California's largest home insurer won't renew 72,000 policies(sfchronicle.com)
sfchronicle.com
California's largest home insurer won't renew 72,000 policies
https://www.sfchronicle.com/california/article/state-farm-insurance-nonrenewals-19357533.php
84 comments
Yes living in FL its ridiculous. It's not just the premium increases and lack of competition, everyone is getting hit with needing to replace their roof if more 15 years old or they will cancel you.
Citizen which is state backed makes you move to private if you get an offer thats <= 10% more expensive as they don't want people on government insurance.
Citizen which is state backed makes you move to private if you get an offer thats <= 10% more expensive as they don't want people on government insurance.
> “Floridians are seeing homeowners insurance become costlier and scarcer because, for years, the state has been the home of too much litigation and too many fraudulent roof-replacement schemes”
I've often wondered about the whole roof bullshit as it seems everyone around here expects a free roof replacement anytime it hails. At some point it's unsustainable.
(The idea behind roof replacement insurance is/was a good one, as a damaged roof quickly destroys the entire building, water is the building destroyer. But when you have people driving around after a hailstorm offering homeowners free roofs if they sign over the ability to work with their insurance, obviously something is wrong.)
I've often wondered about the whole roof bullshit as it seems everyone around here expects a free roof replacement anytime it hails. At some point it's unsustainable.
(The idea behind roof replacement insurance is/was a good one, as a damaged roof quickly destroys the entire building, water is the building destroyer. But when you have people driving around after a hailstorm offering homeowners free roofs if they sign over the ability to work with their insurance, obviously something is wrong.)
One insurance agent I know said much of it came from requiring legal fees be reimbursed, so lawyers where helping people go after insurance for even minor claims while racking up large legals fees to do so that insurance has to pay for.
There was a lot of people getting new roofs for very minor damage and roofers going around trying to facilitate the process.
There was a lot of people getting new roofs for very minor damage and roofers going around trying to facilitate the process.
Politicians should address the fraud first. Telling Farmers they can do car insurance if they are pulling out of home insurance is not going to work in my opinion.
> the most substantial wildfire or fire following earthquake hazards
The key here, and what insurance companies really don't like dealing with, is coordinated payouts.
If you insure 10,000 homes, and 10 burn down every year, that's quite manageable. If instead you have years with nothing and then a thousand burn down at the same time, that's much harder to manage. It's also harder to build the actuarial tables, because there's too many unknowns.
And wildfires and earthquakes almost by definition affect large areas.
The key here, and what insurance companies really don't like dealing with, is coordinated payouts.
If you insure 10,000 homes, and 10 burn down every year, that's quite manageable. If instead you have years with nothing and then a thousand burn down at the same time, that's much harder to manage. It's also harder to build the actuarial tables, because there's too many unknowns.
And wildfires and earthquakes almost by definition affect large areas.
The industry came up with reinsurance for this reason.
Step 1: purchase reinsurance
Step 2: use reinsurance to cover losses
Step 3: reinsurance premiums go up or reinsurer refuses to insure you
Step 2: use reinsurance to cover losses
Step 3: reinsurance premiums go up or reinsurer refuses to insure you
Sell reinsurance in a loop via tranches and everyone makes cash until the disaster happens and everything goes bankrupt.
AIG anyone?
AIG anyone?
This is exactly what Lloyds does.
I think the main disconnect is the state believes "incident X" will happen Y% of the time, and the insurance companies believe it will be Y+X%, and they're not willing (or can't find a reinsurance backer) to roll it.
The state, of course, can be the reinsurance issuer of last resort if they really believe their numbers are correct. Or do something like the California Earthquake Authority which everyone knows is vastly underfunded, but at least there's the hint of a promise that when the Big One™ comes, they'll get emergency funding: https://www.earthquakeauthority.com
The state, of course, can be the reinsurance issuer of last resort if they really believe their numbers are correct. Or do something like the California Earthquake Authority which everyone knows is vastly underfunded, but at least there's the hint of a promise that when the Big One™ comes, they'll get emergency funding: https://www.earthquakeauthority.com
Reinsurance doesn't make the problem go away. Sure it caps State Farm's exposure to these correlated events, but it won't bring their combined ratio into balance. State Farm would still be on the hook for the first $XXX million in losses. I would also expect it to be harder (read: more expensive) to buy the reinsurance given the increasing risk.
Wow, I had always worried about not being able to afford the taxes on a home, but I never considered also not being able to afford the insurance.
Living in Florida nobody is talking about property taxes but homeowners insurance is driving people out. It's more than doubled for everyone we know in the last few years along with most insurer requiring a new roof if more than 15 years old, this usually comes up when trying to sell the house and new owners are trying to find insurance.
