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Frankly, if the state of California believes it knows better than the insurers how to fairly price risks to its citizens’ homes, it should offer that insurance

Frankly, if the state of California believes it knows better than the insurers how to fairly price risks to its citizens’ homes, it should offer that insurance itself. As they’re doing with energy, they could implement progressive premium schemes for income redistribution purposes. The richer public services and lower inequality should keep the state’s population boom thundering on.

hindsightbias 3y ago
It's like all the complaints about PG&E. Don't like the way PG&E operates? Take it over and make it a public utility. State Leg: crickets chirping.
renewiltord 3y ago
Wait, no. That's the worst world. The state will simply pour taxpayer money into this and people will keep extracting it and throwing into a literal fire. Please God no. I already lose more than I get to the government in taxes on every marginal dollar I make.
- twoodfin 3y ago
  Don’t worry, every decade or so there’s a good reason for Congress to rescue the states from their foolish fiscal decisions (see also: public employee pensions). Somehow, though, the “bailout” boogeyman is never called out for the states, even though they got hundreds of billions of essentially no-strings-attached “Covid relief” dollars from the Feds.
  - deleted 3y ago
    [deleted]
  - mindslight 3y ago
    Subsidies to state governments are inevitable while the federal government retains monetary authority, and uses it to create continual monetary inflation. The idea that individual states could have fiscal responsibility and no funding from the feds would require that the federal reserve stop that fountain of new money. But the economic priests have decided that this must never happen, lest the plebs stop having to work as much.
- dicomdan 3y ago
  I believe OP was sarcastic in their comment about California nationalizing industries and making fees based on equity. In particular the "population boom thundering on" was quite obvious sarcasm, given that California has been in a steady decline.
  - renewiltord 3y ago
    Oh I should have detected that haha!
0zemp2c 3y ago
the State does in fact provide a reinsurance scheme of sorts - disaster designations and the release of funds...the Federal government provides a reinsurance scheme under that when they designate Federal disasters and release funds not sure the State is equipped to take over the first level of insurance...go to the DMV some time and ask if that is who you want to deal with when you have roof damage from hail etc
- nilsbunger 3y ago
  They don't bail out the insurance companies though, so those companies have no incentive to play ball in CA if it's unprofitable or risky to them.
notatoad 3y ago
the unspoken and incredibly politically toxic truth is that a lot of people's homes, including many whole towns, are simply at too high of a wildfire risk to continue existing. there is no price that makes them a good risk for an insurer, and the state would rather those people moved somewhere else because they don't have enough firefighting resources to protect all the outlying sprawl. a price cap on insurance means that properties in the urban cores should be able to continue to get policies, and properties in the woods will be essentially uninsurable. if you can reduce the number of houses being built in the woods, you can let a wildfire burn without having the bad press of losing so many homes.
- civilized 3y ago
  Have we considered whether standard best-practice wilderness management, like controlled burns, can address issues like this, or is that still ignored/dismissed?
  - emodendroket 3y ago
    One of the big fires last year I heard about was a controlled burn that turned into an uncontrolled burn so I guess it is not being totally ignored.
    - deleted 3y ago
      [deleted]
  - twoodfin 3y ago
    My understanding is that the current liability structure makes most potential controlled burns effectively impossible. I think you’d need an act of Congress to limit liability as long as certain easily justiciable standards were met.
  - mistrial9 3y ago
    good topic but ugly truth behind it -- a US Interior agency near New Mexico had a scheduled controlled burn on the books.. apparently they can schedule things multiple years in advance.. but .. the drought got worse and covid hit. The department had personnel and morale problems.. lots of uncertainty.. they stalledxxxxx "waited patiently" for two more years as the drought got still worse but the documents describing physical risk were not updated. The Federal department executed the burn and it went wild, and is the largest fire in recorded history in that area now, taking out an entire town plus other structures and causing the evacuation of Los Alamos National Laboratories at the same time. you can find the details easily.. there is a 70 page "final report" from the agency perspective. This is reality.
bobthepanda 3y ago
Interestingly this is already happening in Florida, where repeated hurricane damage and high levels of fraud has led to the exodus of pretty much all national insurance companies. https://www.nbcmiami.com/news/local/floridas-insurance-crisis-only-expected-to-get-worse-analysts/3027455/?amp=1 https://www.nbcmiami.com/news/local/floridas-insurance-crisi...
- pxmpxm 3y ago
  So that one was almost entirely fraud driven - there literally were contractors going around door to door after the hurricane, offering free roofs regardless of damage. My guess is that it's a structural dynamic - something like a hurricane is bound to trip the cat reinsurance thresholds for all the insurance companies, which means they have very little incentive to actually verify claims/monitor fraud, since it's the reinsurers eating that cost.
  - bobthepanda 3y ago
    Insurance fraud is just high in Florida in general. The same can be seen in auto and health.
nilsbunger 3y ago
A less distorting mechanism is for CA to provide re-insurance to cover the massive catastrophic risk, while allowing providers to service the everyday risk. CA already backstops earthquake insurance in a similar way. You do lose the market signals about the real cost to insure when you do this though. Ultimately we have to change where we build but that's a HUGE undertaking and it's unclear where the political will for that will come from.
