According to the California Department of Insurance the total premium written for homeowners insurance in the state was around $7.8 billion in 2017.
The estimated cost of the homes destroyed by the fires in Northern and Southern California is around $5 billion so far. Homes valued at another $10 billion are at high or extreme risk.
Insurers pulled out of the FL hurricane insurance market a while back. Now you can get wind damage insurance but with big deductibles. A $2mm home might have a $10k premium and a $50-60k deductible. Anything built new can withstand even a direct hit. But the tile roofs vibrate in the wind and then crack. You might have a $100-150k roof repair. At the shore, a surge would take you out. Not complaining. It’s the price to live here. It shouldn’t be foisted on the taxpayers.
I don’t know how you insure against getting burned up, except underwrite for complete loss.
We have special flood insurance for homes built in a flood zone. Is there such a thing as fire insurance that is required if you live in a high risk zone? I cant find it if it exists. Sounds like homeowners covers most fire damage, so one would think the insurance companies would price accordingly.
Steve
Its a sample size of one, and Dave, I believe, has experience with insurers through consulting work but……
I played golf at the club with a former senior insurance exec and asked him about these high deductibles, noting that it almost made self insurance the way to go. His point was that the policies in high risk zones (fire, flood, wind) were really intended only to cover total disasters. The frequency of casualty was too high, so the owner had to bear the cost of “routine” claims but could get coverage for a total wipeout. Conceptually it seems similar in the medical arena to forming high risk pools to cover pre-existing conditions.
Here’s, uh, gas on the fire. Just hypothetically, suppose you were a PE guy, and your business experienced a total loss: RE, equipment, inventory, loss of profit etc. Now suppose you were insured and wanted to rebuild and make a go of it. Well, first you have to pay the lenders the principal and interest previously outstanding. That’s a big chunk but its a standard provision in every business loan ever written. You would need a lot of insurance to have enough left over to rebuild. But here’s the problem, under the code an involuntary conversion of assets to money is a taxable gain on the excess of your tax basis. So you have to pay the taxman. Every situation is different, but generically and practically, you can’t rebuild after you repay debt and pay the IRS. The moral of the story: don’t have catastrophic casualty losses.
Yes, that’s the point of this post. That and that insurers will need to raise premiums enormously. It will become even more expensive to live in California than it already is.
Then there’s another question. How many of those realizing catastrophic losses didn’t carry insurance? In general lenders require homeowners insurance but I don’t believe that California does. I suspect that after this fire there will be an enormous battle for the state to start underwriting insurance.
California already lives with the risk of catastrophic damage from earthquakes (is it covered under standard policies)
The state will probably have to bail out it’s electricty provider PGE – since one of its transmission line may have caused a fire.
That isn’t what will happen. There is a provision in state law that allows PGE to pass along those costs to its customers.
“Yes, that’s the point of this post. That and that insurers will need to raise premiums enormously.â€
I know. And my only “contribution†through anecdote is that people building (repeatedly) in the path of a freight train must accept the burden of the costs, or just hope it doesn’t happen to them. The only exception I can think of is that environmental zoning policy in CA has created the conditions where fires can more easily and more catastrophically occur.
But we don’t like to talk about that.
How many of those realizing catastrophic losses didn’t carry insurance? In general lenders require homeowners insurance but I don’t believe that California does. I suspect that after this fire there will be an enormous battle for the state to start underwriting insurance.
We have to realize that, however “catastrophic” the losses from a calamity, the losses by the insured are always greater than the losses by the uninsured over the long term. It’s hard to engage in this debate with people who can’t get the facts right.
Take Obamacare, for example. By law, insurers must sustain a “loss-ratio” of some 80%, which means that at least 80% of the premiums they collect must be paid out in insurance claims, leaving them a profit limited to 20%, some of which is eaten up by certain expenses. That means that, on top of every $100 paid out for health care, $25 is paid to the religion of insurance. I call that “catastrophic.” The Amish self-insure and escape the misery of Obamacare. As dumb as insurance is, I wouldn’t be so annoyed if it weren’t virtually forced on me.
Most large businesses self-insure. I predict that any single-payer system enacted at the federal level will have substantial exceptions and carve-outs for these self-insuring businesses, giving them an even greater competitive advantage over small companies than they presently enjoy. To do otherwise would be courting an enormous donor backlash. I think the Democratic leadership recognizes that which is why they’ll tempt their base with a single-payer plan, refuse to deliver, and blame it on the Republicans.
Maybe you’ve seen this, but Kanye & Kim Kardashian’s $50 M mansion was saved by a private firefighting company, paid by their insurer. Now, the neighborhood is not the same, nor property values, but the insurance company saved a lot of money. Wonder what these guys do between fires?
Dave Schuler,
Please explain again the advantages large corporations have over the Amish. Both enjoy gummint favoritism, the former in tax breaks and the latter in freedom from gummint regulation.
Will the Amish fire someone who develops a pre-existing condition?
Will the Amish fire someone who develops a pre-existing condition?
They might do it a priori!
Let us be clear. Insurance companies have insurance policies for large losses, but the re-insurance rates may go up.
I have a socialised flood policy to go along with my socialized healthcare. My homeowners is quickly becoming worthless. I pay an additional rider for wind damage, and they do not cover water damage, mold, or broken under-slab pipes.
I must live in a different universe from everybody else. Some of you will eventually join me, but I would not wish it on my worst enemy. It f*cking sucks when you learn the hard way that the world does not work the way you thought it did.
An insurance policy that covers intentional torts is not available, since such actions violate public policy, at the least. Why the hell are you allowed to intentionally build a house in a flood plain or in a flammable forest?
Insurance, in general, is in violation of public policy, since it diminishes a person’s financial responsibility for negligent, reckless and intentional behavior that harms others.
Instead of encouraging Obamacare, NFIP and fire insurance, all such insurance should be made illegal. That would quickly put a stop to all the injury caused by fire and flood in California.