.
Ah, I could see how this'd lead to market failure. Any info on the specific regulation that's causing this? It's having pretty severe negative impacts on the densely populated urban areas of California to prop up specific parts of the WUI that really should not have people living in them anyway.
I don’t have the direct citations offhand, but I believe it’s a conflux of one law limiting price increases and an entirely separate law prevention something like “location discrimination” which companies like to do if they can to avoid servicing poor and other disprofitable areas.
The problem is that a lot of wealth is tied up in the real estate markets of these areas. If the government were to declare them uninhabitable, it would have to pay out at least some compensation to the owners, and that would be a huge amount of money, politically completely unviable.
Historically it is viable. The trick is to affect a small minority at a time. For example, if you live in a flood zone (and have a federally backed mortgage), you are required to buy flood insurance. Then you can expand the flood zones to include more properties. This scenario is a real example that happened around 2010 or so.
Wouldn't necessarily be the government, it could also be the market. After a disaster came through, you'd likely have a lot of property owners that don't have the money to rebuild their property. It just becomes abandoned land with ruined houses on them, much like large swaths of Detroit or New Orleans.
I was thinking of the Lower 9th Ward, but was going off citations that it was > 50% vacant in 2015. It looks like it was largely rebuilt between 2015-2022.
I spent part of the summer in Fort Myers, where Hurricane Ian destroyed huge portions of the coastal areas and barrier islands (most of Sanibel and Fort Myers Beach). Most of a year later these islands look like a war zone - they're still knocking down buildings and rebuilding miles of structures. If another hurricane hits in the next two years, I just don't see any of those built-up coastal areas being economically viable to rebuild a second time: they will just have to become lightly-inhabited nature preserves. And we're still only halfway through this year's storm season, with huge amounts of energy stored up in record-warm gulf waters.
The convincing will happen by itself. A typical condition for getting a mortgage is to get property insurance, and if getting a new insurance policy issued is not possible, then the property is de facto unsellable to anyone that would require a mortgage.
> insurance companies can't calculate the probability of catastrophic weather
They can. They can also sell the risk through cat bonds and to reïnsurers.
There is concentration risk, in that if you have one hurricane claim you probably have many others. But that isn’t the problem. The problem is the price is too high, but the folks in the disaster zones can’t afford to rebuild on their own.
I would like to add: many owners in the disaster zones can't afford to rebuild even with insurance's help. Due to actual cash value policies with non-recoverable depreciation, homeowners with older homes get much less money back. Add insurance companies intentionally writing poor estimates, code upgrades that aren't covered, and the market inflating due to the large number of projects -- many homeowners can't make it.
A bit of a tangent, but do you happen to know if it's possible to purchase cat bonds as a small investor? I had looked into this a few years ago but never quite got to the bottom of it.
Governments restrict how much insurance companies can increase premiums each year. If they want to increase prices beyond some percent, they need to make a special request, which -- at least in California -- is being denied.
> I thought, the way insurance worked was, I take a little money from a lot of people, and when some rare event happens, I pay out that one person whose house burned down.
Correct. The problem is that instead of one house burning down, a significant percentage of the insured houses are burning down. And the insurance companies are claiming that when that happens, that wipes out all the premiums that have been collected (including from customers whose houses did not burn down) and then some, so it's not financially possible for them to insure all these houses in high-risk areas without eventually having to file for bankruptcy. So they want to raise prices, but the government won't let them.
Natural disasters are especially problematic, because while burglaries and house fires are nicely distributed across time, when the earthquake or hurricane comes, every policy holder in a region makes a claim at the same time.
>I get that it's a continuous curve. But if the cost of the premium is half the cost of rebuilding the house, why buy insurance? If I can squeak by one year without having to rebuild, I should just keep the money and rebuild out of pocket.
>Perhaps I'm way way wrong. But insurance is cheap. If it's not cheap, why bother?
In that specific case it probably wouldn't make sense, but that doesn't mean it happens in real life or it's representative of the typical insurance buyer.
