Marching Toward an Uninsurable Future
May 22, 2024 12:03 PM Subscribe
"In 2023, insurers lost money on homeowners coverage in 18 states, more than a third of the country. The result is that insurance companies are raising premiums by as much as 50 percent or more, cutting back on coverage or leaving entire states altogether." As Insurers Around the U.S. Bleed Cash From Climate Shocks, Homeowners Lose (NYT; archive)
"As firms exit some areas and demand higher premiums in others, affordable home insurance cover — for many an essential annual outlay, often a condition of their mortgage debt — is getting harder to secure." The Uninsurable World: What climate change is costing homeowners (FT)
"The insurance industry must resist the temptation to 'give up the game' and retreat from areas blighted by extreme weather in a move that would leave governments to foot the bill for disasters, according to one of the biggest risk modelling companies." Insurers need to ‘step up’ on catastrophe coverage, says risk modelling chief (FT)
"These so-called 'severe-convective storms' are large and powerful thunderstorms that form and disappear within a few hours or days, often spinning off hail storms and tornadoes as they shoot across the flat expanses of the central United States. The insurance industry refers to these storms as 'secondary perils'—the other term of art is 'kitty cats,' a reference to their being smaller than big natural catastrophes or 'nat cats.'" How ‘kitty cats’ are wrecking the home insurance industry (Grist)
But why, you may ask, have the insurance companies not planned ahead? "...an assessment of global gross domestic product loss in a so-called 'hothouse' world of 3C higher temperatures by a group of 114 central banks and financial supervisors, known as the Network for Greening the Financial System, did not include 'impacts related to extreme weather, sea-level rise or wider societal impacts from migration or conflict.'" Financial models on climate risk ‘implausible’, say actuaries (FT)
"As firms exit some areas and demand higher premiums in others, affordable home insurance cover — for many an essential annual outlay, often a condition of their mortgage debt — is getting harder to secure." The Uninsurable World: What climate change is costing homeowners (FT)
"The insurance industry must resist the temptation to 'give up the game' and retreat from areas blighted by extreme weather in a move that would leave governments to foot the bill for disasters, according to one of the biggest risk modelling companies." Insurers need to ‘step up’ on catastrophe coverage, says risk modelling chief (FT)
"These so-called 'severe-convective storms' are large and powerful thunderstorms that form and disappear within a few hours or days, often spinning off hail storms and tornadoes as they shoot across the flat expanses of the central United States. The insurance industry refers to these storms as 'secondary perils'—the other term of art is 'kitty cats,' a reference to their being smaller than big natural catastrophes or 'nat cats.'" How ‘kitty cats’ are wrecking the home insurance industry (Grist)
But why, you may ask, have the insurance companies not planned ahead? "...an assessment of global gross domestic product loss in a so-called 'hothouse' world of 3C higher temperatures by a group of 114 central banks and financial supervisors, known as the Network for Greening the Financial System, did not include 'impacts related to extreme weather, sea-level rise or wider societal impacts from migration or conflict.'" Financial models on climate risk ‘implausible’, say actuaries (FT)
It seems incredibly likely that very soon, taxpayers will simply be on the hook for all homeowners insurance. And, perhaps, soon after that car insurance, in areas prone to flooding. Meanwhile politicians in half the country will insist that climate change is fake, or no big deal, while they (we) pay for the very obvious real-world results of it.
posted by Tomorrowful at 12:46 PM on May 22 [14 favorites]
posted by Tomorrowful at 12:46 PM on May 22 [14 favorites]
How much did the CEOs of these insurance companies make last year? Yes, the climate is severely worsening. How much of raised prices is just corporate greed?
posted by Abehammerb Lincoln at 12:48 PM on May 22 [20 favorites]
posted by Abehammerb Lincoln at 12:48 PM on May 22 [20 favorites]
With fewer buyers, real estate values are likely to decline, along with property tax revenues
This is fundamentally not how property taxes work. It's not rate X value = how much money we can spend.
posted by GCU Sweet and Full of Grace at 1:09 PM on May 22 [3 favorites]
This is fundamentally not how property taxes work. It's not rate X value = how much money we can spend.
posted by GCU Sweet and Full of Grace at 1:09 PM on May 22 [3 favorites]
The delay between when the rate is determined and when the assessment happens can cause a bad budget shortfall. The pandemic had this effect when commercial real estate values cratered.
posted by qxntpqbbbqxl at 1:17 PM on May 22 [1 favorite]
posted by qxntpqbbbqxl at 1:17 PM on May 22 [1 favorite]
I've yet to really understand why giant companies and banking instituitions like this, are allowed to make billions of profits year on year, then publicly complain about their 'unforeseen losses' when their profits drop because of all numbers of reasons, and expect (and receive) government bailouts and similar to pick up the pieces, all whilst still excessively rewarding their directors 'for a job well done despite the challenges'.
But yet as a small business owner, I'm expected to save any profits I can eek out to put towards future developments of the business, whilst still paying all my staff, bills, tax obligations in country (not offshore), and ride the rougher financial years from any of those savings or just my own pocket.
Well I do understand, of course. But I don't agree with it.
posted by many-things at 1:31 PM on May 22 [38 favorites]
But yet as a small business owner, I'm expected to save any profits I can eek out to put towards future developments of the business, whilst still paying all my staff, bills, tax obligations in country (not offshore), and ride the rougher financial years from any of those savings or just my own pocket.
Well I do understand, of course. But I don't agree with it.
posted by many-things at 1:31 PM on May 22 [38 favorites]
How much did the CEOs of these insurance companies make last year? Yes, the climate is severely worsening. How much of raised prices is just corporate greed?
The highest paid insurance CEO is Michael Tipsord at State Farm. He made $24MM last year, all-in. State Farm has 91 million policies. So roughly $0.26 of each policy goes to his salary.
