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The LA Fires Burned Homes. The Data Show Insurers Saw the Risks
- Bostonian 2y agohttps://archive.is/4mdWE https://archive.is/4mdWE
- stuaxo 2y agoWhat's going to happen with insurance and what's insurable if the new US gov gets their way with removing regulations and protections?
- mgh95 2y agoPerhaps the more pertinent question is what if the US gov doesn't recognize the risk and allow insurers to raise rates. A now significant portion of the problem is the fact that California's FAIR plan will potentially be insolvent. In this case, the market was correct, not the gov.
- Dalewyn 2y ago>what if the US gov doesn't recognize the risk and allow insurers to raise rates. I'm not sure I follow: Isn't the entire point of raising rates (I assume you mean raising insurance premiums) to compensate for higher risk?
- logicchains 2y agoInsurers in California were forbidden from raising rates to compensate for the fire risk, so they instead chose to pull out.
- Dalewyn 2y agoRead the question again: "what if the US gov doesn't recognize the risk and allow insurers to raise rates". Breaking it down: "What if the US gov ... allow insurers to raise rates". Now color me confused.
- mgh95 2y agoCalifornia advocates frequently accused home insurers of price gouging (see: https://consumerwatchdog.org/insurance/study-public-scrutiny-has-saved-californians-over-5-5-billion-on-home-auto-insurance-since-2002-including-885-million-in-last-two-months-alone/ https://consumerwatchdog.org/insurance/study-public-scrutiny...) arguing that price increases need expensive and time consuming hearings processes to the point of calling these practices "illegal". If the government doesn't recognize that there is a very real, very significant risk of wildfire and prohibits pricing it in (whether based upon location or mitigation factors) insurers will leave the market, effectively rendering the houses ineligible for subsidized mortgages.
- Dalewyn 2y agoSo you're saying that everything would be fine(ish) if insurers are allowed to raise premiums. I agree. The question you posed as a future potential problem is: "What if the US gov ... allow insurers to raise rates". So again, color me confused. What is the problem with the government allowing insurance companies to raise premiums?
- mgh95 2y agoThe statement in question reads: > Perhaps the more pertinent question is what if the US gov doesn't recognize the risk and allow insurers to raise rates. Breaking it down: if the US gov (or its subdivisions) believes the risk is "gouging" or "egregious" or "too expensive" and prohibits rate increases, an insurer thinks they'll lose money, and leave the market. When this happens either the gov steps in as an insurer of last resort (and loses tons of money, because underwriting isn't a political problem), or insurance products cease to be sold in that area. If insurance is no longer available, the house is no longer eligible for a fannie/freddie conforming loan, and is for all practical purposes ineligible for a mortgage. The local property market dies overnight.
- Dalewyn 2y ago>Breaking it down: if the US gov (or its subdivisions) believes the risk is "gouging" or "egregious" or "too expensive" and prohibits rate increases, You worded the original query badly then. I read it like follows: What if the US gov: * doesn't recognize the risk and * allow insurers to raise rates Hence my confusion: Why is it bad for the US government to let insurers raise rates? EDIT: Copypasta fail. :V
- 3D30497420 2y agoThe point of raising rates is to compensate for higher risk. However that is politically very unpopular, so voters put pressure on politicians to prevent insurers from adequately pricing risk through premiums. Also, I don't think the government is predominantly to blame. I'd wager plenty of people in local, state, federal governments know that these locations need to be expensive to insure or are basically uninsurable. However, voters refuse to accept the reality of increasing risks due climate change, urban sprawl, and other factors. Politicians lack the incentive (or spine) to be honest about these risks. And anyone else in government, especially scientists, that do state the risks plainly are either ignored, censored, or fired. And its only going to get worse. As more companies pull out, governments will step in (pressured by voters) to be the insurers of last resort. This is already true in Florida (see: https://en.wikipedia.org/wiki/Citizens_Property_Insurance_Corporation https://en.wikipedia.org/wiki/Citizens_Property_Insurance_Co...) and (I believe) California. At some point, natural disasters will probably cause these government insurers to go (basically) bankrupt since they're insuring rich people's million dollar houses on Florida's coast and in California forests. Edit: I'd also wager companies are more than happy to price-gouge in situations like this too. I expect this is both premiums being insufficiently high and companies seeing profit opportunities.
- orangepanda 2y agoIs it truly a problem if families move away from areas of high-risk natural disasters?
- anonzzzies 2y agoThe number of those areas will grow though, so there will be less places to move to.
- entropi 2y agoI would argue it is a problem that can't be solved by means of insurance.
- anonzzzies 2y agoMe too; just responding to that people can move.
- vasco 2y agoWe could put all of humanity in the space of Texas at the density of Manhattan, so I don't think we lack space.
- danaris 2y agoBut we would not then be able to safely handle sanitation, transportation, air pollution, etc. Nor would we be able to handle the logistic required to feed everyone in such a scenario. "Hypothetically, if we were to jam every human on earth into a space the size of Texas; it would just have the same pop. density as Manhattan" is not remotely the same as "in practice, all of humanity could comfortably live in a space the size of Texas with the density of Manhattan."