- swalling 3y ago
  Source on the fact that CA backstops earthquake insurance? I have heard over and over again that earthquake insurance isn’t worth the exorbitant price because the carriers will be bankrupt in any actual catastrophic quake.
adrr 3y ago
Isn’t capping insurance a regressive scheme when it comes to insurance. Poorest areas aren’t located high fire risk areas. These are single family homes. It’s like how Florida and federal flood insurance subsidizes insurance for beach front homes.
aaomidi 3y ago
Also makes sense, the state is responsible for dealing with wildfire prevention. If insuring is done by them, they’re now doubly so incentivized.
dehrmann 3y ago
> it should offer that insurance itself Which it's going to do with insulin, but the market for that seems broken. The property insurance market is pretty competitive.
isatty 3y ago
> As they’re doing with energy, they could implement progressive premium schemes for income redistribution purposes. Except that they’re doing a horrible job and PGE continues to rob people with impunity.
mcculley 3y ago
We have this in Florida, a non-profit insurer of last resort. Eventually, we will have a year with enough hurricane damage that it will wreck the entire economy, because so many homes have been built that cannot be reasonably maintained. https://en.wikipedia.org/wiki/Citizens_Property_Insurance_Corporation https://en.wikipedia.org/wiki/Citizens_Property_Insurance_Co...
zamfi 3y ago
They kind of do — at least, at the end of the market where insurers aren’t willing to do it for the price California allows: https://www.cfpnet.com/ https://www.cfpnet.com/
robomartin 3y ago
> if the state of California believes it knows better than the insurers how to fairly price risks to its citizens’ homes, it should offer that insurance itself. Behold, the California Fair Plan: https://www.cfpnet.com/ https://www.cfpnet.com/ Technically not a State agency. They force registered insurers to participate in a pool and insure homes. It should be called "California Forced Plan" or something worse. In practice, it's a horrific thing. I know people paying $6,000 per year for home insurance when, in other parts of the State you can insure a home for $800 per year. Fires, you say? Yeah, no, not a single bush burned in their neighborhood in 30 years. What happens is that some incomprehensible grouping of State, City, County...whatever agencies get together and declare entire regions as high fire hazard zones. That's pretty much a license to rape and pillage. Check out the map: https://osfm.fire.ca.gov/media/6636/fhszs_map.pdf https://osfm.fire.ca.gov/media/6636/fhszs_map.pdf The whole thing is, from my perspective, a horrific authoritarian overreach. Why do I say this? Look at those areas and research how many homes exist in them compared to the rest of State. Then get data on how many homes per year burn down due to brush or forest fires. That part is important. You cannot count homes that burned down because a 3D printer caught fire in the garage or someone started an oil fire while cooking and could not put it out. If you are going to classify an entire region as an extreme fire danger region, you'd better have lots of fires caused by events well outside anyone's home. You know, brush fires. The truth of the matter is that the numbers don't justify any of this. They are taking advantage of people. There are approximately 12 million housing units in California [1]. Out of those, between 2005 and 2022, some 65,000 structures were lost o wildfires. That averages out to about 0.03% properties lost per year to wildfires. And that number is deeply skewed by abnormal way-out-of-the-norm activity during three out of 18 years. If we take out these three data points we go from 65K properties lost down to 20K. Which means somewhere in the order of 0.01% of properties lost to wildfires under normal circumstances. So, somewhere between 0.01% and 0.03% lies a sensible estimate. And for this ridiculous number they castigate a massive portion of the CA population with this high fire risk rating that causes their premiums to explode. There's a lot more to this [3]. If you look at home fires at a national level (over 300K per year), the leading causes are cooking and heating equipment. And yet, once again, with 140 million housing units in the US, that number represents 0.2% of the housing units per year. In other words, if we are going to talk about averages (not always a good idea), the national average for homes burning down due to fires not related to wildfires, is TEN TIMES greater than the percentage of housing units burned down in CA due to wildfires. Conclusion: People are getting robbed. Insurance companies are just fine. [1] https://www.infoplease.com/us/census/california/housing-statistics https://www.infoplease.com/us/census/california/housing-stat... [2] https://headwaterseconomics.org/natural-hazards/structures-destroyed-by-wildfire/ https://headwaterseconomics.org/natural-hazards/structures-d... [3] https://www.thezebra.com/resources/research/house-fire-statistics/ https://www.thezebra.com/resources/research/house-fire-stati...
borski 3y ago
They do, at least for earthquake insurance: https://www.earthquakeauthority.com/ https://www.earthquakeauthority.com/ CA has required since the 80s that insurers that offer homeowner insurance also offer earthquake. However, after the ‘94 Northridge earthquake, 93% of insurers had either stopped offering or greatly restricted their property insurance underwriting in CA. Now the CEA sells two thirds of the earthquake insurance policies in CA. So if the insurance companies don’t step up and underwrite, CA may very well do just what you said.
AndrewKemendo 3y ago
So then how about this: Ballot measure to pay high risk residents to move. Long term tax burden goes down, nobody lives in the hot zone I wonder how it could work with existing fallow real estate that isn’t in those fire prone areas So, how would some organization help move all those at risk people into existing vacant real estate in a way that benefits the at risk homeowner?