I can see mortgage lenders moving towards a high-resistance model, e.g. only financing homes with tile-only roofs and defensive sprinkler systems in wildfire-risk zones, elevated foundations (or how about tethered houseboats?) in flood-risk zones, etc.
The issue is that if adaptation and resistance strategies end up being required due to climate-related risks, climate denialism ends and there'll be a lot more pressure to replace fossil fuels with renewables.
Mortgage lenders can just start to require yet another insurance, like PMI, but for natural disasters. I have faith in them that they will find a way to bill us.
I'm not convinced a lot of state lawmakers are smart enough to realize this, it's an easy policy to sell to voters, and when insurance companies do pull out, you just frame them as "greedy businesses."
Do insurances actually end up loosing money in the sate of California for example? Or is it a negotiating tactic tp increase rate? So far the statement coming from insurers themselves, and I think the reason why it was denied, is that they refused to share they financial statements proving losses.
If they're smart insurers, they would leave before there are actual losses, because there's a pretty significant lag time between when you write the policy and when the customer makes a claim. By the time there's a major disaster, it's too late: they'll be bankrupt if they didn't collect premiums at a rate that makes the disaster survivable.
If you believe that insurance is still profitable at the rates where other insurers leave the market, the rational response is to start your own insurance company. Run the numbers and prepare a presentation to investors; if your numbers are rational and convincing, you can capture the market for yourself and reap the profits.
I think few insurers can actually do any of that, let alone a new one when the question is larger calamities. They all have to buy from reinsurers which have a lower limit of what they would charge that may be considerably lower than what they are able to charge given how few reinsurers can play with large risks.
For the consumer insurer its more like looking at a commission and guessing whether it will go up again as other market participants decide what to do.
> end up loosing money in the sate of California for example?
the home insurance industry in California changed dramatically with the 2017 summer fire season. The numbers are about "billion" in claims. (edit) substantial destruction of buildings of a major city Santa Rosa. At the same time, price escalation of homes was in full swing. Some houses experience a paper-value growth of more than ten percent a year, on top of high prices. The combination is fatal to the stable insurance industry.
No party is innocent on this.. all players are aggressively padding their positions adversarially, including local government. Less than half the burned homes were rebuilt, four years later IIR.
ps- a recent study claims that about fifteen percent of residential homes are under extreme fire risk in California now, out of maybe 1.5 million structures... roughly, depending on definitions.
None of those houses should be rebuilt, of course. Cities need to retreat from their interface with combustible lands, and keep a large cleared buffer around built-up areas. Sprawling out onto parched hillsides isn't a good idea and I fully approve of insurers dropping those policies.
Some of your other statements are exaggerated. You say a third of Santa Rosa burned in 2017 but it was more like 3% of the dwellings in that city. The Census states that Santa Rosa has gained net dwellings in the last 5 and 10 years, so Santa Rosa is not another Paradise.
"In terms of financial performance, admitted insurers in the Homeowners Multiple Peril
line broke even in terms of combined underwriting profit between 2001 and 2017.
Results for the Fire line were better, with the combined ratio well below 100 percent over
the same period. The industry was profitable when investment returns were considered;
however, insurers’ experience between 2001 and 2017 illustrates how a particularly bad
wildfire season can wipe out many years of underwriting profits."
If you're against insurance company profiting, shouldn't you fix that through payout minimums? Even if they could somehow make money in california as a whole, it still a bad idea because the price limit implies of transfer from people with less risk to people with high risk, effectively subsidizing people to live in high risk areas. Regardless of how you feel about insurance profits, I think you can agree that's a bad idea for society as a whole.
Historically, the rate one paid was related to the risk one was insuring. The alternative is to have those with low risk pay for those with high risk. I would prefer we don’t build I. Places that need to be rebuilt every few years, which you and I are paying for.
> Historically, the rate one paid was related to the risk one was insuring.
And that's still the case today. The rate of change regarding extreme weather events is significantly accelerating due to climate change and unintentional geoengineering [1], humans are ever more and more encroaching on nature, and a lot of infrastructure like power lines is frankly rotting, so it's only a matter of maths that insurers introduce serious rate hikes.