At the same time, in 2023, the US experienced $92.9 billion in natural disaster damage - a number that's getting larger every year.
posted by NotMyselfRightNow at 1:31 PM on May 22 [14 favorites]
The highest paid insurance CEO is Michael Tipsord at State Farm. He made $24MM last year, all-in. State Farm has 91 million policies. So roughly $0.26 of each policy goes to his salary.
At the same time, in 2023, the US experienced $92.9 billion in natural disaster damage - a number that's getting larger every year.
posted by NotMyselfRightNow at 1:31 PM on May 22 [14 favorites]
fyi NOAA will be announcing their 2024 Atlantic hurricane season outlook tomorrow.
posted by gwint at 1:37 PM on May 22 [3 favorites]
posted by gwint at 1:37 PM on May 22 [3 favorites]
I was talking to our landlord today, and flood insurance for our house would be over $4000. That's for a house that didn't flood when Harvey dumped vast quantities of water on Houston 7 years ago.
posted by Spike Glee at 1:39 PM on May 22 [4 favorites]
posted by Spike Glee at 1:39 PM on May 22 [4 favorites]
This is fundamentally not how property taxes work. It's not rate X value = how much money we can spend.
Not sure what you mean here - my property tax rate is directly tied to the assessed value of my home, and if the value of houses in my neighborhood declines because of uninsurability or exposure to natural disasters, that's that much less money in the tax base.
That liability obviously compounds if they become vacant/derelict, in a number of ways.
posted by ryanshepard at 2:12 PM on May 22 [1 favorite]
Not sure what you mean here - my property tax rate is directly tied to the assessed value of my home, and if the value of houses in my neighborhood declines because of uninsurability or exposure to natural disasters, that's that much less money in the tax base.
That liability obviously compounds if they become vacant/derelict, in a number of ways.
posted by ryanshepard at 2:12 PM on May 22 [1 favorite]
It seems incredibly likely that very soon, taxpayers will simply be on the hook for all homeowners insurance.
Are there better alternatives? Where I live, we have mandatory public auto insurance -- all car owners have to buy basic coverage from the government-owned insurer. Is that a model that makes sense for homeowners insurance?
posted by Gerald Bostock at 2:15 PM on May 22 [4 favorites]
Are there better alternatives? Where I live, we have mandatory public auto insurance -- all car owners have to buy basic coverage from the government-owned insurer. Is that a model that makes sense for homeowners insurance?
posted by Gerald Bostock at 2:15 PM on May 22 [4 favorites]
How much did the CEOs of these insurance companies make last year? Yes, the climate is severely worsening. How much of raised prices is just corporate greed?
Less than you'd think for what is essentially a financial product. Insurance is massively regulated and that's part of why insurance companies are having a hard time in some states. Price caps legislated into place during an increase in severe storms coupled with a sudden surge in inflation particularly in the building sector where there were serious shortages of materials and labor during the pandemic turned out to rate caps a very bad government intervention in the market.
The other big issue of course is financialization. You can make more money with your money just by having money than bothering to provide services or build things these days. The insurance industry was already halfway to just being a financial fund - they invest premiums and their reserves and it is a big part of their gross income. Now maybe some just want to do that part and ditch the insurance side.
Those things being said you should fully expect the captains of the insurance industry to use this crisis to try and leverage more money out of both everyone and the government because that's just what's on the slide in McKinsey's how-to-business deck.
posted by srboisvert at 2:17 PM on May 22 [18 favorites]
Less than you'd think for what is essentially a financial product. Insurance is massively regulated and that's part of why insurance companies are having a hard time in some states. Price caps legislated into place during an increase in severe storms coupled with a sudden surge in inflation particularly in the building sector where there were serious shortages of materials and labor during the pandemic turned out to rate caps a very bad government intervention in the market.
The other big issue of course is financialization. You can make more money with your money just by having money than bothering to provide services or build things these days. The insurance industry was already halfway to just being a financial fund - they invest premiums and their reserves and it is a big part of their gross income. Now maybe some just want to do that part and ditch the insurance side.
Those things being said you should fully expect the captains of the insurance industry to use this crisis to try and leverage more money out of both everyone and the government because that's just what's on the slide in McKinsey's how-to-business deck.
posted by srboisvert at 2:17 PM on May 22 [18 favorites]
I've yet to really understand why giant companies and banking instituitions like this, are allowed to make billions of profits year on year, then publicly complain about their 'unforeseen losses' when their profits drop because of all numbers of reasons, and expect (and receive) government bailouts and similar to pick up the pieces, all whilst still excessively rewarding their directors 'for a job well done despite the challenges'.
I hate to be saying anything in defense of insurance companies, but the math, while complicated in practice, is in some ways quite simple. Home insurance is risk pooling. The insurance company calculates the risk of loss over the pool and charges premiums (including what they can earn while held by the company) to cover payouts on claims, plus expenses and (of course) profits. It's one thing to have a bad model or an insufficiently-reinsured bad year (see what happened to LTC insurance), no reason to bail out a company for dumb mistakes, but if the average risk of loss is increasing over time because of climate change, premiums are ultimately going to have to increase or there won't be money to pay the claims. If enough consumers won't pay the premiums to create a sufficiently large risk pool, or if the risks have become too unpredictable to allow for reasonably confident predictions of losses over time, then the insurance company is going to have to stop writing policies in that area.
