Home insurers cut natural disasters from policies over climate risk - WP

[ergophobe]

It's Hurricane Season. Good luck finding affordable homeowners insurance

https://www.cnn.com/2024/06/01/economy/homeowners-insurance-cost-hurricane-weather/index.html

[rcjordan]

Ranked Hurricane Cities - Top 50 (2023 included)

1) Cape Hatteras, North Carolina
2) Morehead City, North Carolina
3) Grand Bahama Island, Bahamas
4) Wilmington, North Carolina
5) Bermuda
6) Cayman Islands
7) Great Abaco Island, Bahamas
8 ) Myrtle Beach, South Carolina
9) Savannah, Georgia
10) Andros Isl,Bahamas

https://hurricanecity.com/rank.htm

Ranking of Cities Hit Most By Hurricanes & Tropical Storms - HurricaneCity

[rcjordan]

I'm on the Top 50 --just a smidge below the halfway mark.

[ergophobe]

If we could take half your water both of our insurance rates would drop

[rcjordan]

>half your water

High salt content. It'd change your ecosystem.   

What the 'Hurricane Season' sites miss is that coastal waterfront areas have destructive winter storms -Easterlies- that can be pretty bad collectively.  This past winter was the worst I can remember.  We had 2 storms per week for about 8 weeks, generally lasting 2-3 days. The river has visibly risen 3-4 inches this winter.   It was tough to watch.

[rcjordan]

>patch

https://www.consumeraffairs.com/news/california-revises-home-insurance-rules-hoping-insurers-write-more-policies-121624.html

California revises home insurance rules, hoping insurers write more policies

[ergophobe]

This is the key change

Under these new rules, insurers will use advanced computer models, which take into account weather, geography, and other data, to set insurance rates, rather than relying solely on past losses.

Debbie says this is going to bring an absolute shitstorm of anger. I hear people saying that they think prices will go down if there were more insurers in the market. They don't seem to realize that the insurers all pulled out because they thought prices were too low under the old rules where they could not do future modeling. Allowing future modeling means, "allow higher premiums."

To wit...

"Consumers should expect large rate hikes but not more insurance policies sold under the new rules," Carmen Balber, executive director of Consumer Watchdog, said in a statement.

90% of the people I talk to do not understand this. They also don't understand that their insurance is underpriced in any real world modeling that is based on the past, when fires were smaller. California FAIRPlan (commonly referred to as UnFAIRPlan) is an insurer of last resort if nobody else will insure you at any price. So I pay $12k/year. But if State Farm offers me a plan at $18K/year, goodbye FAIRPlan.

People just do not understand how much more painful this is going to get. They also don't understand that they will not be allowed to have all that shit around their house (like decorative bushes touching the house, for example). You're basically going to need a dead zone to 30 feet out and then thinned trees to 100' out.

We just took down two big trees that were, respectively, 7 and 12 feet from the house. That was $7100 only because they were *great* trees ("stovepipes" the logger said) with resale value. If we had had to truck them out on our own dime, it would have been more in the range of $13K to $15K.

All that to say that people are going to see high rates followed by inspections that will often require substantial expenditures. And they are going to lose their shit.

I have contemplated dropping insurance entirely, but a lot of people can't (if you have a mortgage, you must carry insurance).

[ergophobe]

BTW, a neighbor stopped me the other day and said that I once told him my house would burn down in 59 years and he wanted to know how I was so sure.

I explained that what I actually said was that the insurance company was betting that my house would not burn down in the next 59 years, because if I invested my premium and got a 4% inflation-adjusted return, at 59 years that account would be the value of my house. That told me that my insurance was underpriced, because if someone gave me those odds in Vegas, I would put down a fair bit of money.

So just now I redid the calc with the current insurance. I hit almost the value of the house in 30 years now (again, assuming 4% real return).

At $18K/year (150% of current), that comes out to 24 years to break even. That's getting to the point where I might take the bet.

That's me. My wife and I have made our retirement plans assuming that the value of our house drops to zero. We consider it a residence, not an investment. That's pretty rare that people plan that way, so I'm guessing that 90% of the people who will get priced out of insurance will be precisely the people who cannot live comfortable if they lose the value of their home in a fire.

Happened to a friend of ours in the fire two years ago. Fortunately, he has a ranch and there was a liveable second house that did not burn down that they were able to refurbish. That's also pretty rare.

[rcjordan]

>That's pretty rare that people plan that way

Hhh, I did.  I also valued my stock in our privately held company at 'estimated liquidation sale value of inventory & equipment' --not zero, but a very low-ball figure.