Did something change in roof building about 15 years ago? Are older roofs more susceptible to being ripped off in a tornado?
Around here they just write a roof exclusion if it's too old, and hail doesn't get you a "free roof".
Around here they just write a roof exclusion if it's too old, and hail doesn't get you a "free roof".
Roofs just do not last that long in florida. Hurricanes and floods are getting worse because of global warming, so they last even less. And yes an older roof is more susceptible to leaking, damage, etc.
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Roofs on airplane hangers last fine for at least 30 years in Florida… maybe not visually since they do get repainted but certainly fine enough for aircraft owners and their insurers.
The idea is that 15 years is the oldest a roof should be due to the wear and tear that it gets from the harsh Florida environment. I should also mention that this timeframe can differ for different roofing materials (metal, tile generally have longer lifespans than shingles).
I believe it has something to do with a law past a couple of years ago that they cannot deny based on roof age if less than 15 years so now they are denying everything over 15 years.
There is something related to the sticky membrane they put down first now days that helps with hurricane damage and there was also a significant amount of people getting insurance to pay for new roofs after even minor storm damage that occurred due to the way the law was or is structured, roofer where going around finding anyone with minor damage and getting new roofs put on filing claims.
There is something related to the sticky membrane they put down first now days that helps with hurricane damage and there was also a significant amount of people getting insurance to pay for new roofs after even minor storm damage that occurred due to the way the law was or is structured, roofer where going around finding anyone with minor damage and getting new roofs put on filing claims.
Florida had a huge problem where unscrupulous lawyers and roofers would go around to homeowners and say "We can get you a new roof for free!". Homeowners would sign over their negotiating rights to the lawyer/roofer, they'd sue insurance saying that a roof was needed, and so the homeowner would get a new roof and the lawyer/roofer would get a nice profit. This is very costly to insurance, and I think last year the legislature passed a law forbidding this method.
That happens everywhere though.
We had some tornadoes go through a few weeks ago. My house had some minor hail and 50-60 mph winds. No damage. Yet plenty of letters in the mail offering to handle getting me a new roof.
The difference is that Florida used to make it really easy to force the insurance company to pay even when nothing was wrong.
We had some tornadoes go through a few weeks ago. My house had some minor hail and 50-60 mph winds. No damage. Yet plenty of letters in the mail offering to handle getting me a new roof.
The difference is that Florida used to make it really easy to force the insurance company to pay even when nothing was wrong.
> Did something change in roof building about 15 years ago? Are older roofs more susceptible to being ripped off in a tornado?
The base standards may have been raised:
* https://fortifiedhome.org/roof/
* https://www.youtube.com/results?search_query=fortified+roof
(Or, even if it's "good enough" for the building code, it is not good enough for the insurance companies.)
The base standards may have been raised:
* https://fortifiedhome.org/roof/
* https://www.youtube.com/results?search_query=fortified+roof
(Or, even if it's "good enough" for the building code, it is not good enough for the insurance companies.)
Yes - there's a bunch of building techniques for resisting uplift forces.
Florida building code has been improved over the years with features to resist shingle detachment, roof uplift, and speed drying of the roof after water ingress to prevent mold.
Florida building code has been improved over the years with features to resist shingle detachment, roof uplift, and speed drying of the roof after water ingress to prevent mold.
same in Texas. BIL told me that he has been writing policies in the $5k-$7.5k range this year. And those are the best quotes some people are getting on their cheap mansions.
Good.
My insurance premiums (and to a huge degree now, taxes) shouldn't go to pay for people who keep rebuilding in a swamp that is routinely leveled by hurricanes. Especially not when those people not only don't believe in climate science but support elected officials who attempt to ban climate science from policy, education, etc.
Just because there's land somewhere doesn't mean society has to support you building there. I'd say the same to people who put houses on seashores, or cliff faces where there is landslide risk.
My insurance premiums (and to a huge degree now, taxes) shouldn't go to pay for people who keep rebuilding in a swamp that is routinely leveled by hurricanes. Especially not when those people not only don't believe in climate science but support elected officials who attempt to ban climate science from policy, education, etc.
Just because there's land somewhere doesn't mean society has to support you building there. I'd say the same to people who put houses on seashores, or cliff faces where there is landslide risk.
>My insurance premiums (and to a huge degree now, taxes) shouldn't go to pay for people who keep rebuilding in a swamp that is routinely leveled by hurricanes.
I live in Tampa 50ft above sea level which hasn't been hit directly in 100 years and my property value would only go up if sea levels rise. My house is 70 years old and made of concrete block.
