Insurance companies pulling out of risk areas

[bizlady]

Not a comforting thought to think many of us may be unable to get insurance in the future. Seems companies are pulling out of risk areas due to global warming, particularly in hurricane and fire areas.

https://apple.news/AVXqEi89qR46Xv_xMLt61qA

 

[MichaelB]

From the linked article

At least five large U.S. property insurers — including Allstate, American Family, Nationwide, Erie Insurance Group and Berkshire Hathaway — have told regulators that extreme weather patterns caused by climate change have led them to stop writing coverages in some regions, exclude protections from various weather events and raise monthly premiums and deductibles.

Major insurers say they will cut out damage caused by hurricanes, wind and hail from policies underwriting property along coastlines and in wildfire country, according to a voluntary survey conducted by the National Association of Insurance Commissioners, a group of state officials who regulate rates and policy forms.

 

[Gumby]

Well, when your business model is "collect premiums and don't pay claims," it is a sensible response.

 

[OldShooter]

Well, when your business model is "collect premiums and don't pay claims," it is a sensible response.

Claims handling is one of the most important things my independent agent evaluates when they decide where to place my business. I think your statement is somewhat overblown.

Regardless, the fundamental problem is the square peg fact that insurance is an inherently socialistic concept not fitting into the round hole that is capitalism. True in spades for health insurance.

 

[Gumby]

Claims handling is one of the most important things my independent agent evaluates when they decide where to place my business. I think your statement is somewhat overblown.

Regardless, the fundamental problem is the square peg fact that insurance is an inherently socialistic concept not fitting into the round hole that is capitalism. True in spades for health insurance.

I think you misunderstand me. I am not saying that they don't pay legitimate claims. I'm saying that they only make money if claims do not exceed premiums (plus a little investment income). Therefore, if people can/will only pay X in premiums, as an insurer I want to make sure I have <X in claims, so I will avoid high risk areas because I can't charge enough for that risk.

 

[Markola]

It’s a fascinating tug-of-war between the private sector, which must put its money on the line and is, therefore, incentivized to act on the best climate science to remain in business, vs. government/s, large parts of which officially embrace climate denial and are incentivized to have more and more tax-paying houses everywhere possible. My bet is, taxpayers will continue to be shafted in the effort to warp the natural market forces trying to anticipate our future.


“The taxpayer-backed Citizens Property Insurance in Florida was the state’s second-largest insurer in 2021 in terms of policies written, according to the Insurance Information Institute. Fourteen insurance firms have either left Florida as of April or have policy portfolios that are failing…

But even state-backed policies must face climate risks.

“When you see the insurance companies pulling out en masse because the cost of rebuilding homes in Florida is bankrupting them,” said Ben Jealous, executive director of the Sierra Club, “it’s either hubris or folly to think the state wouldn’t be bankrupted stepping in to help.””

 

[OldShooter]

I think you misunderstand me. I am not saying that they don't pay legitimate claims. I'm saying that they only make money if claims do not exceed premiums (plus a little investment income). Therefore, if people can/will only pay X in premiums, as an insurer I want to make sure I have <X in claims, so I will avoid high risk areas because I can't charge enough for that risk.

Yes, then we don't disagree. Net underwriting losses are not uncommon, but in better days investment gains have offset. In a sense the insurance company borrows money from its policyholders, profits by investing it, and then gives it back (at some future date) in claims payments. That float is why Buffett likes insurance companies so much.

 

[Sunset]

I can see how insurance companies worry about paying claims, when folks build in areas that are dangerous.

I'm amazed that after Katrina, people still thought it was a good idea to build a house on land that is 10 feet below sea level

 

[pacergal]

I read the article earlier this morning. Tornado and earthquake disasters could be next.
Natural disasters are just that, a natural phenomenon. Yes, there are more risky places and weather changes are increasing problems.
If insurance companies keep pulling out, is there risk that they will have no one to insure and put themselves out of business?
I doubt. Most likely, just keep raising the rates for everyone else.

 

[teej1985]

I read the article earlier this morning. Tornado and earthquake disasters could be next.
Natural disasters are just that, a natural phenomenon. Yes, there are more risky places and weather changes are increasing problems.
If insurance companies keep pulling out, is there risk that they will have no one to insure and put themselves out of business?
I doubt. Most likely, just keep raising the rates for everyone else.