Another part is that insurers try to anticipate future risk increases as well so they can build up reserves for when disaster (inevitably) strikes... and politicians all over the world aren't exactly prioritizing tackling climate change, quite a few openly deny it. So of course insurances have to price in the additional risk coming from the expectation of many more years of inaction making climate change and its impact even worse.
Exactly my point. They can’t reduce their risk at current prices so either raise prices or stop offering products. If can’t raise prices, only the other option remains.
Don't assume insurers are competent. They often sell homeowner's policies entirely online or over the phone without inspecting the property, looking at as-builts, etc.
My renovated up to 2015 earthquake standards house pays the same rate as the 1939 jalopy down the street despite my home having much higher quality electrical (less fire risk) and being built to a stronger standard (less likely to collapse or suffer damage from storms, earthquakes, etc).
Neither private insurance nor the state chartered CA Earthquake Insurance price by actual risk.
Florida and Texas are the same: insurers don't price in hurricane or hail proofing, anti-flooding measures, etc. Hail resistant and wind resistant roofs exist but they'd rather just stop writing policies.
I don't know why things have gone so wrong in recent years. Insurance should be able to drive improvements in construction techniques rather than stopping policy writing. For example: instead of refusing to write policies in wildfire prone areas refuse if the home doesn't have fire-proof roofing and siding, along with a zone clear of combustibles around the house, fire screens on vents, etc. Such measures would allow far more homes to survive wildfires without damage but the insurers aren't interested.
This is the opposite of vehicle insurance where the industry crash tests new vehicles and adjusts premiums for vehicles with better safety ratings.
You fail to account for the cost of accurately underwriting. They can do what you suggest fir cars because it involves testing a few dozen car models. If each car needed to be tested they wouldn’t do it.
The flip side of this is not simply assuming that insurers are stupid. Performing bespoke inspections of houses is an industry onto itself which i also would not rush into. It also doesn’t help you much; if 10% of houses have these countermeasures your regional risk pool will still be vaporized when the other 90% are burned to the ground.
It’s just eventually impossible to insure these assets when these types of super correlated risks become as ubiquitous as they are.
> if 10% of houses have these countermeasures your regional risk pool will still be vaporized when the other 90% are burned to the ground.
I think the GP's point was that the insurers just wouldn't insure the countermeasure-free 90%. Those 10% would be insured, and suffer less or no damage.
Granted, reducing the risk pool to that 10% of homes isn't great either. But presumably at least some of the other 90% would be strongly incentivized to retrofit those fire countermeasures so they could get coverage.
As the sibling reply notes I am proposing the insurer refuse to write new policies or renew existing policies unless the homes are upgraded to meet much more stringent standards. Some examples:
In CA, require an engineer's report on earthquake risk. This could be done by issuing a standard form for the engineer to review with various areas of concern to avoid the need to have a bespoke report for each case. We managed to do lots of amazing things (invent computers, land on the moon)... I'm sure we could streamline this process. A lot of it is a decision tree: Is this slab, half-wall, or pier/beam construction? Half-wall: are the half-walls braced with plywood? Slab? Are shear walls built to X standard present along all major axis of the structure? Is any soft-story/garage area reinforced with footings and a beam meeting X standard?
In Hurricane-prone areas: require storm shutters on windows, cat-5 rated doors, and cat-5 rated roofing materials. Also require the home be a certain height above the relevant water level. Yes this means a home built on the beach or on a river bank would need to be raised if they want a policy (which is not as impossible or expensive as it sounds). Sucks that the original builder made bad decisions but requiring corrective action would dramatically reduce (if not eliminate) the risk of water damage.
Anytime a home doesn't meet these standards the premium should jump dramatically. If the state won't allow that then you don't write the policy until the structure is retrofitted to meet the standard. This would reward people who invest in renovations to make their homes safer, more accurately price risk, and avoid pulling out of the market entirely - instead sending accurate price/risk signals (where regulations allow such accurate pricing).