It really sucks because the process isn't going to happen in anything like an equitable fashion, but soon we're going to have to stop treating parts of the country as habitable. I feel bad for the poor Louisiana people with their little houses in low-lying country. Less so for the jerks in Florida with their ugly sprawly houses and their ugly sprawly politics that have done everything possible to bring us to this place because they're under the impression that somehow they will always magically be taken care of.
posted by praemunire at 2:20 PM on May 22 [27 favorites]
I hate to be saying anything in defense of insurance companies, but the math, while complicated in practice, is in some ways quite simple. Home insurance is risk pooling. The insurance company calculates the risk of loss over the pool and charges premiums (including what they can earn while held by the company) to cover payouts on claims, plus expenses and (of course) profits. It's one thing to have a bad model or an insufficiently-reinsured bad year (see what happened to LTC insurance), no reason to bail out a company for dumb mistakes, but if the average risk of loss is increasing over time because of climate change, premiums are ultimately going to have to increase or there won't be money to pay the claims. If enough consumers won't pay the premiums to create a sufficiently large risk pool, or if the risks have become too unpredictable to allow for reasonably confident predictions of losses over time, then the insurance company is going to have to stop writing policies in that area.
It really sucks because the process isn't going to happen in anything like an equitable fashion, but soon we're going to have to stop treating parts of the country as habitable. I feel bad for the poor Louisiana people with their little houses in low-lying country. Less so for the jerks in Florida with their ugly sprawly houses and their ugly sprawly politics that have done everything possible to bring us to this place because they're under the impression that somehow they will always magically be taken care of.
posted by praemunire at 2:20 PM on May 22 [27 favorites]
But why, you may ask, have the insurance companies not planned ahead?
Something something, salary depends upon not knowing
posted by We put our faith in Blast Hardcheese at 2:32 PM on May 22 [7 favorites]
Something something, salary depends upon not knowing
posted by We put our faith in Blast Hardcheese at 2:32 PM on May 22 [7 favorites]
I think we'll have to innovate pretty fast in terms of how we live in more unstable areas or they will just be uninhabitable.
posted by sid at 2:38 PM on May 22
posted by sid at 2:38 PM on May 22
The UK Institute and Faculty of Actuaries has a sober look at the complete disconnect from reality of the climate models used by economic analysts: The Emperor’s New Climate Scenarios.
In short: establishment economists linearly extrapolate from cases where the weather was a bit too warm to conclude that climate change won't hurt GDP that much, actually.
But if a responsible actuary starts from the reasonable assumption that an uninhabitable earth at 6C warming leads to collapse of civilization and 100% GDP loss, then fit a model with that as the anchor point, it leads to the conclusion that "we expect 50% GDP destruction somewhere between 2070 and 2090 depending on how you parameterise the distribution". Whether you choose 5 or 7 degrees, or 80% GDP loss, it doesn't matter much.
Finding some jiu jitsu move to turn capital against itself feels like the only way to get climate action and I hope that there is some way to avoid the classic move of socializing risk and privatizing profits.
posted by anthill at 2:39 PM on May 22 [20 favorites]
In short: establishment economists linearly extrapolate from cases where the weather was a bit too warm to conclude that climate change won't hurt GDP that much, actually.
But if a responsible actuary starts from the reasonable assumption that an uninhabitable earth at 6C warming leads to collapse of civilization and 100% GDP loss, then fit a model with that as the anchor point, it leads to the conclusion that "we expect 50% GDP destruction somewhere between 2070 and 2090 depending on how you parameterise the distribution". Whether you choose 5 or 7 degrees, or 80% GDP loss, it doesn't matter much.
Finding some jiu jitsu move to turn capital against itself feels like the only way to get climate action and I hope that there is some way to avoid the classic move of socializing risk and privatizing profits.
posted by anthill at 2:39 PM on May 22 [20 favorites]
The EU requires members states to carry out a National Risk Assessment (NRA) every three years. Ireland just dropped its 2023 assessment of what we should worry about (= attempt to insure). The NRA includes a nice coxcomb plot showing where public perception is [not] adrift from expert opinion. Note also Volcanoes Fog Road-crash Rail-crash Radiation Civil-Disorder Disinformation Drought Heatwaves Wildfires Hazmat-Accident Structural-Collapse are considered beneath the attention of any National plan; and "most appropriately managed at departmental, agency or regional level". YMMV
posted by BobTheScientist at 3:27 PM on May 22 [2 favorites]
posted by BobTheScientist at 3:27 PM on May 22 [2 favorites]
Not sure what you mean here - my property tax rate is directly tied to the assessed value of my home, and if the value of houses in my neighborhood declines because of uninsurability of exposure to natural disasters, that's that much less money in the tax base.
You're thinking the tax rate and values determines how much the local government can spend. The rate is 1.5% and the value is 1 billion, so we can spend fifteen million.
This is wrong and backwards.
The local government determines how much it's going to spend, and for a given level of property valuation this determines the tax rate. We're going to spend 18 million and the value is a billion, therefore the rate must be 1.8 percent. The tax rate flexes, not revenue, which is just the flipside of the levy.
posted by GCU Sweet and Full of Grace at 3:54 PM on May 22 [5 favorites]
You're thinking the tax rate and values determines how much the local government can spend. The rate is 1.5% and the value is 1 billion, so we can spend fifteen million.
This is wrong and backwards.
The local government determines how much it's going to spend, and for a given level of property valuation this determines the tax rate. We're going to spend 18 million and the value is a billion, therefore the rate must be 1.8 percent. The tax rate flexes, not revenue, which is just the flipside of the levy.
posted by GCU Sweet and Full of Grace at 3:54 PM on May 22 [5 favorites]
It really sucks because the process isn't going to happen in anything like an equitable fashion, but soon we're going to have to stop treating parts of the country as habitable. I feel bad for the poor Louisiana people with their little houses in low-lying country. Less so for the jerks in Florida with their ugly sprawly houses and their ugly sprawly politics that have done everything possible to bring us to this place because they're under the impression that somehow they will always magically be taken care of.
posted by praemunire at 2:20 PM on May 22
For generations, coastal Louisianans have mortgaged and insured their boats, and the homes are just shacks. It's still a Billion-dollar fisheries industry, despite the efforts of the World Bank to flood the seafood markets with poor quality product. There will remain a continual economic draw to the waterline, and continual Maritime activity, even if the waterline moves back up to Springfield, Il. The shack allows you to work from your boat. Over time, the shack becomes a seasonal residence, before it is abandoned for a shack a bit inland, but close enough for access to the water.