Earthquake is already excluded on normal policies, isn't it. In California, you buy earthquake insurance though California Earthquake Authority. It's limited compared to normal insurance.

 

[brett]

Would you invest in an insurance business that was overexposed in high risk areas? I would not.

I think that it is normal for any company to change direction, change market offerings based on external factors. For some underwriters and reinsurers that will mean greatly reducing or walking away from perceived high risk areas or severely limiting policy exposure with exceptions and high deductibles. Normal business practice in many industries. Well run businesses in all sectors seek to reduce financial risk to their respective organizations.

Certainly not great for those who live in those high risk areas.

If you live in a low risk area, how do your feel about your insurance premiums being 20-30 percent higher than they might otherwise would be because the insurer is spreading some of the risk/exposure from high/ultra high risk customer policies to low risk customers?

I believe that it is too easy to blame the insurers. They are protecting their business and their shareholders.

This is a much greater and more complicated problem than simply blaming the insurance industry IMHO.

 

[JoeWras]

It is always someone else's fault.

We need to stop building in high risk areas, or if we do, have proper methods of mitigation.

 

[Texas Proud]

I can see where they do not like hurricane coverage as a big hurricane can damage so many homes you are covering...


And I bet that the people in Nebraska do not want to pay higher premiums to cover Florida's problems...


Fires used to not be a big problem AFAIK... maybe in California they were but it seems like the big fires are getting bigger and doing a lot more damage..


Think about it a bit.. I saw where premiums might be $6000 per year in Florida... so if you have a $350,000 house that means it would take more than 58 years to get enough to replace your house if destroyed... some places seem to get hit way more often...

 

[OldShooter]

Ideally, each risk would be properly priced. That is what the private insurance companies are trying to do. I'm all in favor of that; those of us in flyover land shouldn't be force to subsidize other peoples' risk.

Federal crop insurance, federal flood insurance, state insurance pools, ... there are enough schemes to milk the innocent. I hope our home insurance carriers are not participating.

... I'm amazed that after Katrina, people still thought it was a good idea to build a house on land that is 10 feet below sea level

Nothing amazing about it. They've been trained to believe that when disaster strikes, the rest of the country will be taxed to buy them new houses. (Though I think that promise is now being limited by FEMA.)

 

[djsander]

We lived in Shreveport, La. For 18 years. We had to have named storm damage to be protected from hurricanes that became tropical storms as they moved in land. We did have one that was still Cat 1 when it reached us, but for the most parts heavy rains and wind for part of a day. Our house was built in 1978 in an area that had never flooded, not in a flood zone, but we still carried flood insurance. Then they remapped the flood zones and we were put in a flood zone. The area was mapped as in event of catastrophic levee break. We were at least a a mile from the red river. Our flood insurance had a 2 year grace period then they raise the premiums around 15% a year and said we could stop the increase if we had a survey and obtained an elevation certificate. Still our insurance rates and risks were mainly based on what occurred in the New Orleans area and actual hurricane prone sections of the state. They spread the cost among the insured.

 

[explanade]

There was an article about some people choosing not to get insurance. Obviously they no longer had mortgages and in some cases, they made the calculation that they would walk away from damaged properties and build or buy a new one.

For people who can't just lose their property, they're rolling the dice.

At some point though when homes can't get insurance coverage or costs too much to insure, how are property prices impacted?

For instance, FL has been one of the fastest growing states in the country, with a lot of retirees moving there when property prices were cheap. But do you buy a condo there if insurance premiums are high (or maybe HOA fees are high because insuring the whole complex becomes more costly)?

Actually it might put downward pressure on property prices in some cases, so there might be reluctance to buy in certain areas if property prices are perceived as likely to decline.

For years, federal taxpayers have subsidized properties built in flood-prone areas, when flooding insurance wasn't available.

So will taxpayers be the insurer of last resort for areas prone to hurricanes, storm surges, wildfires, etc?

There's always discussion about whether people should rebuild in flood plains or at the edge of forests and wild brush, who should bear the costs of losses when they do build in such risky areas.

But it doesn't seem like anyone is preventing the rebuild in risky areas. So maybe the insurance market will dictate how much building activity there is going forward.