> Hail resistant and wind resistant roofs exist but they'd rather just stop writing policies.
Note that the insurance folks have developed an entire system of how roofs (and entire residential, multi-family, commercial structures) should be built:
> Florida and Texas are the same: insurers don't price in hurricane or hail proofing, anti-flooding measures, etc. Hail resistant and wind resistant roofs exist but they'd rather just stop writing policies.
This is not true. You get significant policy discounts by upgrading older homes such as strengthening the roof connection to walls, impact rated doors/glass, roof age (and type).
These discounts can reduce annual premiums by a non trivial amount - first hand knowledge of 30%.
Since Andrew the Miami-Dade building codes have set a new standard for construction and this is reflected in policy pricing.
They do understand this. It's typically politically infeasible to set rates appropriately - risk is often correlated with income, which is correlated with skin color. So a concentrated risk in an area makes the whole area uninsurable, unless you want to be called racist.
If hurricane insurance becomes impossible to acquire for a region, will banks stop giving out mortgages because they require homeowner's insurance in order to lend?
Are banks legally required to offer mortgages to suitable candidates, regardless of region?
I would prefer that my bank, my insurance company, and the government duke it out amongst themselves, and not involve me.
Central FL doesn't see nearly as much hurricane damage as the coast, but we are also being subjected to increased premiums.
Ideally the system isn’t propped up by tax dollars. Previously lucrative regions becoming financially uninhabitable is probably the one thing nobody can ignore.
It’s what I like about the insurance industry: it cares not for opinions and moods and politics because it is betting with cash. No amount of climate denial changes the math on a bad deal.
I fear the end result of this is going to be federal bailouts of state insurance programs, which means that money will get politicized and used to further someones agenda as a means to passing.
I often wonder how far away we are from funding being withheld from states with bad public policy as perceived by the party in power. It sets dangerous precedents of coupling human suffering to policy maneuvers (which I realize, happens even today, but in broader strokes NY gets hurricane assistance same as Florida. Imagine a scenario where Florida's general public is punished because of laws on their books, or New York public is punished because of policies it has etc.)
> I often wonder how far away we are from funding being withheld from states with bad public policy as perceived by the party in power. It sets dangerous precedents of coupling human suffering to policy maneuvers
This has been going on for many years. From GOP states refusing to accept expanded Obamacare grants, thereby restricting access to healthcare for the poor to refusing to extend 9/11 first responder healthcare until people like Jon Stewart got involved, oppression and cruelty has been used as leverage in policymaking going back to the founding of the US.
> I fear the end result of this is going to be federal bailouts of state insurance programs, which means that money will get politicized and used to further someones agenda as a means to passing.
A subsidy for building houses in areas where they are likely to be struck by natural disasters (flooding in Florida, earthquakes in California) does not strike me as sensible.
They aren't in business to give away money. Insurance is all about paying to mitigate risk. If the risk of loss increases or becomes too hard to predict, insurance will get more expensive or simply not be offered.
There's no inherent reason it must be a profit-making business. Organizeing as a cooperative, mutual insurance is also an option. Granted that any version still must set rates that cover expected payouts.
> no inherent reason it must be a profit-making business
Insurance is an extremely demanding business. This isn’t something you can throw commodity drones at. If you’re willing to create a coöperative job that pays millions to its actuaries and risk managers, fine. Most don’t. Hence why a profit-based model works: it can incentivise the people that are needed for it to work in the long run to do the job. (In the short run, anyone can run a sloppy insurance operation.)
One interesting experiment in this area is the Canadian Province of Saskatchewan, where the government has run a break even auto and property insurance organization since 1945. It does not receive money from the tax payers and is completely self sustaining:
Aside from being non-profit, an additional benefit that makes this model more cost effective is that you don't have insurance companies suing each other because everyone has the same insurance company.