Native Louisianans evacuate their boats, not their cars. FEMA doesn't understand this, and I suppose the Stafford act is not written to consider this, it's not made for water communities, who live and die on SBA anyway.
And then there is the fact that the United States uses this desperation to permit massive climate-destroying LNG plants, like Venture Global Plaquemines LNG, in extremely stupid areas to be building delicate chemical refineries. How these facilities are insured, when they break, catch on fire, and go into upset in a stiff wind, is a mystery to me.
The Gas is coming from Midland, y'all. why, then, are the Gas export terminals in Louisiana? (well, they are in Corpus and Freeport and Sabine Pass, too, but most proposals are in Calcasieu and Plaquemines). These things are injecting the methane directly into the climate. How are they insured from hurricanes?
Notice that the USA is permitting the largest climate emitters in the communities most devastated by Katrina and Rita.
Anyway, what water communities need most is capital investment for vessels, and fisheries 'crop' insurance (absent from the US Farm Bill), and protection from slave-based seafood imports into the United States, even more than home insurance.
But obviously, we are paying out the nose for home insurance, it's a pooled market. In Plaquemines Parish, there are places where flood insurance costs more over ten years than the lump cost of the structure itself. So I mean, many have given up on FEMA entirely.
posted by eustatic at 5:07 PM on May 22 [27 favorites]
posted by praemunire at 2:20 PM on May 22
For generations, coastal Louisianans have mortgaged and insured their boats, and the homes are just shacks. It's still a Billion-dollar fisheries industry, despite the efforts of the World Bank to flood the seafood markets with poor quality product. There will remain a continual economic draw to the waterline, and continual Maritime activity, even if the waterline moves back up to Springfield, Il. The shack allows you to work from your boat. Over time, the shack becomes a seasonal residence, before it is abandoned for a shack a bit inland, but close enough for access to the water.
Native Louisianans evacuate their boats, not their cars. FEMA doesn't understand this, and I suppose the Stafford act is not written to consider this, it's not made for water communities, who live and die on SBA anyway.
And then there is the fact that the United States uses this desperation to permit massive climate-destroying LNG plants, like Venture Global Plaquemines LNG, in extremely stupid areas to be building delicate chemical refineries. How these facilities are insured, when they break, catch on fire, and go into upset in a stiff wind, is a mystery to me.
The Gas is coming from Midland, y'all. why, then, are the Gas export terminals in Louisiana? (well, they are in Corpus and Freeport and Sabine Pass, too, but most proposals are in Calcasieu and Plaquemines). These things are injecting the methane directly into the climate. How are they insured from hurricanes?
Notice that the USA is permitting the largest climate emitters in the communities most devastated by Katrina and Rita.
Anyway, what water communities need most is capital investment for vessels, and fisheries 'crop' insurance (absent from the US Farm Bill), and protection from slave-based seafood imports into the United States, even more than home insurance.
But obviously, we are paying out the nose for home insurance, it's a pooled market. In Plaquemines Parish, there are places where flood insurance costs more over ten years than the lump cost of the structure itself. So I mean, many have given up on FEMA entirely.
posted by eustatic at 5:07 PM on May 22 [27 favorites]
The California insurer of last resort, the FAIR plan, was bank-shot neoliberal socialism in that it required the state's private insurers to cover the high-risk pool in proportion to their total business in the state.
So at the end of the day the people with more trees around their properties were getting their higher risk subsidized by people living in safer conditions.
Double irony is there's a strong correlation between the subsidizees and MAGA/GMFY types in the red portions of California.
posted by torokunai at 5:19 PM on May 22 [2 favorites]
So at the end of the day the people with more trees around their properties were getting their higher risk subsidized by people living in safer conditions.
Double irony is there's a strong correlation between the subsidizees and MAGA/GMFY types in the red portions of California.
posted by torokunai at 5:19 PM on May 22 [2 favorites]
Louisiana update. I feel like a lot of this is cope, since the news is only looking at 2024 vs 2022.
posted by eustatic at 5:29 PM on May 22 [2 favorites]
posted by eustatic at 5:29 PM on May 22 [2 favorites]
Hi from southwest Florida, a little under a mile from the Gulf of Mexico.
Back in 2009, State Farm pulled out of the Florida market (as have other insurers) and we were funneled into the state-owned and run Citizens Insurance. A couple of years later, panicked that one good hurricane could bankrupt the state, the governor (Scott, probably, can't remember) had Citizens start dumping policies to sketchy private insurance companies, regardless of the homeowner's wishes. (They're basically mail drops that have contracts with global reinsurance companies.)
I just riffled through escrow statements... from 2013 to today, my homeowner's insurance has gone from $4,040 a year to $8,659 a year. Half of that increase has been in the last four years. I now pay more per year for insurance and property tax than I do for mortgage principal and interest.
Thank God we're moving out of the state this year.
posted by martin q blank at 5:52 PM on May 22 [13 favorites]
Back in 2009, State Farm pulled out of the Florida market (as have other insurers) and we were funneled into the state-owned and run Citizens Insurance. A couple of years later, panicked that one good hurricane could bankrupt the state, the governor (Scott, probably, can't remember) had Citizens start dumping policies to sketchy private insurance companies, regardless of the homeowner's wishes. (They're basically mail drops that have contracts with global reinsurance companies.)
I just riffled through escrow statements... from 2013 to today, my homeowner's insurance has gone from $4,040 a year to $8,659 a year. Half of that increase has been in the last four years. I now pay more per year for insurance and property tax than I do for mortgage principal and interest.
Thank God we're moving out of the state this year.
posted by martin q blank at 5:52 PM on May 22 [13 favorites]
Whelp, it sure is a good thing we didn't have enough money to deal with climate change the economical way.
