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Why Is Homeowners Insurance Getting So Expensive?

5 points by chmaynard 2y ago

jqpabc123 2y ago
Looking at this on a "per capita" basis doesn't make much sense to me. In my experience, homeowner insurance rates are primarily based on the estimated value of the home --- not the number of people living in it.
- JumpCrisscross 2y ago
  Literally the next paragraph: “One obvious one is simply an increasing number of homes.” Then the author adjusts “for changes in home size, number of homes/homeownership rate, and construction cost inflation.”
  - jqpabc123 2y ago
    Since insurance companies base their rates on home valuation, wouldn't it make more sense to look at the cost of insurance as a percentage of home valuation or perhaps max. coverage limits as stated in the policy? You can do whatever adjustments you want but I still fail to see how cost "per capita" turns into a particularly relevant measure since rates are not "per capita". If my in-laws move in, does my cost "per capita" decrease?
    - JumpCrisscross 2y ago
      > wouldn't it make more sense to look at the cost of insurance as a percentage of home valuation or perhaps max Maybe. This also introduces other confounders. More fundamentally, those data won’t be as broad nor as granular (particular home-value data, which get notoriously obscured e.g. in jurisdictions with high property tax or transfer rates).
s1artibartfast 2y ago
Im pretty skeptical of the underlying approach. Why starting with cost per capita and trying to control for everything instead of a more direct measure? Poor controls is cumulative error and taints everything else. I suspect you would get a substantially different result if it was based public tax filing data for coverage. My SWAG is that construction is a larger portion than estimated, and the quality of coverage is a major factor not captured in this model (fewer claims, higher price tag). One thing the article overlooks is that the price of insurance is driven not only by payouts, but by investment returns and inflation rates. Insurers have liquidity requirements and restrictions on investment risk. I would expect insurance premiums to go up when returns on low risk assets like bonds and mortgage backed security returns are low, especially when inflation is high. I wonder if many insurers were/are in a comparable financial situation to silicon valley bank holding underwater bonds, but with the benefit that homeowners can not coordinate a run on the bank. I suppose we will learn more about the state of their liquidity and financial risk in the fallout from the SoCal fire claims. Probably way too late to make options trades on this hypothesis. May be a opportunity to go long on firms with relatively less exposure (low growth since 2020).

5 points by chmaynard 2y ago

Looking at this on a "per capita" basis doesn't make much sense to me. In my experience, homeowner insurance rates are primarily based on the estimated value of the home --- not the number of people living in it.

JumpCrisscross 2y ago
Literally the next paragraph: “One obvious one is simply an increasing number of homes.” Then the author adjusts “for changes in home size, number of homes/homeownership rate, and construction cost inflation.”
- jqpabc123 2y ago
  Since insurance companies base their rates on home valuation, wouldn't it make more sense to look at the cost of insurance as a percentage of home valuation or perhaps max. coverage limits as stated in the policy? You can do whatever adjustments you want but I still fail to see how cost "per capita" turns into a particularly relevant measure since rates are not "per capita". If my in-laws move in, does my cost "per capita" decrease?
  - JumpCrisscross 2y ago
    > wouldn't it make more sense to look at the cost of insurance as a percentage of home valuation or perhaps max Maybe. This also introduces other confounders. More fundamentally, those data won’t be as broad nor as granular (particular home-value data, which get notoriously obscured e.g. in jurisdictions with high property tax or transfer rates).

s1artibartfast 2y ago

Im pretty skeptical of the underlying approach. Why starting with cost per capita and trying to control for everything instead of a more direct measure? Poor controls is cumulative error and taints everything else. I suspect you would get a substantially different result if it was based public tax filing data for coverage. My SWAG is that construction is a larger portion than estimated, and the quality of coverage is a major factor not captured in this model (fewer claims, higher price tag). One thing the article overlooks is that the price of insurance is driven not only by payouts, but by investment returns and inflation rates. Insurers have liquidity requirements and restrictions on investment risk. I would expect insurance premiums to go up when returns on low risk assets like bonds and mortgage backed security returns are low, especially when inflation is high. I wonder if many insurers were/are in a comparable financial situation to silicon valley bank holding underwater bonds, but with the benefit that homeowners can not coordinate a run on the bank. I suppose we will learn more about the state of their liquidity and financial risk in the fallout from the SoCal fire claims. Probably way too late to make options trades on this hypothesis. May be a opportunity to go long on firms with relatively less exposure (low growth since 2020).