alt Hacker NewsIs the world becoming uninsurable?
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As long as so many things are not accounted for properly (negative externalities), what good is it to talk about the world being insurable or not? It's like putting a bunch of monkeys in the cockpit of a rocket and then asking if you can insure it.
the world is always insurable
the more volatile it is (and the less you've mitigated the risks), the more expensive your insurance gets
The title should be: Are some parts of the United States becoming uninsurable.
It seems like "severe storms" have increased quite a bit, the other categories not so much. What does "severe storm" mean here? Doesn't seem to mean hurricanes or winter storms. So what gives? Is this just political patronage handed out under the cover of claiming a big storm knocked some trees down?
There are different stategies for risk mitigation and delegation is only one of them.
> This is the intrinsic limit of political fixes: we take the risks and losses and transfer them to others lacking the political power to contest the transfer.
This hits hard and close to home. While my heart goes out to everyone that’s shouldering misfortunes, I’m wary of the “private profits, public risks” phenomenon getting even more out of control.
Obviously we can’t afford to disappoint all the people that were forced to jump into an outrageous housing market all at once, they need affordable insurance, and also still expect to 10x their property investment, particularly in coastal areas. If we don’t do this, it will be another huge blow to the shrinking middle class.
Meanwhile, the flyover states with fewer hurricanes and wildfires will subsidize coastal insurance basically due to strength of Californias market clout, and yet flyover states won’t ever see a windfall from their own rising property values. Since remote employees in flyover states often get less salary for the same work, they are already subsidizing rent for higher density areas. Regardless of where you live, everyone should recognize that this is unsustainable and divisive.
Does it make any sense to talk about the foundations and the upper structures as being separately insurable ? Can foundations be reused ?
Ouch - so this explains why my home insurance almost tripled in a year - and I don't live in an at-risk area. Everyone I know had huge premium increases.
Something neat about the insurance industry is that it seems to be immune to irrationality. Whether or not someone believes in climate change, premiums are a function of actual measured risk. If risk goes up, premiums go up.
And because being accurate at assessing risk is directly connected to company performance, they’re likely one of the best places to go to get your finger on the pulse of what’s actually happening.
The one time this falls apart is when the government puts their finger on the scale and creates insurance that runs at a loss so that people can keep rebuilding in practically uninsurable locales.
I guess another nice thing about this is that the insurance company and you both have aligned incentives. Neither of you want to see claims being made. So they really care that you’re doing whatever you can to reduce risk.
I bet some of this is wrong, based on an incomplete read of the system, so please educate me. :)
This is an existential problem for the insurance industry and they should fight the oil industry as such.
Naive question, but why not raise taxes in hazardous areas, and use that money for a state-run insurance?
I guess the question is how much should the rest of America have to subsidize the folks who want to live near the beach?
USA != World.
> That the private-sector can trigger crises that have no political or technological fix is on very few pundits' radar.
Interestingly, there seems to a number of cultural solutions to this problem. Like, imagine if the people of LA adopted a fondness for living in dense urban environments, and a reluctance to "live near nature," the problem of wildfires becomes much more tractable. Or for example, a culture of maintenance (forests, power infrastructure, infrastructure fireproofing, risk preparedness, etc.), like outlined in the book "The Innovation Delusion," could very well reduce risk a considerable amount. Unfortunately our civilization is too much stuck in its traditional ways to consider such solutions.
Risks are only uninsurable if the government puts a ceiling on the premiums.
My only hope for climate change is that insurance companies start lobbying to have a more predictable environment since risk models works better when things aren't chaotic, and that gives a monetary incentice for companies to do better
The California (and Florida) situation is easily explainable [1]. As this video points out you have these forces in play:
1. The state who sets insurance price caps for political expediency, basically to increase house prices (because they'd go down if insurance prices could float freely). BTW we have examples of areas that are uninsurable like the Florida Keys;
2. The homeowners who want their house prices to go up and want to pay as little as possible for home insurance; and
3. Insurance companies who can't write too many policies so they remain solvent. Price caps ultimately lead to insurers leaving the market.
LA in particular has competing problems: wildfires and earthquakes. If you want to avoid total loss due to wildfires, first you wouldn't build in Pacific Palisades at all. It's a vegetation rich area between hills with potentially high winds. If you want to avoid fire loss, you would build out of concrete not timber-framed buildings.
But the problem is that earthquakes have the opposite building priorities. Lumber is actually quite good in earthquake zones because you tend to get less loss of life from the collapse of timber houses.
Now you can build concrete houses that are earthquake-resistant (eg in Japan) but it's expensive.
