But on the other hand, because state regulators are slow to react or adapt to changing circumstances, they essentially freeze the market and the parameters allowed for sales of insurance in the past, for circumstances that may no longer exist.
So, new risks and willingness to insure are not accounted for, and companies no longer find it profitable to do business with rules of the past, in the present.
One factor listed: post earthquake fires.
California has "fire season," not a season I ever wanted in my life. I wonder how much this is actually kind of an issue of global warming without being called that. My understanding is fires are getting worse on the west coast thanks to climate change.
So, without taking a position on whether fires are getting worse, how would that matter for the insurance markets?
There's a price that would make it work. Risks are higher, price of an insurance policy would be higher.
Insurance companies, left to their own devices, wouldn't leave markets due to that, insurance companies would price risks accordingly, which is the thing that insurance companies do. That's the positive externality of insurance companies, they give you information about risk.
Insurance companies leave markets when they aren't allowed to accurately price risk, which the state of California will not allow them to do.
I'm not arguing with you nor rebutting your claim. I haven't studied the situation in California and have no opinion about what is going on there.
But I did work in insurance for a few years and insurance began as a form of betting or gambling. If the possibility of X happening is too high, it's no longer a gamble.
So as the odds of being required to payout approaches 100 percent, they stop covering it because that's not what they do.
This is why flood insurance in the US is provided by the federal government, not private insurers: Because most land with residential development floods. It's not a question of if but when, how often and how badly.
Hurricane Andrew also significantly impacted the homeowners insurance industry. I don't recall the details at the moment, but this is not without precedent.
It doesn't require any conspiracy theories or intentional deceit for people to start going "Oh. X thing. That's too much risk." without them thinking to explicitly state "...because the context has changed since my dad or grandad founded the company, so the risk he felt ok with now feels like too much risk to me."
People often don't spell everything out when talking about an issue. Humans are routinely kind of blind to their own implicit assumptions and the need to communicate them.
Re-insurance rates have gone through the roof through 3-4 weather events over the past 2 years. No signs of slowing down...
...
Insurance companies say that because they can’t consider climate change in their rates, it makes it difficult to truly price the risk for properties."
https://apnews.com/article/california-home-insurance-wildfir...
It's my understanding that FAIR plans are very expensive compared to market-provided homeowners insurance. I presume this is because of adverse selection--if you buy FAIR insurance you're in the same risk pool as people who live in very high fire risk areas and have no other insurance options.
Edit: I would guarantee that the state run plan is both underfunded and not charging appropriate premiums for the given risk.
I'm in another state and my home insurance has been increasing but nowhere near what it sounds like is happening in California and Florida.
Sure. But Sacramento has a secret disaster recovery plan: Appeal to Washington for a bailout.
Something similar could be done for forest fires but hasn’t been setup yet.
The general consensus is CEA policies are underfunded and the expectations are that the feds will step in.
The right way to look at this negotiation.. a power-play between goliaths.. is that losses occurred on a scale and severity that no one predicted.. now, years later the markets are trying to find a way to do business in insurance
Edit: I think there has been a number of comments from the big underwriters that they are unable to underwrite risk properly. This is not just a CA problem either, Florida is also a huge issue.
The house made some bad bets, the players “won” a few hands, and now the house is backing those players off while they figure out how to rig the game again.
The Insurance Commissioner is also an elected position now, so there is an incentive for them to succumb to populist pressures to climb up the poltical ladder (eg. Governer, Senator, Congressmember)
Edit: listen to CharlesW. I'm incorrect on the fact that it wasn't enforced until recently
The article cites wildfires and close proximity of buildings (again, wildfires) as reasons to withdraw.
It's never actually been enforced before in CA.
Edit: listen to CharlesW. I'm incorrect on the fact that it wasn't enforced until recently
[0] - https://www.politico.com/newsletters/california-climate/2023...
Right now, California does not allow pricing of insurance policies except on a few non-standard factors. These factors do not include "proximity to wildfire risk areas", which means that insurers lost a lot of money in the big wildfires of 2017-2018. The state refuses to change, so the insurers are pulling out of the market.
Framing this as "because of wildfires" is technically true, but misses the point. The problem is that insurers in CA can't accurately price for wildfire risk.
I also believe that it creates a perverse incentive for people to continue living in unmaintainable habitats. We also hear talk about how can these cities with no water continue to survive, its not maintainable etc. Well neither is living in a hurricane prone area or high fire risk area.
The options for these funds are often fairly limited too and not covering even 50% of the loss. YMMV.
