Is the world becoming uninsurable?

Maybe having houses so expensive nobody can afford to buy them and the people how already own them can't afford insurance on them was a bad idea.

As long as you have population growth without increasing land , the density of people will increase and the more damage per square foot will increase.

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.

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

Everything is insurable, it's just a matter of making the premium high enough. If people are willing to pay it, that's another question.

I often hear people bring up the point that wood buildings are a risk for wildfires and brick/concrete would be safer. When I did some research on this topic years ago I concluded that brick/concrete is much less stable in an Earthquake, which is also a concern for LA. Is it possible to build earthquake resistant concrete structures?

Bloomberg recently did an excellent series on just this issue (including insurers of last resort in different states). The first part: https://www.bloomberg.com/features/2024-home-insurance-real-...

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..

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?

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.

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.

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.

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.

I think the best solution is to own much less.

People keep wanting to live in huge space that they barely use, then buy a fuckton of appliances they use once or twice a month at the maximum and hoard stuff like there is no tomorrow. Then they cry when they lose everything or that nobody want to insure their pile of crap. Just insure the minimum to live comfortably. It is much lower than what you can think of.

Since I have been moving every 4 to 5 years I have been focusing on never hoarding too much stuff. My appartment can burn, I will be fine and as long as I can find a small roof[1] for me and my family (1 partner 2 teenagers) and we could buy back what we need to live comfortably with less than 10k€ and then rebuild gradually to live in a normally sized[2] appartment/house.

[1] by my standards, which I rate at 20 to 25sq/m per person living in the household.

[2] a bungalow, yurt, caravan or large camper would be enough for a disaster recovery.

Good. Building houses in tsunami-prone areas, areas downstream of large dams, and in known forest fire areas is stupid and insurance companies get to be the little boy who says "the emperor has no clothes" first.

The question this article seems to ask is "is the world becoming insurable while maintaining a profit margin?", not "is the world becoming uninsurable?" These are different questions, with different answers.

I don’t live in a dangerous area and my insurance is 2x what it was 4 years ago, and the agents j spoke to expect it to go up 30-40% again this summer. It’s unaffordable already!

> 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.

The answer is, of course, no. (Betteridge's law and all that)

Are there going to be massive changes in building codes? Yes. Will that make owning a building more expensive? Yes. Will the pundits tell you it is the fault of the what ever political party is in power? of course they will.

What is true is that 'pre-global warming' designed infrastructure is going to become uninsurable because it will be regularly destroyed. Once a track record is established for 'global warming aware' infrastructure, the cost to insure it will become more clear.

If you were wondering "How will global climate change effect me personally?", this is it. Your city's costs are going up as it has to rebuild itself to a new standard, if you own a home your insurance costs are going up until you tear it down (or it gets destroyed) and rebuild it to the new standard.

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.

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.

Does it make any sense to talk about the foundations and the upper structures as being separately insurable ? Can foundations be reused ?

Everything is insurable - for the right price. But if you aren't allowed to pay that price then I guess that's a problem.

I guess the question is how much should the rest of America have to subsidize the folks who want to live near the beach?

the world is always insurable

the more volatile it is (and the less you've mitigated the risks), the more expensive your insurance gets

I'll insure you for cost + half... it's not a matter of insurance it's the price of which it comes in at.

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?

> That neither is a solution to the actual problem is glossed over, because as a society, we've become accustomed to the idea that there is a political solution to all problems.

THIS. I have started thinking a lot about this recently, and this isn't a lot less obvious that it sounds at first. We tend to think that, if we find _some_ consensus to fix a problem, this will be fixed. But many problems emerge now that no consensus, no matter how global, will not fix.

And even that very idea that we are a reasonable species and we will converge to some consensus-based solution isn't actually true.

There are different stategies for risk mitigation and delegation is only one of them.

The title should be: Are some parts of the United States becoming uninsurable.

Risks are only uninsurable if the government puts a ceiling on the premiums.

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-...

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.

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.

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

> 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.

No it isn’t. It’s just unprofitable which means it can be fixed with higher rates.

USA != World.

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.

Part of this is that homes are too fancy and large. All of that translates into elevated costs and risks.

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.

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).

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.

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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