 

[Pellice]

One problem is that the economy of many states and localities - enough to also affect the US as a whole - will take a hit if real estate prices in danger areas collapse. I'm sure many offices would LOVE to see people abandon high risk areas. Heck, I'm a birdwatcher in NJ and I deplore the heavily built up coastal barrier islands (NEWLY built up since Sandy). But if real estate prices collapse in the coastal counties, it probably takes the finances of the counties and the whole state with it.

I guess what is happening is that a combination of pressures is slowly tightening the screws on inhabitants in these areas. This is squeezing out the less wealthy people who have lived in them, some for many years, in favor of people who can afford to rebuild from their own funds. Is this unfair? I know I'd think so if I lived there. But, at a safe distance, I can't think of any alternative other than forcing people to sell to some taxpayer-funded entity. That is happening now in the oft-flooded, interior, non-wealthy town of Manville, and it's causing fury. Inhabitants want the option of using the sum of money either for a buyout or for renovations, and they're being offered only a buyout.

Very few areas of the US are safe. The removal of tornadoes from insured risks is a new one to me. That's a very large swath of the interior. Of course, crop insurance has been around since the Depression, to prevent the complete ruination of farmers that occured then.

Doing nothing - allowing "the market" to correct the problem does not appear to be an option given that bankrupting so many people will snowball thoughout the economy. If Florida's coastal real estate market collapsed, the state's economy would as well, and I think the same is true of NJ.

How to gradually unthread this needle? When everyone involved has competing interests and wishes? That is what our politicians are facing. Which is why I don't hate politicians the way so many do.

 

[HawkOwl]

I guess what is happening is that a combination of pressures is slowly tightening the screws on inhabitants in these areas. This is squeezing out the less wealthy people who have lived in them, some for many years, in favor of people who can afford to rebuild from their own funds. Is this unfair? I know I'd think so if I lived there. But, at a safe distance, I can't think of any alternative other than forcing people to sell to some taxpayer-funded entity. That is happening now in the oft-flooded, interior, non-wealthy town of Manville, and it's causing fury. Inhabitants want the option of using the sum of money either for a buyout or for renovations, and they're being offered only a buyout.

That was a very thoughtful response. I am a birder in Florida, and I share your sadness over the development of coastal areas.

A few thoughts…

Here in Florida, there is not a single county that is immune to possible devastation from hurricanes. The idea of a “buyout” in order to depopulate regions in danger of catastrophic hurricane claims would have to involve the entire state. That is just not practical. Florida is the nation’s third most populous state. Texas is the country’s second most populous, with much of that population concentrated along the gulf coast. There is not enough money to buy out the entire gulf coast.

That being the case, I see no alternative to letting market forces (with or without SOME degree of government involvement) settle the matter. As insurance competition decreases, prices charged will increase. Almost certainly it will affect real estate values. But eventually an equilibrium will be reached, and insurance will be available, for a price. Residents new and old will need to decide whether it is worth the price to stay.

 

[pb4uski]

I can see how insurance companies worry about paying claims, when folks build in areas that are dangerous.



I'm amazed that after Katrina, people still thought it was a good idea to build a house on land that is 10 feet below sea level

+1 it seems to me it is just a matter of when

 

[JoeWras]

I read the article earlier this morning. Tornado and earthquake disasters could be next.
Natural disasters are just that, a natural phenomenon. Yes, there are more risky places and weather changes are increasing problems.
If insurance companies keep pulling out, is there risk that they will have no one to insure and put themselves out of business?
I doubt. Most likely, just keep raising the rates for everyone else.

Article pointer about tornadoes? Is this just some blog?

We hear more about tornadoes because we are connected, and our urban populations are more numerous and dense, hence providing more hit points. We also can monitor them with better radar and ground truth tracking. Before 1960, tornado monitoring was more primitive. Many tornadoes occurred in the middle of nowhere that are now very well tracked by radar and chasers.

So I'm going to challenge the narrative that "all weather is worse" when it comes to tornadoes.

I will also present to you this graph, directly from NOAA, which you can also generate. This is not some whack job's graph, it is direct from NOAA:
https://www.ncei.noaa.gov/access/monitoring/tornadoes/

 

[Midpack]

Ideally, each risk would be properly priced. That is what the private insurance companies are trying to do. I'm all in favor of that; those of us in flyover land shouldn't be force to subsidize other peoples' risk.