As a homeowner in Southern California, this type of policy (not necessarily driven by climate) directly negatively affects me due to the risk of fires and earthquakes. However, I don’t think there’s a great solution. The basic problem is that natural disasters represent a correlated risk. Insurance pools only seem to make sense for uncorrelated risks such as house fires or pipe bursts or whatever, where the high individual cost of many relatively independent unlikely events can be smoothed out into a low guaranteed cost.
Perhaps a sufficiently large insurer could dilute the risk of an earthquake destroying a large percentage of homes in Los Angeles by also covering large swaths of other high-risk parts of the country or world.
> Perhaps a sufficiently large insurer could dilute the risk of an earthquake destroying a large percentage of homes in Los Angeles by also covering large swaths of other high-risk parts of the country or world.
Okay, then I suppose no one wants to reinsure the California Earthquake Authority as their condo unit policy only covers up to $100k and everyone else seems to flat out refuse earthquake coverage for a large building.
> Perhaps a sufficiently large insurer could dilute the risk of an earthquake destroying a large percentage of homes in Los Angeles by also covering large swaths of other high-risk parts of the country or world.
At a certain point, this is just all taxpayers as a whole.
Exactly, and we frequently see Federal Aid in lots of big disasters. Eventually, the government will be the only insurance organization that covers the catastrophic events where we really need insurance the most, and then we can stop pretending that private for-profit insurance is something that our society wants. The government is already the "insurance" for so many different types of things that we should just lean into it 100%.
> Perhaps a sufficiently large insurer could dilute the risk of an earthquake destroying a large percentage of homes in Los Angeles by also covering large swaths of other high-risk parts of the country or world.
Yes, I believe that's one the reasons reinsurance exists.
As anti-human as this makes me sound, this does make me personally understand why eyes and teeth are not covered on my health insurance. I can't take a claim out on my car's tires getting used up over 100,000 miles, either.
>As anti-human as this makes me sound, this does make me personally understand why eyes and teeth are not covered on my health insurance.
This doesn't make any sense. You can rack up way more expensive charges/procedures on the rest of your body (eg. triple bypass or hip replacement) than your eye or teeth ever could.
It's not quite that simple. Insurance is a financial product and social construct. It depends on market conditions and supply and demand as much as pure actuarial risk. The scientific consensus is that disastrous climate change happens over generations. They project out to 2100. What used to be a 100 year storm (1% probability per annum) might now have 3% probability per year due to rising ocean levels, and warmer oceans providing more energy. https://www.pbs.org/newshour/show/how-climate-change-is-load....
In Florida the biggest factor in the market death spiral is actually excessive litigation not hurricanes. Regulations require insurers to pay to replace a damaged roof not pay for the depreciated value. Florida customers file 80% of the insurance lawsuits in the whole country but they are obviously not 80% of the customers. https://www.insurancejournal.com/news/southeast/2021/04/14/6.... Roofers who chase storms will sell customers on signing over assignment of benefits to them and they will file the lawsuit for them.
The recent rise in interest rates has made insurance a less attractive capital sink. Why buy a disaster bond or invest in reinsurance when sovereign or investment grade corporate bonds yield 5%? Over long periods of time return on equity must keep up with interest rates. The trickles down to reinsurance costs for insurers and finally higher premiums and pickier underwriting for you and I. In a previous insurance market cycle a bad year of storms ironically was followed by lower reinsurance prices. Why? Because interest rates were low and there was strong competition between reinsurers.
"they think this move will be profitable and that is independent from whether climate change is real"
Exactly. It provides excellent coverage for their moves since anyone daring to question climate change is a heretic worthy of being burned at the stake.
The problem with your supposed argument is that just because companies don't want to insure against eventd of type Y because they think they're likely or costly does not mean that they're caused by reason X.
Your argument is, on logical merits, not good enough to create a causation between, what I presume is "human influenced global warming increase" and "natural disaster increase".
Now I realize this being a politically charged topic that people look at in an absolutist way, a response that looks only at the logical proposition of your comment, might not be well received.
If $bad_thing happens more often, that doesn't mean it stops being insurable. It just means the rates go up.