Because now we're on to Plan B and it looks to be exponentially more expensive - while, at the same time, failing to deal with the underlying problem.
posted by flug at 5:54 PM on May 22 [14 favorites]
Because now we're on to Plan B and it looks to be exponentially more expensive - while, at the same time, failing to deal with the underlying problem.
posted by flug at 5:54 PM on May 22 [14 favorites]
And then there is the fact that the United States uses this desperation to permit massive climate-destroying LNG plants, like Venture Global Plaquemines LNG, in extremely stupid areas to be building delicate chemical refineries. How these facilities are insured, when they break, catch on fire, and go into upset in a stiff wind, is a mystery to me.
They are insured by a secondary level of insurance called Re-insurance with distributes the risk amongst almost all insurance companies. With high-risk insurance a company writes the policy for huge premiums and collects and then kicks a portion of the premiums up to the re-insurer. This is because no single insurance company can withstand the kind of payout a major disaster at one of these places would result in. So insurance companies have insurance.
(My younger brother works in reinsurance and at the time of 9/11 he worked for AON-re in Canada. I was sending him screen captures and breaking news from my PC with a TV card when it was happening. I was getting the news from metafilter's 9/11 thread. I was indirectly internet broadcasting his company's head office in the WTC being destroyed - AON was the occupant of 13 of the floors above the impact point in the south tower - to their Canadian office where they had no TV and not much access to news. Incidentally 9/11 was a massive re-insurance payout, $32 Billion, that didn't destroy insurance companies because the shock was distributed. My brother also worked on the Deepwater Horizon account. If you work in re-insurance you end up working on some pretty major disasters).
posted by srboisvert at 5:55 PM on May 22 [15 favorites]
They are insured by a secondary level of insurance called Re-insurance with distributes the risk amongst almost all insurance companies. With high-risk insurance a company writes the policy for huge premiums and collects and then kicks a portion of the premiums up to the re-insurer. This is because no single insurance company can withstand the kind of payout a major disaster at one of these places would result in. So insurance companies have insurance.
(My younger brother works in reinsurance and at the time of 9/11 he worked for AON-re in Canada. I was sending him screen captures and breaking news from my PC with a TV card when it was happening. I was getting the news from metafilter's 9/11 thread. I was indirectly internet broadcasting his company's head office in the WTC being destroyed - AON was the occupant of 13 of the floors above the impact point in the south tower - to their Canadian office where they had no TV and not much access to news. Incidentally 9/11 was a massive re-insurance payout, $32 Billion, that didn't destroy insurance companies because the shock was distributed. My brother also worked on the Deepwater Horizon account. If you work in re-insurance you end up working on some pretty major disasters).
posted by srboisvert at 5:55 PM on May 22 [15 favorites]
Thanks for that. I know about re insurance.
My question is how does even the global market entertain insuring a delicate $12B refinery, which will require $2B repairs every other year, when it can't insure $300k and $50k homes, which cost $30k in repairs every 5 to 7 years?
As a reminder, Phillips 66 abandoned its Alliance Oil refinery after Ida hit it in 2021. What was that payout?
posted by eustatic at 6:16 PM on May 22 [5 favorites]
My question is how does even the global market entertain insuring a delicate $12B refinery, which will require $2B repairs every other year, when it can't insure $300k and $50k homes, which cost $30k in repairs every 5 to 7 years?
As a reminder, Phillips 66 abandoned its Alliance Oil refinery after Ida hit it in 2021. What was that payout?
posted by eustatic at 6:16 PM on May 22 [5 favorites]
The cartel squeezed profits from homeowners in 32 states, and NYT laments that it wasn't more.
The ACA requires individual, family, and small group health plans to use at least 80% of premiums covering medical expenses; large group and Medicare Advantage plans, at least 85%. For the home insurance industry, the "permissible loss ratio" -- the portion of premiums spent covering insured perils -- is 57.3%. If they expect an Average Annual Loss of $1000 on a property like yours, they will quote you no less than $1745. When NYT says insurers "paid out $1.44 in losses and other costs" in a bad year in one state for every dollar in premiums, the insured losses are 80-some cents of that.
In states with which I am familiar, ratemaking guarantees that insurers can expect to make a profit -- over the long haul though not every quarter -- exceeding low-risk investments like Treasuries, to keep the mortgage industry's unholy bedfellow capitalized. Then much of those premiums goes to insurers competing with one another, advertising, portfolio balancing, reinsurance, and generating numerous proprietary risk models to try to pick off profitable policies from other carriers. Most arguments supporting single-payer health insurance also apply to home insurance, or at least the All Other Perils portion.
For-profit insurers' exodus from the market following the 1994 Northridge earthquake led to the publicly managed California Earthquake Authority, which has outcompeted private carriers due to lower overhead while subsidizing mitigations on insured properties. If the cartel refuses to cover, for example, wind and hail damage in the Midwest at premiums in line with actual risk, homeowners would be much better off with a public non-profit insurer, a non-proprietary risk model, and transparent incentives for home hardening. A nationwide public option could avoid the extortionate price of reinsurance and incentivize policymaking to mitigate against escalating hazards before the next storms arrive.
posted by backwoods at 6:22 PM on May 22 [11 favorites]
The ACA requires individual, family, and small group health plans to use at least 80% of premiums covering medical expenses; large group and Medicare Advantage plans, at least 85%. For the home insurance industry, the "permissible loss ratio" -- the portion of premiums spent covering insured perils -- is 57.3%. If they expect an Average Annual Loss of $1000 on a property like yours, they will quote you no less than $1745. When NYT says insurers "paid out $1.44 in losses and other costs" in a bad year in one state for every dollar in premiums, the insured losses are 80-some cents of that.