+100. When DW and I chose where to move and retire to, we really wanted to be on the east coast - but we settled on well inland expressly to avoid hurricanes. We expect to live another 20-30 years, it would be foolhardy to expect we'd never be hit with a hurricane over that period of time.

Insurance companies have been differentiating based on location risk for a long time. That's clear from the graphic below. All that has changed is the delta has increased between the highest risk areas and all other areas - faster than premiums have risen in some areas, that's why insurance companies have left some areas. They certainly aren't going to just eat the added costs.

Anyone who chooses to live in a high risk area, should pay the higher premiums associated with those areas (hurricanes, flood, fire, earthquake) - way more differentiated than the state averages below (e.g. coastal vs inland WRT hurricanes). Especially those who have lost property's and then choose to rebuild in that same area. The premiums should be so high they think long and hard about rebuilding there. It seems pretty clear, those exposures have/are getting worse as time passes.

 

[bobandsherry]

I can see how insurance companies worry about paying claims, when folks build in areas that are dangerous.



I'm amazed that after Katrina, people still thought it was a good idea to build a house on land that is 10 feet below sea level

Exactly. In some places, there are known risks, but builders keep constructing homes, and people keep buying them because of the beautiful views they offer, despite the associated hazards.

It would have been wise for insurance companies to carefully consider the coverage they provide, possibly charging higher premiums to account for the elevated risk and still ensure a fair return. Additionally, local governments should hold individuals accountable for the inherent risks without providing bailouts or they should be imposing real estate taxes that recover these costs.

BTW, people point to Florida for hurricane losses but Texas, Louisiana and other southern coast line states have experienced devastating losses as well. Even New York experienced Sandy with $74 billion in losses. And definitely don't forget Puerto Rico.

 

[rodi]

I live in a very large city (San Diego), not in the forest. But it is very hard to get insurance for our home because we are in an area marked as high risk for wildfires. I laugh when people say to get quotes for home owners insurance every year... Last time I shopped there were exactly TWO companies writing policies for our address. Why? Because there is a canyon behind the homes across the street that feeds down to an open space park (read that as lots of fuel for wildfires).

We stay with the same insurer and every year keep our fingers crossed they'll renew us.

In the mean time my husband is president of the neighborhood fire safe council and actively working to get the city to weed/remove fuel within 100 feet of structures in the open space parks. We've replaced our older siding with hardee board. Even our fences are hardee board. We have no trees directly adjacent to our house - our neighbors tree gets wacked everytime it grows across the property line. We've changed out the soffet vents and roof vent to a finer mesh stainless steel (was 'bird size' now it's 'insect size' ) to help prevent burning embers getting into our rafters. We're doing everything we can to fire harden our 1960's era tract home. (And we've also done earthquake remediation).

 

[Gumby]

...

Anyone who chooses to live in a high risk area, should pay the higher premiums associated with those areas (hurricanes, flood, fire, earthquake) - way more differentiated than the state averages below (e.g. coastal vs inland WRT hurricanes).....

My homeowner's insurance is more than double the Connecticut average because I live right on the coast. The two main reasons are that the risk is higher and the home values are higher along the coast. But it was our choice to live here, so we accept it as a cost of that choice.

Even though the harbor is no more than 200 ft from my back door, I don't worry about flooding because we are 25 feet above the high water line (they were not so stupid in the old days and didn't build right down on the beach). I do worry that hurricane force winds could cause one of my big trees to fall on the house.

 

[Texas Proud]

This was awhile back and someone might know where to find the info...


But there was info on flood insurance and they talked about the way the national program skewed the decision... meaning that cheap insurance had people build in areas they should not knowing that they do not have to pay the full cost to insure...


IIRC it was a beach in Alabama (or near there) where they had a lot of houses along the beach and then none... nothing... no more houses even though there was a good amount of nice beach continuing.... the reason? Flood insurance stopped right at that line.. one one side you could be insured with lots of houses, on the other no insurance and no houses...


Not sure if this was the same article but they also showed a location where a house had been reconstructed a number of times over the year because they had flood insurance... knowing that it would probably be destroyed again if a direct hit from a hurricane...



Getting rid of the thought that gvmt needs to bail out everybody that goes through a disaster is one of the problems.... and the gvmt paying some people to raise their house on stilts.... really?


Price the insurance correctly for the perils and the market can do a good job of preventing some of theses problems..