Things become uninsurable when either they're unpredictable in aggregate (I can't predict when your house will catch fire from leaving the stove on, but a decent actuary can say how many houses that will happen to next year), or when the government sets price controls to forbid them charging high enough rates.
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"More fires" does not prevent fire insurance, unless the government imposes price controls. "Fewer bigger fires" might, since they'd be harder to average out.
Insurance firms are one of the few capitalistic entities that have a financial incentive to invest deep budgets finding and highlighting unpleasant empirical facts, rather than burying them.
This is secondhand. I have been told property insurance experts lean semi-conservative politically but almost all of them firmly believe not only climate change is real, but incoming catastrophe.
Not...really. Take PBM. (Pharmacy Benefits Management).
Money is "found" in not paying out claims, or chasing the "cheapest to the company" treatment while passing on the more burdensome long term maintenance costs to consumers.
Insurers can be a positive surfacer of unpleasantness. Not before much more unpleasantness is waded through however. See Cigna getting dinged for using an algorithm that 100% rejected first encountered prior auth claims rather than processing them in good faith.
Skeptic here. I don't deny that the climate is changing. It always has been. However the notion that all of this is based on human activity is not something I subscribe to. Climate change and the green initiatives have become a sort of religion which and a great way for certain people in power to drive their own business interests.
There have been extreme weather cycles in the past and in some areas we had a period of calm for a number of years. In addition to that we had a period of cheap money and other factors that lead to development in areas that have a much higher likelihood of having a natural disaster destroy it over longer periods of time. Government natural disaster assistance for damage to these areas made it worse because there was not incentive to NOT develop homes in areas prone to issues or to take necessary precautions to adequately construct homes to be able to sustain the forces of a disaster.
Now that we are in a cycle where there are more events, the actuarials are looking at the tables and determining that the risk it too high to insure based on current trends. Climate change is just the current in vogue cause so the insurance companies can use it for PR cover. "It's not our fault we can no longer insure your house.....climate change!"
It's tough to say what the effect is. The science has been corrupted by political interests instead of an actual scientific discovery. The overblown histrionic predictions of doom from the activists/climate change believers does not help to give credibility of any effects that climate change may actually be having.
Back in the 70s and 80s they were predicting an ice age by the early 2000's. That of course extreme scenario also did not occur. Once I started to understand what was happening to scientific research, the special interests, corporate and political interests on both sides of this equation an extreme view on either side naturally sets off my internal BS meter.
As someone who works daily with climate scientists making models that are actually used by people looking to turn a profit, if you actually believe there was a scientific consensus in the 80s about an ice age coming then you’re not researching actual science; you’re researching pop culture.
There's certainly less effort to fight wild fires this season. I know several helicopter pilots who say they have to get approval for each bucket drop where before they just flew agreed on hours. They say it's a joke, completely budget driven. They'd have several fires they worked on out sooner if they were not subject to this. On the ground it's the same, extreme focus on safety, not working over time, not using quads, heli attack crews cancelled. Only getting intense when it gets close to structures.
So you get record fires here in Canada. Lowest area burned in USA in decades.
Politicians save budget, don't get called to account because of course it's climate change.
Bringing in the insurance angle, they are suffering more losses, the areas are built up more in fire prone forested land, houses are more expensive and there is less labour to fight fire. Poor history of fuel management too. So they are raising rates and I don't blame them. It's easy to just say climate change. Maybe it's a way to appropriate the land back to the elites.
After having had a home flood and another burn, and being refused a claim in each case (the flood was caused by a river, and so isn’t covered, and the fire was a wildfire, and also isn’t covered - only fires starting in the property are covered - same for our truck that was incinerated), I no longer bother with home or vehicle insurance - if they don’t pay out, there’s no point in having it. Come to think of it the only insurance claim I ever had pay out was when I deliberately set out to defraud an insurer. Never have they paid out in a situation where it would have been helpful.
I would wager others will follow the same way, once they realise their policies are just a tax that they get no benefit from, and then insurers will have to come up with some new racket to defraud marks.
That's not really an option for almost anyone with a mortgage on a home -- the lender will require home insurance with themselves listed as the primary payee.