In states with which I am familiar, ratemaking guarantees that insurers can expect to make a profit -- over the long haul though not every quarter -- exceeding low-risk investments like Treasuries, to keep the mortgage industry's unholy bedfellow capitalized. Then much of those premiums goes to insurers competing with one another, advertising, portfolio balancing, reinsurance, and generating numerous proprietary risk models to try to pick off profitable policies from other carriers. Most arguments supporting single-payer health insurance also apply to home insurance, or at least the All Other Perils portion.
For-profit insurers' exodus from the market following the 1994 Northridge earthquake led to the publicly managed California Earthquake Authority, which has outcompeted private carriers due to lower overhead while subsidizing mitigations on insured properties. If the cartel refuses to cover, for example, wind and hail damage in the Midwest at premiums in line with actual risk, homeowners would be much better off with a public non-profit insurer, a non-proprietary risk model, and transparent incentives for home hardening. A nationwide public option could avoid the extortionate price of reinsurance and incentivize policymaking to mitigate against escalating hazards before the next storms arrive.
posted by backwoods at 6:22 PM on May 22 [11 favorites]
But why, you may ask, have the insurance companies not planned ahead?
In at least one major market -- California -- it was illegal until two months ago for insurance premiums to use climate forecasting models to set premiums. If you must only consider observed historical rates of catastrophes that occur more and more regularly, you will always underprice insurance. Hence the exodus of insurers in the 12 months prior.
posted by pwnguin at 7:28 PM on May 22 [9 favorites]
In at least one major market -- California -- it was illegal until two months ago for insurance premiums to use climate forecasting models to set premiums. If you must only consider observed historical rates of catastrophes that occur more and more regularly, you will always underprice insurance. Hence the exodus of insurers in the 12 months prior.
posted by pwnguin at 7:28 PM on May 22 [9 favorites]
Corporate greed.
For years the little guy's been subsidizing the selfish wealthy bastards that have been building their houses on the flood plains of rivers, directly on ocean fronts that are known to flood out, putting houses with lovely landscapes and no firebreaks in sage or woodlands, and then they're just clearing bank when their places wash away or burn up. FEMA doesn't seem to come through for the poor man, but the guy with a fancy place gets government help to rebuild.
posted by BlueHorse at 9:43 PM on May 22 [2 favorites]
For years the little guy's been subsidizing the selfish wealthy bastards that have been building their houses on the flood plains of rivers, directly on ocean fronts that are known to flood out, putting houses with lovely landscapes and no firebreaks in sage or woodlands, and then they're just clearing bank when their places wash away or burn up. FEMA doesn't seem to come through for the poor man, but the guy with a fancy place gets government help to rebuild.
posted by BlueHorse at 9:43 PM on May 22 [2 favorites]
How much of raised prices is just corporate greed?
Here in Florida the first doubling of the average premium was justifiable. Insurance companies weren't doing so hot on their investment portfolios and decided they needed to charge enough to cover the worst loss year we've seen so far. Maybe not quite fair, but at least not blatantly abusive, as worse years are plausible.
The second doubling that has occurred over the past year or so is completely unjustifiable by loss history or any plausible risk. Florida insurers are now charging enough to pay for the worst loss year in the state's history twice over with a single year of premiums. Worse, they got the state to eliminate what little protection homeowners had against spurious claim denials so they don't actually have to pay out shit on any of the more common smaller claims because you'd spend more paying an attorney than the claim is even worth. To top it all off, there's no sign of the i rate ncreases slowing down any time soon.
posted by wierdo at 7:59 AM on May 23 [2 favorites]
Here in Florida the first doubling of the average premium was justifiable. Insurance companies weren't doing so hot on their investment portfolios and decided they needed to charge enough to cover the worst loss year we've seen so far. Maybe not quite fair, but at least not blatantly abusive, as worse years are plausible.
The second doubling that has occurred over the past year or so is completely unjustifiable by loss history or any plausible risk. Florida insurers are now charging enough to pay for the worst loss year in the state's history twice over with a single year of premiums. Worse, they got the state to eliminate what little protection homeowners had against spurious claim denials so they don't actually have to pay out shit on any of the more common smaller claims because you'd spend more paying an attorney than the claim is even worth. To top it all off, there's no sign of the i rate ncreases slowing down any time soon.
posted by wierdo at 7:59 AM on May 23 [2 favorites]
I know Texas is a largely unsympathetic producer of climate change problems, but I am taking a morbid joy in documentation of the ongoing crisis. I honestly think Texas is one of the first three states most likely to climate collapse... Texas Florida and Hawaii. Sorry Hawaii I still love you (I consider Texit to be tacit failure)
We just had epic hailstorms... Followed by high winds taking out power lines during a heatwave... Alas, poor humanity.
posted by Jacen at 8:32 AM on May 23
We just had epic hailstorms... Followed by high winds taking out power lines during a heatwave... Alas, poor humanity.
posted by Jacen at 8:32 AM on May 23
IMO I think it's bizarre that we haven't switched to Federal level insurance for catastrophic events, with insurance just for 'regular' events. I mean the suggestions - move away from flood prone areas are completely unworkable. People have always lived in river bottoms, because that's where fertile soil is and where water is and where food, in terms of plant life, sea animals, etc are. So people are going to live in flood zones, and the ultimate mitigations, in terms of sea walls and manmade surge barriers (etc) have unknown environmental impacts.
Also people are moving to climate-dangerous areas from climate stable areas, so if we really wanted to, a better first step than haranguing insurance companies would be to trample the property rights of those in climate-stable areas, and pile more people in to them.
Instead we get to harangue individuals for moving into areas where there is no water (the entire SW) or where the climate is inhospitable (TX) while private individual's collective gains dwarf those of the insurance industry.
posted by The_Vegetables at 9:02 AM on May 23 [2 favorites]
Also people are moving to climate-dangerous areas from climate stable areas, so if we really wanted to, a better first step than haranguing insurance companies would be to trample the property rights of those in climate-stable areas, and pile more people in to them.