- tossandthrow 2y agoThe American populous has decided that this is not the case - drill, baby drill. In the current landscape I think very few people on a global scale has any sympathy with Americans being affected by the changing climate.
- femiagbabiaka 2y agoFeels tangential because a lot of these regions are borderline uninsurable right now. This is a huge problem in FL and CA.
- refurb 2y agoNothing is uninsurable for the right premium. And there is plenty that can be done to reduce the fire risk to bring premiums down. CA is hardly the first place to have a high fire risk.
- perfmode 2y agoIs this true in an absolute sense? There are impossibility proofs in many domains and I wouldn’t be surprised to discover that there are certain conditions that create circumstances that aren’t insurable. Asking sincerely
- miniBill 2y agoI mean, if your house costs a million and gets destroyed by fire every year I can insure you for 100k per month, so it is insurable just. Not usefully.
- ben_w 2y agoDe facto/de jure. I would argue that if the cost of the insurance exceeds the available money, that counts as de facto "uninsurable".
- Ferret7446 2y agoThat's not "uninsurable". That's "you can't afford it" or "the insurance isn't worth it". Both of those are already true for many cases where insurance exists and people buy it.
- ben_w 2y ago
- baq 2y agoIn aggregate you'll see what the market thinks about living in high risk places. From a single family perspective, there will be a lot of tragic stories of people who are in an impossible situation with regards to moving.
- amluto 2y agoWhich regulation? Arguably the CA insurance market is broken because of poorly considered price regulation. On the other hand, regulation to help ensure the solvency of insurers seems like a good thing.
- buran77 2y ago> regulation to help ensure the solvency of insurers seems like a good thing Seems like a good thing for the insurers if the state takes only the risks. It means operating the business at the very limit of how much profit you can extract from it knowing failure is cost free. Safety nets only take the beating and the falls. So if you're going to be the safety net, you're probably better served by running the business yourself. I get helping out up to a ceiling but not unlimited liability from the state, guaranteeing an insurer is always solvent. How do you keep bad actors out of the "state guarantees you stay solvent" business?
- bvan 2y agoThe state doesn’t take unlimited liability
- buran77 2y agoI answered to the hypothetical from OP's comment as I understood it, and quoted. > regulation to help ensure the solvency of insurers The only way to ensure solvency is for the state/people to bail them out as needed. That's not a business, that's literally privatizing the profits and socializing the costs. It's clear that if the insurers themselves are tasked with ensuring their own solvency it would be prohibitively expensive, so they'll pack their things and go.
- amluto 2y agoNo, the state can and should regulate the market such that anyone selling insurance (in CA, that’s “admitted” insurance IIRC) must meet certain requirements in regard to their ability to pay large claims. Kind of like how states and the federal government regulate banks to minimize the risk that they end up needing FDIC funds. This type of solvency regulation may not be 100% perfect, but it’s a lot better than nothing. > It's clear that if the insurers themselves are tasked with ensuring their own solvency it would be prohibitively expensive Why is that? Sure, a massive event like the Palisades fire might cost $40bn (in a functioning insurance market — we’ll see how much of this gets eaten by homeowners with insufficient coverage in the broken CA market), but this was still a low probability event, it ought to be spread among 10k policies or so, giving a few million dollars per policy. At a (wildly made up) risk of 1% per year of such a loss, that’s $40k per year even before accounting for the fact that these costs get shared by policies covering homes that weren’t in the Palisades. This is expensive but in line with what property taxes ought to be, and it’s manageable. And would be lower if homes were updated to meet modern WUI fire codes. The real issue is that CA did not allow insurers to set premiums appropriately, so the insurers either get screwed or refuse to issue the policies. That was (AFAICT) the actual problematic regulation, and CA is trying to roll it back.
- bdavbdav 2y agoUnusually, regulation is the issue - instead of raising rates (prohibited beyond a certain amount in CA), they just pull out.
- Ferret7446 2y agoUnusually? Regulation is the issue more often than not (which the astute reader will understand to mean that sometimes regulation is good), and much more so when it involves any kind of price fixing.
- flanked-evergl 2y agoThey saw the risk and withdrew: https://www.foxbusiness.com/lifestyle/california-insurance-crisis-here-carriers-have-fled-reduced-coverage-state https://www.foxbusiness.com/lifestyle/california-insurance-c... > Several insurance companies have either fled California, stopped writing new policies or otherwise reduced their exposure in the Golden State, citing business risks amid rising replacement costs and the inability to adequately raise premiums.
- draw_down 2y ago[dead]
- bdavbdav 2y agoThis is madness - I get preventing huge premium jumps (although given that it’s a competitive landscape and many do jump ship between providers year on year, I suspect it is protecting largely the less financially astute), but if the upshot is that providers end up withdrawing cover, then that’s an objectively worse situation.
- deleted 2y ago[deleted]
- CarRamrod 2y ago>This is madness THIS IS CALIFORNIA!
- zinekeller 2y agoIf they could they would probably would, but California prevents them from even choosing to do that.