Same with an auto loan for most lenders (Lightspeed being one of the abnormal ones that doesn't hold the title to the vehicle as collateral).
Sure, but if the lenders find themselves out of pocket because insurers repeatedly refuse to pay, they will change behaviour too - such as by no longer lending.
Also, no such requirement in the U.K. - 3rd party vehicle insurance is mandatory, but home insurance is up to you - no lender I’ve ever had has mandated it.
The article isn't a WaPo assessment of the causes of the increases - it's relaying statements and changes made by participating insurance carriers.
"At least five large U.S. property insurers...have told regulators that extreme weather patterns caused by climate change have led them to stop writing coverages in some regions."
And cherry picks data starting at 2013. I was curious about pre 2013 and it seems i was right to be skeptical. The 2013 to 2016 period just had unusually low losses.
In their defense 10 years is a nice round number. Also, the text surrounding the chart says
>“There’s no place to hide from these severe natural disasters,” said David Sampson, president of the American Property Casualty Insurance Association. “They’re happening all over the country and so insurers are having to relook at their risk concentration.”
>That trend is too costly, insurers contend, and necessitates rewriting policies or eliminating coverages in growing geographic areas.
If change the window from 10 years to 15 or 20 years, the general impression is still the same: insurance losses are trending up, and the last few years are consistently high (as opposed to having one or two years of high payouts followed by periods of low payouts).
Except, that's now how random systems work: you don't get one high value, then some low values, then a value value. Try flipping a coin many times: if you do it enough times, you'll get 5 heads in a row due to chance. The same is true for random weather events. If you look at this graph going back further, you'll see high losses in previous years:
Certainly this graph is trending higher from the 1970s, but is that due to more real estate with a higher valuation? And how much insurance premiums were collected?
I think there is some assumption that insurers are acting in good faith.
> Major insurers say they will cut out damage caused by hurricanes, wind and hail from policies underwriting property along coastlines and in wildfire country, [..]
Hurricanes and wild fires have not significantly increased due to climate change. This just allows insurers to arbitrarily refuse to deal with insurance payouts, especially those of large scale. This is essentially another "act of god" get-out clause.
Given that banks need insurance to protect their investment, this will likely just kill the possibility of owning a home for the least wealthy. Some big player such as banks will come in and buy lots of cheap property, then suddenly insurance will cover these 'high risk' areas again and rent them back to the people who lost their homes.
An unfortunate situation for those in need of housing and those housed who are in need - such policy coverage is a requirement for mortgages (and reverse mortgages), at least in Florida.
At what point do state-run insurance plans like California's for earthquakes make sense to expand to just ask housing insurance as big insurers like State Farm pull out of the state?
I am not familiar with state-run insurance plans but I would be worried if it was ran as a potential form of taxation/revenue for the state government, because then homeowners would be subject to the whims of the current dominating political party without the mechanism of free market competition to lower the cost of insurance. I would want it to be run "at cost" as much as possible.
Edit: To be clear, what I am saying is that the stockpile formed from insurance premiums should not be accessible to other causes (even during emergencies unrelated to homes). I'm fine with tax revenue topping off insurance, but never insurance money being redirected to another budget.
Open to correction if I'm wrong, but from the examples I'm aware of (e.g. federal flood insurance) when insurance is run by the government it's always underpriced, then topped up behind the scenes from general taxes.
People tend to gripe less about an extra few dollars in taxes (which aren't line itemed), but more if the price of their insurance premium ever goes up (which they do see a separate line item for).
Insurance isn’t run “at cost” it’s run for profit. Insurers are leaving because there isn’t enough profit, and State insurance cuts out the profit part. It’s also more trustworthy, there are many low cost insurers in Florida that just completely screwed their customers. A disaster hit and they just refuse to pay:
You might be correct, but that article doesn't support your claim. The article says 86% of claims were closed, of that 86%, 70% received payment, 30% were closed without payment. Maybe that 30% were screwed, maybe they weren't actually covered, maybe they were below their deductible. The article doesn't have an answer.