Instead we get to harangue individuals for moving into areas where there is no water (the entire SW) or where the climate is inhospitable (TX) while private individual's collective gains dwarf those of the insurance industry.
posted by The_Vegetables at 9:02 AM on May 23 [2 favorites]
It's been a long time since I've gotten a mortgage, but don't banks requre the home to be insured to even issue a mortgage? So how will these uninsured people ever sell?
posted by xigxag at 9:37 AM on May 23 [1 favorite]
posted by xigxag at 9:37 AM on May 23 [1 favorite]
So how will these uninsured people ever sell?
My theory is that this factor, more than near-term climate damage itself, will be what forces a reconfiguration of our economy (whether that means 'collapse' or 'let's think things through better', I dunno). Will it turn us into a nation of renters, with private equity groups the only ones who can manage to buy houses?
posted by mittens at 9:50 AM on May 23 [1 favorite]
My theory is that this factor, more than near-term climate damage itself, will be what forces a reconfiguration of our economy (whether that means 'collapse' or 'let's think things through better', I dunno). Will it turn us into a nation of renters, with private equity groups the only ones who can manage to buy houses?
posted by mittens at 9:50 AM on May 23 [1 favorite]
yeah if true risk is applied to PITI the P part's gotta come down a lot or this turns into a nation of renters, more than we already are.
Here in California, the Bay Area, LA, and anywhere else within 50 (?) miles of the San Andreas is living on borrowed disaster time too.
Our pretty Coastal Range wasn't hand-sculpted, it was made one earthquake at a time.
posted by torokunai at 10:09 AM on May 23
Here in California, the Bay Area, LA, and anywhere else within 50 (?) miles of the San Andreas is living on borrowed disaster time too.
Our pretty Coastal Range wasn't hand-sculpted, it was made one earthquake at a time.
posted by torokunai at 10:09 AM on May 23
Will it turn us into a nation of renters, with private equity groups the only ones who can manage to buy houses?
This. Just think of it as a sort of Reverse Jubilee, where all of the temporary debts disappear and are replaced with eternal ones.
posted by notoriety public at 11:30 AM on May 23 [3 favorites]
This. Just think of it as a sort of Reverse Jubilee, where all of the temporary debts disappear and are replaced with eternal ones.
posted by notoriety public at 11:30 AM on May 23 [3 favorites]
It seems incredibly likely that very soon, taxpayers will simply be on the hook for all homeowners insurance. And, perhaps, soon after that car insurance, in areas prone to flooding. Meanwhile politicians in half the country will insist that climate change is fake, or no big deal, while they (we) pay for the very obvious real-world results of it.
I don't see why the government has to step in if insurance companies can't write policies for certain areas. Beach houses used to be junky cheap shacks, not million dollar houses, because people didn't build what they couldn't afford to lose. Sorry people built or bought in risky areas, but that's really their problem and not everyone's. God forbid anyone ever lose money on real estate.
posted by Ansible at 11:54 AM on May 23 [5 favorites]
I don't see why the government has to step in if insurance companies can't write policies for certain areas. Beach houses used to be junky cheap shacks, not million dollar houses, because people didn't build what they couldn't afford to lose. Sorry people built or bought in risky areas, but that's really their problem and not everyone's. God forbid anyone ever lose money on real estate.
posted by Ansible at 11:54 AM on May 23 [5 favorites]
It's been a long time since I've gotten a mortgage, but don't banks requre the home to be insured to even issue a mortgage? So how will these uninsured people ever sell?
Huge numbers of homes are owned outright (insurance becomes optional), and even larger numbers are under-insured.
And flood zone maps are often politically determined and changed, and FEMA flood insurance is optional.
posted by The_Vegetables at 11:56 AM on May 23 [1 favorite]
Huge numbers of homes are owned outright (insurance becomes optional), and even larger numbers are under-insured.
And flood zone maps are often politically determined and changed, and FEMA flood insurance is optional.
posted by The_Vegetables at 11:56 AM on May 23 [1 favorite]
My question is how does even the global market entertain insuring a delicate $12B refinery, which will require $2B repairs every other year, when it can't insure $300k and $50k homes, which cost $30k in repairs every 5 to 7 years?
30K replaces a small backyard deck. These are not kind of claims people are talking about breaking insurance companies.
posted by srboisvert at 12:40 PM on May 23
30K replaces a small backyard deck. These are not kind of claims people are talking about breaking insurance companies.
posted by srboisvert at 12:40 PM on May 23
I attended a climate adaptation conference last year on managed retreat and learning about the degree to which insurance companies are all fully investing in climate analytics data firms blew my mind. The second blow my mind moment was when I learned that insurance companies only have to publicly communicate one year of risk, even if they have data showing uninsurable levels of risk in a decade. In other words, you may be able to get a mortgage on your new home now, even if the insurance company may know that it is likely to pull out of the market in the next several years.
As far as federal insurance goes.... the third thing that blew my mind was learning that the National Flood Insurance Program has nowhere close to all the funding it needs for everyone who wants their property bought out. So if private insurance markets are clearly failing, that doesn't just mean lots of government insurance as the insurer of last resort, but a bonkers amount of money that needs to come from somewhere.
I hope my Florida in-laws sell their beachfront property before it's too late.
posted by mostly vowels at 3:32 PM on May 23 [4 favorites]
As far as federal insurance goes.... the third thing that blew my mind was learning that the National Flood Insurance Program has nowhere close to all the funding it needs for everyone who wants their property bought out. So if private insurance markets are clearly failing, that doesn't just mean lots of government insurance as the insurer of last resort, but a bonkers amount of money that needs to come from somewhere.
I hope my Florida in-laws sell their beachfront property before it's too late.
posted by mostly vowels at 3:32 PM on May 23 [4 favorites]
I hope my Florida in-laws sell their beachfront property before it's too late.