hindsightbias 3y ago

It's like all the complaints about PG&E. Don't like the way PG&E operates? Take it over and make it a public utility. State Leg: crickets chirping.

renewiltord 3y ago

Wait, no. That's the worst world. The state will simply pour taxpayer money into this and people will keep extracting it and throwing into a literal fire. Please God no. I already lose more than I get to the government in taxes on every marginal dollar I make.

twoodfin 3y ago
Don’t worry, every decade or so there’s a good reason for Congress to rescue the states from their foolish fiscal decisions (see also: public employee pensions). Somehow, though, the “bailout” boogeyman is never called out for the states, even though they got hundreds of billions of essentially no-strings-attached “Covid relief” dollars from the Feds.
- deleted 3y ago
  [deleted]
- mindslight 3y ago
  Subsidies to state governments are inevitable while the federal government retains monetary authority, and uses it to create continual monetary inflation. The idea that individual states could have fiscal responsibility and no funding from the feds would require that the federal reserve stop that fountain of new money. But the economic priests have decided that this must never happen, lest the plebs stop having to work as much.
dicomdan 3y ago
I believe OP was sarcastic in their comment about California nationalizing industries and making fees based on equity. In particular the "population boom thundering on" was quite obvious sarcasm, given that California has been in a steady decline.
- renewiltord 3y ago
  Oh I should have detected that haha!