Ultimately all of this comes down to a malaise brought on by high house prices. Voters consistently vote for policies that increase their house prices with absolutely no concern for the externalities.
If it now costs $1 million to build an "average" house, then you're going to be spending $20,000+ a year on insurance. If your house only cost $100,000, you wouldn't have that problem.
It's even worse in California because a lot of property taxes are capped so the state government can't even recoupe taxes from a lot of high-priced property but they suffer the costs of it (eg by being the insurer of last resort).
This is a great opportunity for developers to rebuild with greater density.
It's not clear how extraordinary the losses are - by how much home insurance losses actually outpace home-price inflation (not CPI).
For the moment let's set aside legitimate concerns of climate change or land-use policy inducing unanticipated risk.
Insurance is systemic in the sense of pervasive, but the question is whether the crisis is a controllable excursion from stability, or itself amplifies the problem.
The key factor in the 2008 crisis was how foreclosures reduced prices causing more foreclosures and higher borrowing costs - a vicious cycle.
With insurance, homes are already affected. What other specific markets? Does insurance company diversification spread the impact from real estate costs to other industries?
The destabilizing mechanism is insurer exit after over-exposure. Over-exposure comes not from extra assets, but from mis-pricing.
US Insurance is a private market facility, so pricing is competitive. If a competitor prices insurance below your risk-assessed value, your incentive is to meet their price and try to make it up in other markets or through better investments. This tendency would get worse in times of strong investment growth.
Thus the investment-dependent insurance industry loses when investments fail, and also tends to lose after investments have been winning. Insurance profitability in the last two decades may reflect a sweet spot of stock market performance more than improvements in risk-assessment.
Assuming over-exposure, then what? Both low prices and availability depend on diverse and competitive suppliers. After an insurer has suffered major losses in a market, particularly to the point of viability, they lose the confidence of both investors and customers -- and insurance depends entirely on that belief of reliability. So their best response is to simply leave that market, to maintain their reputation in other markets. Then as more insurers leave a market, prices go up, consuming all available price elasticity - which is very, very significant for homes as fixed assets that are key to other value streams like jobs, schools, etc.
Still, that seems limited to housing unless it takes down cross-subsidizing insurance companies.
But it does end housing in these markets. Individuals won't be able to buy homes because of the cost of mortgages and insurance. But if insurance is unavailable large companies could own apartments (or even subdivisions where they lease homes) and self-insure or enjoy more tailored insurance.
With entire neighborhoods destroyed by fire, developers could rebuild newer, denser housing. And insurers could stay in business by settling with policy holders using money combined with a stake in the new neighborhood corporation.
That's the ideal solution, but it won't happen at neighborhood scale because it would involve too many coordination costs. The state (California) would have to effectively take all the property to avoid hold-outs, and then arrange with various insurance companies and developers.
So the economic solution is for developers to buy up plots of burned-down neighborhoods. A single small developer could use California's SB-9 to build 4 units where there was one. And larger developers could buy a 4 adjacent plots and build a 30-unit apartment. Both could self-insure, or be well-served by insurance company that focuses on protectable, high-density housing.
Doing that at middling scale - lots of complex transactions - would make a good business, albeit not the typical YC. You'd combine a small tech firm with a boutique law firm, add a government relations team. You'd have to be up and running quickly to use the crisis to get the policies you need and start coordinating developers who are sure to be in demand.
What amazes me about watching californians interviewed about the wild fires is the discourse heads towards conspiracy and corruption:
- It's all part of planned land grabs and clearances - They don't want to pay to protect us
And so on. Nobody once mentioned the real driving factor of increasing incidences of natural disaster: climate change.
I wouldn't insure that attitude either.
From my personal experience in the UK, a few annec-data points:
A friend owns a Land Rover with such a notoriously bad engine that insurers refuse to insure it. Land Rover had to make their own car insurance [1].
Another friend owns an electric car that is becoming increasingly uninsurable. I'm told that due to the battery, any significant collision defaults to a complete destruction of the vehicle and not a repair. The second-hand market for electric cars is also terrible, almost no car dealer will touch them in the UK.
Another friend had a car that was insured for £5k, but it was actually worth more. An accident occurred that completely destroyed the car in a fire, and they offered £1.5k. They approached the insurer and said if £1.5k is adequate to replace the vehicle, then they could simply drop a vehicle off instead. Eventually they increased the amount to £2.5k, half of their own estimate, and far less than the vehicles actual worth.
Another friend got into an accident and was permanently injured. They got an initial offer from the other insurance company, which their insurance said to decline as they believed they should expect more. Several years of slow progress, with the original insurer shutting down and passing their work to several other insurers, they were told too much time had elapsed and they should have gone for the original amount. They offered a £50 "good will gesture" and then closed the case. In the UK we have the Financial Ombudsman for insurance disputes [2], which after review decided that £50 was perfectly adequate.