- bdavbdav 2y agoYep that was my point
- raffraffraff 2y agoWhile law provides a framework for contracts, regulations, and dispute resolution, insurance is based on actual risk based on historical data, industry trends, and on-site evaluations. No matter what the law says in the short term, we must acknowledge that reality is different. Insurance is more evidence based than law. And very generally, if insurance won't cover it, you can't build it or make a business out of it. I see this as the banal way that we will inevitably deal with the aftermath of ignoring climate change.
- JumpCrisscross 2y ago> if insurance won't cover it, you can't build it or make a business out of it There are quite a few parts of the country where this isn't true. In some it recently became so. Where it's been true longer, land values are lower and folks build cheaper. (Go back further and most structures weren't built to be durable over decades.)
- pjc50 2y agoIf you want to know the probability distribution of the future, ask an actuary.
- rjbwork 2y agoI've always loved this bit from SlateStarCodex (go to section VI): https://slatestarcodex.com/2020/03/30/legal-systems-very-different-from-ours-because-i-just-made-them-up/ https://slatestarcodex.com/2020/03/30/legal-systems-very-dif...
- londons_explore 2y agoWhat is ironic, is that those with insurance probably will get a full payout for the entire value of their home. But those who decided to build out of fireproof materials and install a sprinkler system, now have an almost worthless home, since it's now located in a barren wasteland, and the insurance won't be paying out since your house wasn't burned down. There is an absolute incentive to make sure that if any disaster destroys the region, that you aren't the only one to survive.
- pjc50 2y agoHow many of those actually survived? Must be some interesting photos of isolated houses among charcoal plains.
- londons_explore 2y agoYes: https://nypost.com/wp-content/uploads/sites/2/2025/01/comedian-bill-haders-house-survives-96521023.jpg?w=1024 https://nypost.com/wp-content/uploads/sites/2/2025/01/comedi...
- pjc50 2y agoWow. Very sharp dividing line. But that image contains some suggestion that it wasn't all about the building materials - after all, the green hedges (leylandii?) have also survived. Is that the effect of external sprinklers?
- leoedin 2y agoI don't think that's really true. Most of the value of homes destroyed in LA was in the location, not the building. Insurance will pay out on the cost of reconstruction - but in a lot of cases that's probably 10% of the "value" of the home pre-fire. Equally, the land hasn't moved. If people wanted to live in the LA hills before the fires, they still will now. Certainly the prospect of a fire will reduce the value, but it won't make it zero.
- 2y ago
- JumpCrisscross 2y agoBurying power lines is expensive [1]. But not as expensive as literally this one fire [2]. Blaming the insurers is trying to financially engineer one's way out of a physical problem. [1] https://www.renewableenergyworld.com/power-grid/outage-management/what-would-it-cost-to-bury-all-of-californias-power-lines/ https://www.renewableenergyworld.com/power-grid/outage-manag... [2] https://www.nytimes.com/2025/01/15/business/economy/los-angeles-fires-economy.html https://www.nytimes.com/2025/01/15/business/economy/los-ange...
- danaris 2y agoBut while bad/old power lines may have been what literally sparked this fire, they're not the root cause. Burying them will improve things (and is probably a good idea—though there's also the concern of earthquakes shearing through buried lines), but as long as the area remains bone-dry, any spark will cause the same outcome, and sparks can come from a wide variety of sources.
- mppm 2y agoIn this debate, it's worth remembering that there are two separate risks that are worth insuring against: 1) the risk of losing your home in a wildfire or natural disaster and 2) this risk and/or expected damage going up over time. I.e. the risk that the annualized probability of incurring major damage will go up, say, a decade from now, in the area where you happened to purchase your home. This can be due to environmental conditions, urban mismanagement, crime rates, etc. A lot of people seem to automatically expect to be insured against the second risk when they insure themselves against the first, but it is not obvious to me that this should be so. At the very least, that should be written explicitly in the contract and priced accordingly. But I'm also not sure it is actually possible for an insurance company to reasonably price it, as this is not the kind of predictable, reproducible risk that insurance is usually well suited for.
- JumpCrisscross 2y ago> there are two separate risks that are worth insuring against: 1) the risk of losing your home in a wildfire or natural disaster and 2) this risk and/or expected damage going up over time You're comparing risks and costs. The first is stochastic. The second can be almost completely controlled by renewal and rate-increase frequencies as well as coverage limits.
- aucisson_masque 2y ago> “They accept that hurricanes are a fact of life in Florida,” she says. “They just work around them and prepare for them rather than avoiding the area.” How do you work around wildfire ? I guess you could make a bunker like house, all in concrete with very little window. Rich LA properties are going to look like Albania lol For reference Albania has thousands of bunkers all around its countryside.
- JumpCrisscross 2y ago> How do you work around wildfire ? Fireproofing. It isn't totally a coïncidence that the fire stopped at the urban boundary. Urban fires used to be common. We made them rare because our cities are productive enough to be worth fireproofing.
- Ferret7446 2y agoAnd controlled burns. And making sure your reservoirs are actually functional.