[ergophobe]

>> Hhh, I did.  I also valued my stock in our privately held company

How do you value your stock in publicly held companies?

I don't have a lot of interest in these things so I don't do any kind of deep analysis (and probably would not be capable anyway), but I do like to plug things into a Monte Carlo simulator and see what happens if I stack three bad years at the beginning of my decumulation period. For example this simulator

https://www.portfoliovisualizer.com/monte-carlo-simulation

has a "Sequence of Returns Risk" dropbox.

I also just accept that if we hit true global financial collapse along the lines of the 1930s, there's really no planning you can do for that. Possibly gold. Who knows, possibly Bitcoin. Possibly Beanie Babies, but I'm pretty sure not.

[rcjordan]

> publicly held companies?

I only used managed accounts for those (and I split them among 3 accounts @ 2 vendors) so I record them monthly at their statement value.  That's our 'extra' money.  I keep about 50% of my liquid-ish assets in a very strong regional bank with a local office and the state employees credit union ...CDs, savings, money markets, & checking. Crappy returns but, IMO, they will be the last to fold (particularly the employee credit union --the state will throw itself bodily across that one to protect it). That's our retirement money.

BTW, we weren't state employees, obviously. I used a loophole to move money there during covid.

[ergophobe]

50% cash is a lot. I don't have the assets to do that, but I am both younger (61) and less wealthy, so I have to plan differently.

I do keep roughly three years of expenses in cash. Most of my peers and most financial advisors think this is absurd, but I really don't enjoy thinking about investments and money and having a big cushion means that I don't have to think about it much.

I also split my funds across two brokerages and multiple accounts, though most of it is in two different 2035 target retirement date funds because I don't like to watch the market or spend time thinking about balancing my portfolio or anything like that (and though I'm mostly retired now, as long as we keep the rental running and a few last clients, we are not drawing down savings and I don't expect to fully retire until 70).

I do not have an option of a decent local bank that I know to be solid. Even the shitty local branches of shitty big banks have closed (BoA was where we banked). So at the end of the day, I am dependent on FDIC insuring my deposits.

By the way, this made me look up the post from March 2020 where I said that I had just maxed out my IRAs and thought we had hit bottom and NFFC said, "With respect, you done lost your mind."
https://th3core.com/talk/economics-investing/recession-20192020-mega-thread-(putteth-all-thy-strange-eruption-in-h're)/msg67568/#msg67568

I remember hesitating to post that because I do not like to make predictions because, well predictions are damn hard and usually make you look like a fool. And I had some significant misses there (several airlines did not disappear, for example). But I do think having cash in the bank helps take some of the fear and emotion out of events. And, of course, some day, my optimism will be completely wrong and some really bad thing will happen, maybe worse than the Great Depression (like, say, major nuclear war).

[rcjordan]

<OT>

>patch

Welp, I guess we're going to see how the patch holds up.  Debbie was just pondering this yesterday...

"It's the type of perfect storm situation that experts have worried about: massive fires burning through expensive homes, many of which are insured through the California FAIR Plan, the state insurer of last resort."

Why giant insurance losses from L.A. fires could impact entire state
https://www.sfchronicle.com/california-wildfires/article/home-insurance-disaster-prices-20022809.php

[ergophobe]

Unfortunately, the "patch" doesn't really address this problem.

The "patch," which lets rates rise, is hoped to bring more insurers into the market in the coming years. This event, which seems to be the one FAIR Plan warned of, has happened before any "patching" has taken place.

I expect my policy will renew at $14,000 next year, still below a market rate, but as high as they can go without lynch mobs and CEO assassinations. In the meantime, the state will have to backstop FAIR Plan.

But new rates will push more and more people out of the market. For those without a mortgage, they'll be gambling their biggest asset. For those with a mortgage, I'm not sure what happens. If they fail to procure insurance, I guess the lender will buy it for them and then they will be unable to pay the mortgage and go into foreclosure. But I expect there will be an interim where the policy is cancelled and the lender doesn't know. If they house is destroyed during that periods...

I'm not sure how this will all play out. In the old days, there were annual inspections and you got your insurance canceled and got citations. If you didn't fix it in 30 days, they could send a crew to your house and fix it for you and send you the bill. Budget cuts killed the inspections. The enforced fixes were killed by property rights suits. So there is no government enforcement. But I expect there will be insurance company enforcement and people will need to actually clear all that brush around their houses, which many people don't do.

[rcjordan]

The NC gov patch is more like just another insurance company. Moving the policy is almost transparent to the homeowner. 

I'm bettin' that 95% of the homeowners do not realize that the rate is below market and the pool is underfunded.