0zemp2c 3y ago

the State does in fact provide a reinsurance scheme of sorts - disaster designations and the release of funds...the Federal government provides a reinsurance scheme under that when they designate Federal disasters and release funds not sure the State is equipped to take over the first level of insurance...go to the DMV some time and ask if that is who you want to deal with when you have roof damage from hail etc

nilsbunger 3y ago
They don't bail out the insurance companies though, so those companies have no incentive to play ball in CA if it's unprofitable or risky to them.

notatoad 3y ago

the unspoken and incredibly politically toxic truth is that a lot of people's homes, including many whole towns, are simply at too high of a wildfire risk to continue existing. there is no price that makes them a good risk for an insurer, and the state would rather those people moved somewhere else because they don't have enough firefighting resources to protect all the outlying sprawl. a price cap on insurance means that properties in the urban cores should be able to continue to get policies, and properties in the woods will be essentially uninsurable. if you can reduce the number of houses being built in the woods, you can let a wildfire burn without having the bad press of losing so many homes.

civilized 3y ago
Have we considered whether standard best-practice wilderness management, like controlled burns, can address issues like this, or is that still ignored/dismissed?
- emodendroket 3y ago
  One of the big fires last year I heard about was a controlled burn that turned into an uncontrolled burn so I guess it is not being totally ignored.
  - deleted 3y ago
    [deleted]
- twoodfin 3y ago
  My understanding is that the current liability structure makes most potential controlled burns effectively impossible. I think you’d need an act of Congress to limit liability as long as certain easily justiciable standards were met.
- mistrial9 3y ago
  good topic but ugly truth behind it -- a US Interior agency near New Mexico had a scheduled controlled burn on the books.. apparently they can schedule things multiple years in advance.. but .. the drought got worse and covid hit. The department had personnel and morale problems.. lots of uncertainty.. they stalledxxxxx "waited patiently" for two more years as the drought got still worse but the documents describing physical risk were not updated. The Federal department executed the burn and it went wild, and is the largest fire in recorded history in that area now, taking out an entire town plus other structures and causing the evacuation of Los Alamos National Laboratories at the same time. you can find the details easily.. there is a 70 page "final report" from the agency perspective. This is reality.

bobthepanda 3y ago

Interestingly this is already happening in Florida, where repeated hurricane damage and high levels of fraud has led to the exodus of pretty much all national insurance companies. https://www.nbcmiami.com/news/local/floridas-insurance-crisis-only-expected-to-get-worse-analysts/3027455/?amp=1 https://www.nbcmiami.com/news/local/floridas-insurance-crisi...

pxmpxm 3y ago
So that one was almost entirely fraud driven - there literally were contractors going around door to door after the hurricane, offering free roofs regardless of damage. My guess is that it's a structural dynamic - something like a hurricane is bound to trip the cat reinsurance thresholds for all the insurance companies, which means they have very little incentive to actually verify claims/monitor fraud, since it's the reinsurers eating that cost.
- bobthepanda 3y ago
  Insurance fraud is just high in Florida in general. The same can be seen in auto and health.

nilsbunger 3y ago

A less distorting mechanism is for CA to provide re-insurance to cover the massive catastrophic risk, while allowing providers to service the everyday risk. CA already backstops earthquake insurance in a similar way. You do lose the market signals about the real cost to insure when you do this though. Ultimately we have to change where we build but that's a HUGE undertaking and it's unclear where the political will for that will come from.

swalling 3y ago
Source on the fact that CA backstops earthquake insurance? I have heard over and over again that earthquake insurance isn’t worth the exorbitant price because the carriers will be bankrupt in any actual catastrophic quake.

adrr 3y ago

Isn’t capping insurance a regressive scheme when it comes to insurance. Poorest areas aren’t located high fire risk areas. These are single family homes. It’s like how Florida and federal flood insurance subsidizes insurance for beach front homes.

aaomidi 3y ago

Also makes sense, the state is responsible for dealing with wildfire prevention. If insuring is done by them, they’re now doubly so incentivized.

dehrmann 3y ago

> it should offer that insurance itself Which it's going to do with insulin, but the market for that seems broken. The property insurance market is pretty competitive.

isatty 3y ago

> As they’re doing with energy, they could implement progressive premium schemes for income redistribution purposes. Except that they’re doing a horrible job and PGE continues to rob people with impunity.

mcculley 3y ago

We have this in Florida, a non-profit insurer of last resort. Eventually, we will have a year with enough hurricane damage that it will wreck the entire economy, because so many homes have been built that cannot be reasonably maintained. https://en.wikipedia.org/wiki/Citizens_Property_Insurance_Corporation https://en.wikipedia.org/wiki/Citizens_Property_Insurance_Co...