There are many more houses not in flood zone than are but everyone is getting hit. So while it's great you are't covering any risk for us down here, risk is still being spread, which is what insurance is for btw.
My father in law has a house on stilts in the woods nowhere near any flooding or water because the guy who built it just wanted a house on stilts, he has a very hard time finding insurance now because of a "if stilts then deny" business rule somewhere in some automated system.
I am not a fan of the political climate down here or its policies, but it wasn't always this way. The current insurance situation is ridiculous whatever the reason similar to health insurance and to me it seems mostly related to profiteering at all levels.
I live in Tampa 50ft above sea level which hasn't been hit directly in 100 years and my property value would only go up if sea levels rise. My house is 70 years old and made of concrete block.
There are many more houses not in flood zone than are but everyone is getting hit. So while it's great you are't covering any risk for us down here, risk is still being spread, which is what insurance is for btw.
My father in law has a house on stilts in the woods nowhere near any flooding or water because the guy who built it just wanted a house on stilts, he has a very hard time finding insurance now because of a "if stilts then deny" business rule somewhere in some automated system.
I am not a fan of the political climate down here or its policies, but it wasn't always this way. The current insurance situation is ridiculous whatever the reason similar to health insurance and to me it seems mostly related to profiteering at all levels.
> So while it's great you are't covering any risk for us down here, risk is still being spread, which is what insurance is for btw.
All federal taxpayers are subsidizing Florida and much of the southeast coast via NFIP, and have been for a long time.
And insurance is for spreading unknown and unlikely risks. Spreading costs from likely and known risks is called a subsidy.
That is why your house 50ft above sea level would have a lower premium than one likelier to flood at a lower elevation.
All federal taxpayers are subsidizing Florida and much of the southeast coast via NFIP, and have been for a long time.
And insurance is for spreading unknown and unlikely risks. Spreading costs from likely and known risks is called a subsidy.
That is why your house 50ft above sea level would have a lower premium than one likelier to flood at a lower elevation.
I don't need flood insurance and yes if you do that is separate and covered by NFIP the government program because private will not cover at all here. I brought that up due to the parent comment referencing building in a swamp.
All premiums are going up do to wind coverage not water, now define unknown and unlikely vs known and likely. Again Tampa hasn't been hit by a hurricane in 100 years, I am sure it will get hit at some point which is known but is that likely or unlikely?
All insurance runs on actuarial science, likely or unlikely are not an actuarial term afaik, all covered risks are known at this point it's just a matter of their statistical probability.
All premiums are going up do to wind coverage not water, now define unknown and unlikely vs known and likely. Again Tampa hasn't been hit by a hurricane in 100 years, I am sure it will get hit at some point which is known but is that likely or unlikely?
All insurance runs on actuarial science, likely or unlikely are not an actuarial term afaik, all covered risks are known at this point it's just a matter of their statistical probability.
I should have phrased it as sufficiently unlikely due to unknown risk factors.
If an insurance company thought it could make money and people would be willing and able to pay the premiums necessary, they would be selling policies.
The only reason they are not is because they think the premiums they are able to collect (either due to regulatory limits or customers’ budgets) are not enough to offset losses.
If an insurance company thought it could make money and people would be willing and able to pay the premiums necessary, they would be selling policies.
The only reason they are not is because they think the premiums they are able to collect (either due to regulatory limits or customers’ budgets) are not enough to offset losses.
Well Californians and their politicians do support climate science so your taxes can go there at least.
I do agree with you, but I can also appreciate that this is the purpose of insurance. It's perverted to a point where it no longer serves its intended purpose, but on paper, this is how it should work. We all pool money together, some people use it more (if they live in Florida, for example), but we're all paying in just in case we end up needing it.
Because insurance companies are fucking ghouls, the system doesn't work that way, which is why I agree with you considering the current system.
Because insurance companies are fucking ghouls, the system doesn't work that way, which is why I agree with you considering the current system.
Insurance is for unknown risks.
Once a risk is sufficiently known and likely, it becomes a subsidy.
Once a risk is sufficiently known and likely, it becomes a subsidy.
What about wildfires and earthquake risks?
Earthquake risk is largely not the problem. Wildfire risk is the same deal though, our insurance and electricity costs are incredibly inflated to subsidize the small fraction of the population that wants to live in the wilderness.
Simple, don't build on earth. I don't see climate science is against living on Mars or such.
Trying to get insurance in CA since 1 year, after state farm won't renew the insurance of my family (the property just changed owner due to inheritance). Even paying double (6k per year) won't get you insurance.
Have you reached out to an insurance broker? Mine was able to find policies relatively easily.