Another friend had their vehicle temporarily ceased by the police (the police were wrong to do so in this case, but you have zero right to appeal). They lost one of the sets of keys for the vehicle and scratched the car. The police told the person there was nothing they could do, and to claim on the insurance. They instead paid for the damage themselves, because the insurance premiums on such a claim would not be worth it. Just tonight I saw something similar where somebody's mirror was damaged in a hit & run, choosing to fix it themselves to avoid insurance premiums increase.
I used to send out parcels and insure them, but several parcels arrived damaged (admitted by the couriers) and they said they needed proof of packaging the items correctly. From therein I would video the packaging of all items and something occurred again, but they made it impossible to actually use their insurance.
My point is this: Getting insurance is becoming increasingly difficult, but also getting the insurer to honour their agreement is becoming increasingly difficult. In the UK you are legally required to have car insurance, but they are clearly robbing people with no recourse to justice. The system is already broken and not fit for purpose.
[1] https://insurance.landrover.co.uk/
[2] https://www.financial-ombudsman.org.uk/consumers/complaints-...
Get rid of the federal guarantee for homes that are deemed too risky for private insurance. Stop privatizing gains with publicly backed safety nets and people will engage in less risky behavior. But get ready to be labelled as heartless if you back or even suggest such.
The Third world has never been insurable. Insurance, supermarkets with self-checkout, home order delivery, all these things are only possible in high trust developed societies.
The article lumps in the L.A. fires but the exit of insurers from that market was due to price controls, voted in by California residents.
Imho insurance is one of the most underrated problems in economic "science".
Punks feelin lucky are advised to Google (or ask any GPT about) "insurance paradox".
Haha
“Losses rise with inflation, of course, but the losses are rising far above background inflation.”
Losses are very much in line with asset price inflation. If a house rises in value for no good reason other than loose monetary policy, so does the compensation. At the same time, insurers struggle to find safe yields to match these cost increases when that same monetary policy keeps interest rates low.
Looking at the chart pictured, one would expect that extreme weather events have increased dramatically after 2000, but that is not the case:
This seems like such a gloomy article. There are plenty of other solutions. If you can't insure a home, that home's price should come down. If there is a 5% chance my home is destroyed every year I would expect a steep discount. I could see myself gambling on such a home for 50% off. Alternatively if you don't wanna gamble, just move to a place that's less risky. If moving is too much for you, renting may still be an option. Yes the increased risk will push prices higher, but it will also crash property prices, so who knows what will happen. Yes land owners in these areas will be screwed, but you don't have a right to returns on your investment.
Real solution: assess risks and mandate building houses that can withstand those risks. Hurricanes? Find out what is the maximum possible hurricane and mandate construction standards that a house will withstand it with minimum damage (24" reinforced concrete walls etc). Same for fire.
Some years ago I contracted for a mega-big-global insurance company.
They would spread leaflets/internal publications on "Risk Profile for the Year 20##" every year. And they would issue updates every Q or H.
Insurance companies monitor every-little-thing. If it hasn't rained for X days in Z country, they KNOW IT, monitor it, and accordingly change policies, premiums, etc.
I always tell people that the most lucrative job (imho) is "Actuary" (https://en.wikipedia.org/wiki/Actuary) so for anyone who is young enough to make a career change or have kids on the verge of picking directions/professions, "Actuary" for-the-win!!
If history shows one thing- that is that a ton of political problems are just technological problems solvable with surplus bribery - and the fact that we have a ton of political problems indicates we have a misallocation of technological problem solving ability, away from what are the foundations of society, towards "luxury" perverted incentivized problems created by a wealth bubble. A million thinkers working and thinking about block chains instead of energy or fertilizers or carbon capture. This bubble and its misallocation shadow has to die, for the system to reboot.
a practical problem is that the financial instruments insurance companies create (insurance linked securities or ILS, catastrophe bonds, and other structured products) are not available to retail investors, who would likely buy a lot of higher risk investments if they were allowed to, and this would provide a lot more collateral for writing new policies. if you want more of it, deregulate it. it's that simple.
Yes
Article seems a bit black and white. After fire insurance dumped my mother's insurance, the "Fair" Plan started out with some similar black and white with insights like "zipcode bad for fire" == "you get worst price". Recently their direction has gotten better, better clearance == better pricing, better building == better pricing, etc. This seems like a better direction. Monthly inspections maybe even == better pricing. Repairs == better pricing. Community changes == better pricing. I think there is a lot of gradual room for improvement here. Ie. More spacing between homes, yard clearance, hydrant locations, accessible fire water sources, quarterly inspections by qualified inspectors, etc. Maybe highly exposed communities would have 10,000 gallon water tanks every square block just for fire.