Incorrect, it's been enforced since it passed. Soon after it passed, insurance companies refunded over $1.2 billion to consumers based on California Department of Insurance (CDI) mandates. You can find many more examples.
https://consumerfed.org/pdfs/whatworks-report_nov2013_hunter...
They also tend to be the more anti-government types. One family in an unincorporated part of the mountains refused to pay the voluntary firefighter service fee. When their home caught on fire the firefights just watched it and put out the parts that threatened a neighbor's house who did pay the fee.
https://en.wikipedia.org/wiki/October_2007_California_wildfi...
"Because most land with residential development floods" - no i don't think its exactly that. Most land with residential development floods is not true. Now what is true is that most land in a flood zone does indeed have a high chance of flooding. Flood zones are a fairly known and accurate data set that anyone can look at. Heck most of the online realtor sites will show you a flood map with the property. This is the same problem for individuals that live in CA in known fire zones. These type of properties are impossible to underwrite because everyone in pool is high risk. You either need to build a home that is fireproof or accept the risk and potential for total loss. The fed's flood insurance and the state levels fire program are just allowing people to continue to live in unsustainable areas or with properties that have not taken the precautions to prevent loss.
Every year?
Not every year. It's a math problem. Insurance will cover it if they are free to set the premiums.
Some things simply don't work well when handled as a business model.
Fire departments that only show up for people paying their fire dues don't work at all. In practice, places that require you to pay for fire department help have the fire department show up anyway and they watch your house burn down while standing around to be on hand just in case it threatens to spread beyond the uncovered property.
Places where there is no police department and rich people all hire private security are also pretty dysfunctional socially.
Some things get provided as a public good by sane societies because other formats for addressing it simply don't work.
It's a case of pick your poison: Which kind of natural disaster are you more comfortable with? Tornados? Fires? Hurricanes? Landslides?
Flooding is the most common natural disaster humans face. We tend to build our biggest cities at natural port sites.
We need water to drink, for hygiene and for crop production and we use waterways as cheap transit for goods. So we tend to build in flood zones.
We could probably do a better job of favoring architecture that played nice with that, such as having carports at ground level under the house and residential development above that. But the reality is humans can't escape our inconvenient need for water.
Housing is a public good. One criticism cited frequently on HN of the US housing situation is that it has created problems socially to treat homes as investment vehicles. It gets cited as a root cause of the national housing crisis.
I don't know how to have a meaningful discussion of any of this by following the arbitrary rules you list. It makes no sense to me.
Just because a city is near a port does not mean that exact spot of land is a flood zone. Just because you live in a fire prone region does not mean your house cannot be covered. There are a lot of ways to retrofit homes for fire prone areas including landscaping changes.
You’re entirely correct that there are threats to buildings everywhere. My point is that most state/government programs treat areas that are impossible to underwrite. I am suggesting that in those cases perhaps it’s more cost effective to not underwrite the risk. You could shape it different ways, from not underwriting it at all to underwriting the risk but on a loss, paying for the relocation not rebuild.
This has nothing to do with being a public good and more that zones that are known complete loss high risk zones should be mitigated. Yes nature exists everywhere but you can generally underwrite things when your entire pool is not experiencing a total loss.
Is suggesting a home built in a flood zone should not be rebuilt arbitrary? Is suggesting homeowners in high risk fire zones take the steps to alter their landscaping to reduce risk arbitrary? You are sharing all these feel good sentiments and I am simply saying it’s not feasible to underwrite these activities.
Society is supposed to help individuals thrive so society thrives. That's how a sane culture works.
Figuring out where to draw the line between benefits to individuals that help society thrive versus benefits to individuals that undermine society is what gets argued over if you want a functional world.
Dog-eat-dog, screw you, up yours, not my problem attitudes fundamentally end up coming back to bite people.
If that's where you are at currently: Sorry you got burned or whatever. But it's not a mental framing that fosters good business.
I'm done with this discussion.
Perhaps the feel good statement comes off inflammatory but everything you said are nice ideas but lack how it actually get implemented. I am only suggesting that I am not sure having the government underwrite risk is a good idea, these funds are often underfunded and not underwriting the actual cost of loss correctly. It is funny because I don’t like the current constructs of health insurance in America but I think other forms of insurance work. On that side I think a form of a single payer system would work better, probably what you envision but not shared is like.
Again my point is simply that I think it can make sense for the government to underwrite if it requires moving those individuals out and not providing coverage to new homes that are in a flood zone. But I don’t think economically it works out going forward to just cover everything and anything.
This is not a thing I ever suggested.
I have no idea why you are inferring that I did.