Not an agent, but a company that works with multiple insurance companies to find options.
Not an agent, but a company that works with multiple insurance companies to find options.
Yes, I was with a company for one year. They just forwarded me to another company where they think I have a higher chance.
Yes, when the government fixes prices at below the market price then that tends to cause shortages.
Terrifying. We're in SoCal, and we've been evacuated for fires that were threatening some of the home in the trac we live in. Our home and auto is insured through Costco with Connect and I'm curious to see what happens this year when we come up for renewal.
That is really sad. I am not in a fire area or flooding endangered, I am in the middle of San Francisco on a rocky hill. There are much more dangerous areas than ours.
>The 42,000 commercial apartment non-renewals represent a complete withdrawal from California’s commercial apartment market, which covers property and liability insurance for apartment building owners.
Looks like rents are going to go up.
Looks like rents are going to go up.
Many residential units are under some form of rent control. So we just have to make them all that way, and hire plenty of enforcement staff, and the problem will be solved, yes? ... ?
It's interesting that it's State Farm, as I've recently seen them as the only one willing to write new policies in a fire-prone location, a "wildland-urban interface" area.
State Farm is doing some stuff to reduce electrical fires (see https://www.statefarm.com/insurance/home-and-property/ting-f... ) but I suspect they don't have much they can do with wildfire suburban areas.
Price controls result in supply shortages.
Why your simple statement taught in microeconomics 101 is downvoted is beyond me. California government refused insurance prices that made business possible, so the businesses decide to not sell rather than lose money.
California electeds don't believe in market economics. So we get rent control, insurance control, utility control (amusingly in the higher-than-market price direction), etc.
Every state regulates insurance and almost all of them regulate utilities. Regulating those industries is necessary.
Regulation could be good or bad depending on how it is crafted. That doesn't change the economic fact that price controls cause supply shortages.
There have been price controls on insurance and utilities for decades. There are decades of experience where it hasn’t caused a shortage.
How bad the shortages are would depend on how draconian the controls were relative to the market price. What we can observe today in California is that the price controls are causing a shortage.
So price controls, as in the concept, does not cause shortages. Bad implemented price controls contribute to shortages. It’s not the fact that there are price controls that are cussing the shortage it’s the implementation of them in the present case.
That is not correct. A price control that sets the price to the market price will do nothing. If it sets it beneath the market price, a supply shortage will result.
Then we agree that price controls can be implemented that don’t cause shortages.
A price control that sets a price where a sufficient number of people are willing to perform a service or make a good do not cause shortages. Such a control in such a circumstance prevents companies from having too much pricing power over essential services. Thus they do accomplish something in such a case.
A price control that sets a price where a sufficient number of people are willing to perform a service or make a good do not cause shortages. Such a control in such a circumstance prevents companies from having too much pricing power over essential services. Thus they do accomplish something in such a case.
If I set the maximum wage to one million dollars an hour, it would in some sense be a price control, but it would have no effect. I agree that ineffective price controls that are set above the market price do not cause shortages. Price controls that have an effect, which are those beneath the market price, cause shortages.
Electricity is an essential good in the present era. There is generally no competition on the provider. As such the the energy company has a large amount of pricing power. Price controls, when done properly in such a situation, give the energy company enough profit to make it a worthwhile endeavor to be a provider for enough people whilst also preventing what is popularly referred to as price gouging.
Price controls can be a good thing and when done properly allow for providers to make a sufficient amount of profit to be worthwhile for enough people whilst preventing gouging.
Preventing "gouging" is the effect of capping the amount the of profit. Regulating the price that utility companies can charge has not resulted in shortages. For the most part, regulating how much insurance companies can charge has not resulted in shortages. Price controls, in and of themself do not cause shortages.
Price controls can be a good thing and when done properly allow for providers to make a sufficient amount of profit to be worthwhile for enough people whilst preventing gouging.
Preventing "gouging" is the effect of capping the amount the of profit. Regulating the price that utility companies can charge has not resulted in shortages. For the most part, regulating how much insurance companies can charge has not resulted in shortages. Price controls, in and of themself do not cause shortages.
Regulating some behaviors is important, but price controls break markets by disconnecting supply and demand.
Regulated insurance and utilities are not allowed to charge whatever they want. This has been the case for decades. We have decades of evidence that this part of regulation is not in and of itself bad.
I think you're deliberately avoiding what I am saying, which is "price controls" and pretending that I am saying "regulation". Those are completely different concepts.
The article itself is showing exactly what happens when you have price controls - supply dries up and the market falls apart.
The article itself is showing exactly what happens when you have price controls - supply dries up and the market falls apart.
