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What'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 ago
  Perhaps 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 ago
      Insurers in California were forbidden from raising rates to compensate for the fire risk, so they instead chose to pull out.
      • Dalewyn 2y ago
        Read 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 ago
          California 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 ago
            So 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 ago
              The 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
                • mgh95 2y ago
                  > Hence my confusion: Why is it bad for the US government to let insurers raise rates? Because of a very, very, bad decision to make the California (and I really should have written California gov, not US gov) an elected position. And people like voting for the guy who prevents prices from going up.
        • danaris 2y ago
          The correct breakdown is: "What if the US gov doesn't (recognize the risk and allow insurers to raise rates)". The only grammatical way for your interpretation to be correct is if "allow" was "allows". (However, I will grant that many posters, here and elsewhere, are sufficiently careless with their typing that one could easily assume that was the intent.)
    • 3D30497420 2y ago
      The 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 ago
  Is it truly a problem if families move away from areas of high-risk natural disasters?
  • anonzzzies 2y ago
    The number of those areas will grow though, so there will be less places to move to.
    • entropi 2y ago
      I would argue it is a problem that can't be solved by means of insurance.
      • anonzzzies 2y ago
        Me too; just responding to that people can move.
    • vasco 2y ago
      We 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 ago
        But 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 ago
      The 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 ago
  Feels tangential because a lot of these regions are borderline uninsurable right now. This is a huge problem in FL and CA.
  • refurb 2y ago
    Nothing 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 ago
      Is 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 ago
        I 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 ago
          De 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 ago
            That'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 ago
  In 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 ago
  Which 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 ago
      The state doesn’t take unlimited liability
      • buran77 2y ago
        I 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 ago
          No, 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 ago
  Unusually, regulation is the issue - instead of raising rates (prohibited beyond a certain amount in CA), they just pull out.
  • Ferret7446 2y ago
    Unusually? 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.