The heartbreaking thing about this sentiment, is that it's the best that we can hope for in this broken and denial-besotted society we are in. But it just dumps the problem onto somebody else. These properties are going to have to get zeroed out at some point. Somebody is going to be left holding the bag. And it isn't going to be the insurance companies.
posted by notoriety public at 4:39 PM on May 23 [4 favorites]
The heartbreaking thing about this sentiment, is that it's the best that we can hope for in this broken and denial-besotted society we are in. But it just dumps the problem onto somebody else. These properties are going to have to get zeroed out at some point. Somebody is going to be left holding the bag. And it isn't going to be the insurance companies.
posted by notoriety public at 4:39 PM on May 23 [4 favorites]
The second doubling that has occurred over the past year or so is completely unjustifiable by loss history or any plausible risk. Florida insurers are now charging enough to pay for the worst loss year in the state's history twice over with a single year of premiums.
Here's a horrible thought. What if that's the right amount of premium for the upcoming year? Because of some combination of a terrifying internal risk forecast, combined with a rapidly shrinking customer base caused by simple unaffordability? Doesn't even have to be twice as bad if half the customer base drops out. And then when the disaster does happen, vast numbers of people don't have even shitty insurance because they couldn't afford it, and now they're wiped out.
It's sick and terrifying that "gouging insurance companies running amok" isn't even the worst possibility on offer here.
posted by notoriety public at 4:54 PM on May 23 [2 favorites]
Here's a horrible thought. What if that's the right amount of premium for the upcoming year? Because of some combination of a terrifying internal risk forecast, combined with a rapidly shrinking customer base caused by simple unaffordability? Doesn't even have to be twice as bad if half the customer base drops out. And then when the disaster does happen, vast numbers of people don't have even shitty insurance because they couldn't afford it, and now they're wiped out.
It's sick and terrifying that "gouging insurance companies running amok" isn't even the worst possibility on offer here.
posted by notoriety public at 4:54 PM on May 23 [2 favorites]
30K replaces a small backyard deck. These are not kind of claims people are talking about breaking insurance companies.
LOL. No. This is close to parody "How much could one banana cost, Michael? $10 dollars?"
posted by The_Vegetables at 7:50 AM on May 24 [1 favorite]
LOL. No. This is close to parody "How much could one banana cost, Michael? $10 dollars?"
posted by The_Vegetables at 7:50 AM on May 24 [1 favorite]
Before this descends into a flame war, let’s remember that construction costs vary dramatically from place to place.
posted by sanedragon at 5:22 PM on May 24 [1 favorite]
posted by sanedragon at 5:22 PM on May 24 [1 favorite]
I'd expect the insurance industry should slowly retract as our world warms, and mostly disappears eventually. It's maybe retracting faster than many expected in the US, but damages have escalated faster than many expected too.
What we learned about floods in 2023
posted by jeffburdges at 5:09 PM on May 28
What we learned about floods in 2023
posted by jeffburdges at 5:09 PM on May 28
Related: "Not only is CO2 now at the highest level in millions of years, it is also rising faster than ever."
posted by jeffburdges at 1:38 PM on June 7
posted by jeffburdges at 1:38 PM on June 7
38 trillion dollars in damages each year: World economy already committed to income reduction of 19 % due to climate change
posted by jeffburdges at 3:59 AM on June 16
posted by jeffburdges at 3:59 AM on June 16
"We develop a new dataset to study homeowners insurance. Our data on over 47 million observations of households’ property insurance expenditures from 2014-2023 are inferred from mortgage escrow payments. First, we find a sharp 33% increase in average premiums from 2020 to 2023 (13% in real terms) that is highly uneven across geographies. This growth is associated with a stronger relationship between premiums and local disaster risk: A one standard-deviation increase in disaster risk is associated with $500 higher premiums in 2023, up from $300 in 2018. Second, using the rapid rise in reinsurance prices as a natural experiment, we show that the increase in the risk-to-premium gradient was largely caused by the pass-through of reinsurance costs. Third, we project that if the reinsurance shock persists, growing disaster risk will lead climate-exposed households to face $700 higher annual premiums by 2053. Our results highlight that prices in global reinsurance markets pass through to household budgets, and will ultimately drive the cost of rising climate risk." Property Insurance and Disaster Risk: New Evidence from Mortgage Escrow Data (NBER)
posted by mittens at 12:53 PM on June 18 [1 favorite]
posted by mittens at 12:53 PM on June 18 [1 favorite]
There are 144 million homes in the US so $700 per home per year only reaches like $100 billion.
We already have many articles like: Global insured losses from natural catastrophes exceeded $100 billion for fourth consecutive year in 2023
Above, I linked an article saying: "Even if CO2 emissions were to be drastically cut down starting today, the world economy is already committed to an income reduction of 19 % until 2050 due to climate change, a new study published in Nature finds." (which they estimate as $38 trillion in damages each year)
19% of GWP means 1 in 5 hours everyone works covers climate mitigations, even after we eliminate income inequality, enact Carousel etc.
posted by jeffburdges at 3:32 PM on June 18
We already have many articles like: Global insured losses from natural catastrophes exceeded $100 billion for fourth consecutive year in 2023
Above, I linked an article saying: "Even if CO2 emissions were to be drastically cut down starting today, the world economy is already committed to an income reduction of 19 % until 2050 due to climate change, a new study published in Nature finds." (which they estimate as $38 trillion in damages each year)
19% of GWP means 1 in 5 hours everyone works covers climate mitigations, even after we eliminate income inequality, enact Carousel etc.
posted by jeffburdges at 3:32 PM on June 18
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Today I am watching the Environment Canada radar as another line thunderstorms heads this way.
posted by fimbulvetr at 12:32 PM on May 22 [2 favorites]