Experience shows that of those closed-without-payment, some kind of get-out-clause will have been invoked by the insurer - but it’s all above-board and legal, but is it right?
In British Columbia automobile insurance is legally only available from the government ICBC, and ICBC had 800 million in the bank so the government took it and at the same time changed a recently constructed toll bridge to be free, essentially buying the votes of everyone who uses the bridge at the expense of everyone who pays automobile insurance.
When the market wants nothing to do with offering the product, there can be no free market competition. Not that most insurance is operating in anything remotely close to a free market to begin with.
Provincially run insurance and utilities traditionally keeps prices in check.
Notably, when provincially run insurance and utilities have sold to private interests, the results have always been the same, even recent examples across Canada:
Service gets worse (extremely worse/completely inaccessible if you’re rural), AND costs to consumers double after 3 years, then continue to rise astronomically for several years following.
This, 100% of the time, is followed up by rural people that voted for this scenario to occur complaining that big city politicians fucked them again.
I wonder what the risk profile looks like for CA earthquake insurance. Earthquake damage is semi-isolated to areas close to the epicenter or built on landfill, major earthquakes are rare, but I could see 5-10% of policies making claims when there is a major earthquake.
It’s possible to build such that earthquakes aren’t that big of a deal, see Japan.
I don’t think it’s possible to build something resilient that’s consistently flooded with salt water. Unless it’s a boat. And those cost a lot to maintain.
It always did seem curious that people who believed heavily in climate risk never seem to put their money where their mouth is when it comes to Waterfront property. If you believed there was a serious risk of sea levels rising you wouldn't spend millions on a house with a waterfront view below sea level
If banks believed there was a serious risk of sea levels rising they would put a discount instead of a premium on waterfront property. But I still cannot find any discount property that is discounted because it's next to the ocean
> But I still cannot find any discount property that is discounted because it's next to the ocean
Sea levels are expected to rise about a foot in the next 30 years, which will impair some coastal property but not all (much worse on the east coast than the west).
It's much worse on a 60-100 year timeframe. If a discount were being applied, you'd expect most of the reduction in value to be 50 years out. The present values of enjoyment over the next 50 years could far exceed those residual values, and so it could be hard to observe any discount that is present. E.g. even if future sea level rise lops 10% off the value, other factors could add more in the short term.
There's no discount because the vast majority of oceanfront property won't be seriously impacted for more than 50 years. So youre not finding what you're looking for because there is no rational reason for it to exists.
30 year mortgages are standard in the US. If the bank thought that in 28 years the house would be a foot underwater they wouldn't agree to a 30 year mortgage. 30 years or 50 years depends on which projections you are listening to
>If banks believed there was a serious risk of sea levels rising they would put a discount instead of a premium on waterfront property
Banks aren't the ones setting prices on properties. And no one should base anything on the actions of banks because financial institutions generally know to basically sell off the risk as soon as possible (although that can come back to bite them as it did with the subprime thing, where they sold it off, but then many of them made bets on those risks). Their window of exposure is generally extremely small, and they'll keep dancing as long as the music keeps playing.
Further markets are irrational, and always have been. Even if you are absolutely certain that Miami is going to be devastated by climate change, for instance, you might still buy an overpriced oceanfront mansion because you know that you'll be able to find either a sucker or someone with the same assessment when the time comes.
If you have millions to spend on property, you may have millions to throw away. Elon Musk wasted billions on Twitter, so it’s no surprise that smaller wealth might be willing to waste a few million on a house.
Nationwide recently said they will no longer provide plans in coastal regions, excluding many of the population centers of the US. They should be required to either cover everyone or no one, just like health insurers supposedly do.
Gonna disagree here. At some point, people have to do the same due diligence the insurance companies have done. Anyone building a sea level house in the keys shouldn't be surprised that insurance won't cover them. And no company should have to..
They probably want to move in the direction of health insurance - which is to basically take on no risk, have the state mandate you have it anyway, and charge you a lot of money for almost nothing.