I think it is easy for people to "dump" on some of these higher priced real estate incidents seen recently but this is also affecting people on social security. What are we going to do just let their house burn down and then just have a bunch of homeless senior citizens in the mix. Why even have government? Seems like a terrible country to live in if a 30 year old needs to plan their house situation out into their 80s.
Also seems a bit ironic to me that you get insurance to cover unexpected future expenses but when insurance takes losses then they can just drop you because .. the losses were unexpected. They've known for 20++ years and I'm sure some... money was made... Did they put some away for this situation? Also if you personally experience a loss they also drop you almost immediately.
This idea that we'd just let insurance companies do whatever is *nuts*. Has that ever worked? Honestly pure capitalism seems like the real behind the scenes American dream or fantasy. This same climate change most likely was created by companies making buckets of money with no plan to deal with the side-effects we experience now. Just let the market take care of it....
These companies aren't about making "some profit" they want to make as much profit as possible. Is some 75 year widow living in her and her dead husband's house in Eureka, CA going to convince them to keep insuring her house at a reasonable price? Even if she paid the same insurance company for 30 years?
I think the solution is going to require some government intervention because insurance companies just don't care and it will be hard for new players to innovate quickly enough to tackle such a large crisis. Ie. legislating the inspections, legislating the fire-resistant building guidelines + insurance scale, subsidizing certain low income locations, working with communities to improve fire safety and resources. Some work has happened but clearly it is not happening fast enough.
So what? Living without insurance is nothing crazy.
Many dogs (pitbulls, akitas..) are uninsurable, yet we see them everywhere. People just accept damages, and pay it out of their own pocket (or run away and do not pay).
People have lost their homes and everything they own to a natural disaster that was not under their control. I don't care where you live in the world, this could happen to you. The lack of empathy and victim blaming in these comments is absolutely revolting. I am done with this site. It has been taken over by heartless people with zero intellectual curiosity. Good riddance.
No it isn’t. It’s just unprofitable which means it can be fixed with higher rates.
An hour in and nobody in these comments is addressing climate change? The risks of drought and the resulting fire or hurricanes and floods is much higher than it has been in recorded history in these areas because of climate change. Should people be forced to abandon their homes because the fossil fuel companies lied and misled the public and bought out our governments for the last 50 years?
IMHO we should be seizing the fossil fuel companies' assets and using them for disaster relief around the world due to the catastrophe they have deliberately caused.
The talk about insurance rates is a deliberate distraction.
Again, insane that the president elect does not believe in climate change and chose to blame supposed DEI practices in California's firefighters while the fire was burning.
Nothing will change, houses will be rebuilt the same way in the same place.
Part of this is that homes are too fancy and large. All of that translates into elevated costs and risks.
When nerds like me were freaking out about climate change in 2003, what did people think we we’re talking about?!?
This is the exact scenario every single scientist I studied under openly discussed: probably not an extinction level event, but very, very expensive… Expensive to the point of it being cheaper in the long run to switch to renewables asap and hope for the best.
It’s like a 150M conservatives are all at once are saying “Wait a minute! We should do something about this!”
Uh… yea, no shit.
Betteridges law of headlines. No. Silly article.
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Not one paper cited. Just random recitation of climate change hysteria tropes.
Life on earth had dealt with 120 meters of sea level rise. So please.
Apparently climate change causes reductions in fire department funding, amirite?
Insurance is such a crutch for some people, but it shouldn't be.
If something is worth doing, it's worth doing whether you have insurance or not.
In my opinion, the amount of resources spent on buying insurance would, in almost every case, be better spent on prevention rather than after the fact mitigation.
To me this sort of thing just seems like a weird financialization brain disease of sorts.
At the end of the day if your house burns down you can go and get some wood / stone / whatever and build one somewhere else and this will basically always be possible to do to some degree.
The question is just about what the chance of having to do that per year is and what that represents in dollar value. It can’t not be possible.
Insurance needs to be not-for-profit or a government enterprise. Physical projects and infrastructure should not be started until risk is assessed. Speculators and go-go finance has ought to be constrained. As for myself, I am choosing alternative ways to plan, finance, build, and manage infrastructure project. The current systems is a non-starter for most people under 50.
Fantastic article. So what if one set of matket participants goes full blown denial and tries to force a economically unsound activity upon the state who forces it upon external unwilling participants aka a classic extractive empire going to war for extended reality denial? Economic idealisms or nostalgia with outsourced externalities what a concept..