I think you are deliberately missing the point. Part of the regulation of insurance companies and utilities is price controls. We have decades of experience with these price controls not causing a problem. The act of having a price control does not cause supply to dry up and the market to fall apart as you say. Of course a poorly implemented price control can cause that. Price controls in and of themselves do not cause supply problems.
You have an incorrect understanding of price controls.
We have decades of experience of insurance companies and utilities not being able to charge whatever they want without causing shortages. Now, in California there is an example where this price limitation is causing some companies to pull out of the market. Price controls can be used without causing a shortage and they can be used in a such a way to cause a shortage. Price controls in and of themselves do not cause anything. It’s how they are implemented that matters.
The consensus of economists is that you are wrong.
What economist is willing to say that there is a shortage of electricity where electric companies are regulated in the U.S. because there is a cap on how much they can charge? In almost every state there is not a shortage of companies willing to provide car or home insurance even though they are not allowed to charge whatever they want. Which economist is going to say that in those states the price control on insurance companies is causing a shortage?
California elected officials didn't give us rent control. California direct democracy got us Proposition 13, Proposition 218, and most municipal rent control statutes.
This is not due to price controls. California does not have much price controls on insurance, and I doubt there are any on commercial apartment buildings. This is climate change.
> In July 2023, State Farm applied for an average 38.7% rate hike with the California Department of Insurance for commercial apartments, according to public filings. But the department ruled the hike was not supported by data, and instead approved a 23% hike at the beginning of March.
If you have to apply for a price hike, and it can be modified or refused, that's a form of price controls. And climate change isn't causing PG&E to be worthless idiots; they've always been that. The change is in the climate of the courts; they're now being held responsible.
Reading the article is a superpower.
If you have to apply for a price hike, and it can be modified or refused, that's a form of price controls. And climate change isn't causing PG&E to be worthless idiots; they've always been that. The change is in the climate of the courts; they're now being held responsible.
Reading the article is a superpower.
Was there a more than 23% increase in risk due to climate change happening in a single year? 23% is an insane amount for insurance to grow on an annual basis!
Inflation was 10% that year. Maybe it was even more in construction / repair costs. Then add incorrect modeling of wildfire risks on top of that.
In state insurers are also responsible for bailing out the fair plan, which means they're effectively responsible for policies they didn't write unless they leave the state entirely.
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You're wrong. California does have price controls on insurance.
Is insurance obligatory in USA?
A. For owners?
B. Is it obligatory if the owner rents the house?
I don't live in CA so I'm not sure what's exactly required there. In most cases though, you are required to keep insurance if you have a mortgage.
If you rent, your landlord is responsible for insurance for the structure, but you can/should get insurance for your belongings and in the event that your actions cause damage to the house or to people.
If you rent, your landlord is responsible for insurance for the structure, but you can/should get insurance for your belongings and in the event that your actions cause damage to the house or to people.
Technically, no. Practically, yes.
It is nearly impossible to get a mortgage on a habitable house without getting home insurance, because the bank doesn't want to loan you $400k on a $500k house, have the house burn down, and since the land is only worth $100k and you still owe $400k, you just walk.
Even if you own the house outright, home insurance is one of those "good idea" unless you can take a complete structure loss on the teeth and keep moving. And if you're renting it, you want it for the liability protection, too, because tenants can and will sue, and if your policy is big enough, the insurance company lawyers will defend.
But if you own a house in the sticks outright and don't want insurance, you don't have to have it, I don't know of any state that requires it the same way car insurance is required (and even car insurance isn't required if you never drive your car off your land).
It is nearly impossible to get a mortgage on a habitable house without getting home insurance, because the bank doesn't want to loan you $400k on a $500k house, have the house burn down, and since the land is only worth $100k and you still owe $400k, you just walk.
Even if you own the house outright, home insurance is one of those "good idea" unless you can take a complete structure loss on the teeth and keep moving. And if you're renting it, you want it for the liability protection, too, because tenants can and will sue, and if your policy is big enough, the insurance company lawyers will defend.
But if you own a house in the sticks outright and don't want insurance, you don't have to have it, I don't know of any state that requires it the same way car insurance is required (and even car insurance isn't required if you never drive your car off your land).
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> Is insurance obligatory in USA? A. For owners?
Usually for a mortgage it is. If you want to be uninsured on property you buy without a mortgage, that’s generally legally allowed, even if not necessarily desirable.
Usually for a mortgage it is. If you want to be uninsured on property you buy without a mortgage, that’s generally legally allowed, even if not necessarily desirable.
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https://insurify.com/homeowners-insurance/news/progressive-d...
https://www.pnj.com/story/money/2023/07/12/florida-insurance...