zamfi 3y ago

They kind of do — at least, at the end of the market where insurers aren’t willing to do it for the price California allows: https://www.cfpnet.com/ https://www.cfpnet.com/

robomartin 3y ago

> if the state of California believes it knows better than the insurers how to fairly price risks to its citizens’ homes, it should offer that insurance itself. Behold, the California Fair Plan: https://www.cfpnet.com/ https://www.cfpnet.com/ Technically not a State agency. They force registered insurers to participate in a pool and insure homes. It should be called "California Forced Plan" or something worse. In practice, it's a horrific thing. I know people paying $6,000 per year for home insurance when, in other parts of the State you can insure a home for $800 per year. Fires, you say? Yeah, no, not a single bush burned in their neighborhood in 30 years. What happens is that some incomprehensible grouping of State, City, County...whatever agencies get together and declare entire regions as high fire hazard zones. That's pretty much a license to rape and pillage. Check out the map: https://osfm.fire.ca.gov/media/6636/fhszs_map.pdf https://osfm.fire.ca.gov/media/6636/fhszs_map.pdf The whole thing is, from my perspective, a horrific authoritarian overreach. Why do I say this? Look at those areas and research how many homes exist in them compared to the rest of State. Then get data on how many homes per year burn down due to brush or forest fires. That part is important. You cannot count homes that burned down because a 3D printer caught fire in the garage or someone started an oil fire while cooking and could not put it out. If you are going to classify an entire region as an extreme fire danger region, you'd better have lots of fires caused by events well outside anyone's home. You know, brush fires. The truth of the matter is that the numbers don't justify any of this. They are taking advantage of people. There are approximately 12 million housing units in California [1]. Out of those, between 2005 and 2022, some 65,000 structures were lost o wildfires. That averages out to about 0.03% properties lost per year to wildfires. And that number is deeply skewed by abnormal way-out-of-the-norm activity during three out of 18 years. If we take out these three data points we go from 65K properties lost down to 20K. Which means somewhere in the order of 0.01% of properties lost to wildfires under normal circumstances. So, somewhere between 0.01% and 0.03% lies a sensible estimate. And for this ridiculous number they castigate a massive portion of the CA population with this high fire risk rating that causes their premiums to explode. There's a lot more to this [3]. If you look at home fires at a national level (over 300K per year), the leading causes are cooking and heating equipment. And yet, once again, with 140 million housing units in the US, that number represents 0.2% of the housing units per year. In other words, if we are going to talk about averages (not always a good idea), the national average for homes burning down due to fires not related to wildfires, is TEN TIMES greater than the percentage of housing units burned down in CA due to wildfires. Conclusion: People are getting robbed. Insurance companies are just fine. [1] https://www.infoplease.com/us/census/california/housing-statistics https://www.infoplease.com/us/census/california/housing-stat... [2] https://headwaterseconomics.org/natural-hazards/structures-destroyed-by-wildfire/ https://headwaterseconomics.org/natural-hazards/structures-d... [3] https://www.thezebra.com/resources/research/house-fire-statistics/ https://www.thezebra.com/resources/research/house-fire-stati...

borski 3y ago

They do, at least for earthquake insurance: https://www.earthquakeauthority.com/ https://www.earthquakeauthority.com/ CA has required since the 80s that insurers that offer homeowner insurance also offer earthquake. However, after the ‘94 Northridge earthquake, 93% of insurers had either stopped offering or greatly restricted their property insurance underwriting in CA. Now the CEA sells two thirds of the earthquake insurance policies in CA. So if the insurance companies don’t step up and underwrite, CA may very well do just what you said.

AndrewKemendo 3y ago

So then how about this: Ballot measure to pay high risk residents to move. Long term tax burden goes down, nobody lives in the hot zone I wonder how it could work with existing fallow real estate that isn’t in those fire prone areas So, how would some organization help move all those at risk people into existing vacant real estate in a way that benefits the at risk homeowner?