Author Topic: Home insurers cut natural disasters from policies over climate risk - WP  (Read 27930 times)

rcjordan

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"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.

Insurance providers are also more willing to drop existing policies in some locales as they become more vulnerable to natural disasters. Most home insurance coverages are annual terms, so providers are not bound to them for more than one year.

That means individuals and families in places once considered safe from natural catastrophes could lose crucial insurance protections while their natural disaster exposure expands or intensifies as global temperatures rise."

https://www.washingtonpost.com/business/2023/09/03/natural-disaster-climate-insurance/

Travoli

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Re: Home insurers cut natural disasters from policies over climate risk - WP
« Reply #1 on: September 05, 2023, 01:46:40 AM »
Does Debbie think this is the beginning of the end for coastal development? Or will "FEMA insurance" fill the unprofitable void?

Brad

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Re: Home insurers cut natural disasters from policies over climate risk - WP
« Reply #2 on: September 05, 2023, 10:18:06 AM »
>FEMA insurance

If FEMA is smart they will start raising rates and/or start phasing out insurance coverage in the worse areas like Florida coasts.  Such a phase out might take 10 - 20 yrs.  Also mortgage lenders may well start requiring FEMA flood insurance in marginal flood zones they have not required insurance previously if FEMA will issue policies.  If things go from bad to worse I think FEMA will get more hard nosed about relocating river towns that flood to higher ground.

Of course politics will play a part in this so there will be lots of arguments, whinging, finger pointing, paranoid conspiracy theories and the like.

I'd like to hear Debbie's take because it will likely be more realistic.

rcjordan

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Re: Home insurers cut natural disasters from policies over climate risk - WP
« Reply #3 on: September 05, 2023, 07:21:19 PM »
>beginning of the end for coastal

Not just coastal, wildfire areas are also on the chopping block.

Debbie's first thought; How will mortgage underwriters factor in the added risk?  Higher rates?  Or -more likely- some sort of insurance rider (like PMI) sold by the mortgage company as a required part of the mortgage bundle. That's the same as higher rates but easier to tack on without having to show higher interest rates ...a semi-hidden fee.

>FEMA

Flood insurance is capped at $250k, so that doesn't compare directly.  Besides, they're begging for more budget already.  But it is noteworthy that mortgages don't require flood insurance in flood zones, so will they treat climate disaster insurance as optional, too?  Wrong, my in-house broker says it is required if any part of your house is in a flood zone.

Debbie thinks the states, rather than the feds, will attempt to patch the system for a while with greatly underfunded insurance pools.  That'll last for a few years.
« Last Edit: September 05, 2023, 07:25:04 PM by rcjordan »

Travoli

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Re: Home insurers cut natural disasters from policies over climate risk - WP
« Reply #4 on: September 06, 2023, 08:22:54 PM »
>govt patch

I'm with Debbie. Influential owners of expensive assets will lobby for protection. That'll be successful until it isn't... Step function-sized legislative changes after big disasters.

ergophobe

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Re: Home insurers cut natural disasters from policies over climate risk - WP
« Reply #5 on: September 07, 2023, 04:02:32 AM »
Zeke Lunder thinks we should just declare a strategic retreat from wildfire areas. See Q&A #3 and #4

https://the-lookout.org/2022/07/21/pyrofiction-hopepunk-biketopia/

rcjordan

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rcjordan

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>patch

leaking

https://www.heraldonline.com/news/nation-world/national/article287038355.html#storylink=mainstage_card

California home insurance exodus pushes state’s last-resort backup plan toward insolvency | Rock Hill Herald

ergophobe

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Quote
The FAIR plan isn't tax supported, and its bare-bones coverage - just fire and smoke damage - is paid from policy premiums that can be much more expensive than regular insurance because the risk pool is much higher.... Roach said that the FAIR Plan has encountered the same problems as regular insurance providers in getting policy rate increases approved to provide enough revenue to cover its risk exposure.

As I've mentioned before, I don't see any way out of it. Rates need to rise, but they are already no longer affordable for more and more people. It's exacerbated by the fact that construction costs are so high in California as well.

This is starting to really stretch budgets. My neighbor was hopping mad the other day. He is retired on a fixed income and his insurance increased by $1000 this year and he complained a lot and finally paid it. But he said that another $1000 and he's out. Most people think it's robbery and don't accept that even at that cost, FAIR Plan is at risk of not being able to meet its obligations.

If we had enough retirement savings to guarantee a comfortable retirement even if the house value went to zero (which is a goal, but not yet attained), I would quit paying for insurance.  We pay $11,000 on what by most American standard is a very modest home. If I invest my insurance money every year at 5%, at the end of 10 years, that's $154,000 ($173K at 7%). At the end of 20 years it's $392K/$494.

The paradox, of course, is that without the insurance payment, it would be much faster for us to reach a savings level where we felt okay foregoing insurance and just accepting that if the house burned we doul walk away with nothing.


rcjordan

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I've mentioned before that I generally opt to self-insure --the past exceptions being health, homeowner, fire, wind, liability, & auto.  Overall, after 30 years of this strategy, I am massively ahead of the game $$-wise and feel like I now have a reserve of $100k+++ or so that funds replacement costs.

>health - The massive, massive discount negotiated by the insurance companies on covered health serves provided to the insured makes it worthwhile. 

>homeowner-fire-wind - My H/F/W total cost is less than 2% of the replacement cost.  I'm going to get edgy when it hits 5%. I'll self-insure when it hits 10%. (That is assuming that the wife can stomach assuming that risk.)

>liability - Cheap, and if you are not judgement-proof the consequences of a lawsuit can be financially devastating.

>auto - Liability is required by law.  I usually keep full coverage on a vehicle for 2 -sometimes 3- years, particularly the wife's car because she is a rock magnet and guaranteed to have a her windshield broken. After 2 years depreciation has chopped the replacement cost.


ergophobe

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>>exceptions being health, homeowner, fire, wind, liability, & auto

What other big-ticket items are there?

>>health

Between negotiated rates and max possible downside, you have to have a lot of money and pretty good health to self-insure there. Scott Galloway recently said that his insurance for a family of 4 hit $55,000 so he has self-insured, which is half a million dollars in 7 years if you assume 6% return on the money.

rcjordan

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>you have to have a lot of money and pretty good health to self-insure there.

You forgot to add 'youth' or, rather, 'lack of old age.'  A person between the ages of 55-65 is really at risk of taking a big medical $$ hit, IMO. Making it into Medicare is a big deal, but supplemental insurance is still required for the 20% it doesn't cover --and it ain't cheap.  Still, the risk is too high to self-insure, IMO.

>H/F/W

I forgot Flood.  I also forgot to post that these are pretty much mandatory if you have a mortgage.

>other?

Life Insurance - particularly whole life.

And the (cumulative) one that I see people spending a lot of money on ....product/warranty insurance for appliances, electronics, vehicles. 


ergophobe

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person between the ages of 55-65 is really at risk of taking a big medical $$ hit

Galloway is 59, but worth over $100M according to the internet. I think he's hoping to sprint for Medicare age.

>> life insurance

This was always a built-in benefit of our jobs - 2X salary, which was something nice to have when we had a mortgage that we really couldn't pay with just one salary.

ergophobe

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Via NYT


ergophobe

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PS, that image is from the newsletter. The main source is

https://www.nytimes.com/interactive/2024/05/13/climate/insurance-homes-climate-change-weather.html
As Insurers Around the U.S. Bleed Cash From Climate Shocks, Homeowners Lose