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350,000 Californians are now on the FAIR Plan, the last resort for fire insurance. Now what?
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- Authors
- Levi SumagaysayEconomy Reporter
- Published
- Jan 23 2024
- Word count
- 1549 words
This is basically the same problem as flood insurance in Florida, yeah? People buy houses built in fire/flood zones, and then want insurance to pay out when their houses burn down/wash away. At that point, should the government give insurance payouts free and clear? Better to, if we must, have the government buy the land and choose to let it return to nature. If we know an area is going to burn/flood repeatedly, perhaps we should avoid allowing construction in the first place, and start to retreat from places where the economics of human habitation just don't pan out.
It will happen. As climate change progresses, eventually people living in high-risk places won't have any options left for insurance, and so people won't be able to get mortgages, and these places will become depopulated as they fall into ruin. I think building codes will be abandoned too, and you'll see a thinned-out remaining populace living in unpermitted, ramshackle shanties and in the decaying, patched together husks of older buildings.
The people quoted in this article are just trying to ride out their retirement: individuals extremely rarely abandon their homes without an adequate payout via managed retreat.
Every single settlement is different, and a lot of them will try to dig in and demand leeves and dams and public insurance and government assistance instead of moving. Because moving is traumatic and expensive and indeed an extremely emotional affair.
Sometimes, even if they understand the practicalities of a retreat, it can be like a poorly socialized toddler screaming and writhing on the floor: if I make enough noise and make it painful enough for you, maybe I'll get my way. Exactly like a toddler, how reasonable the child is will depend on whether they've been spoilt and pampered and catered to their whole lives and whether they can indeed make it painful enough for the powers to cave.
The earth doesn't care: it will reclaim the seas and make new deserts and burn itself to a crisp and try life again in a few hundred million years. But politicians looking to get elected for another year more often than not will cave and pad bad choices with public funds or kick the can down the road past their own term.
I'm in favor of managed retreat, but I'm sympathetic to the holdouts. Living in the forests of California was their dream; their communities and lives are rooted there.
And if they sell or take a buyout they'll never have enough money to afford an equally nice life within California. They'd be scattered to become strangers in distant states or, if they choose to stay in California, in some bad area.
Very much so: there's a ton of emotions surrounding our concept of "home", which is why refugees can be traumatized from the experience of being displaced. I wonder what it would take to convince someone, or even an entire community to abandon their homes and move somewhere "less good" (ie, different)
Would it be enough to tell them these beloved forests will 100% be gone? Increasingly punishing rates that will drive them to eventual poverty?
The human psyche's ability to stop thinking about future certain doom is why we even go on living day to day, facing the certainty of death. In regards to climate change, if there's even a 1% of their house being totally fine and therefore not necessary to move, I feel that too many will dig in and stay.
Speaking of retreating, my parents' generation had an odd experience during China's civil war and cultural revolution years. Those who saw the warning signs, sold everything, uprooted their entire families lives to flee to Hong Kong and abroad ended up in scenario (a) - families stayed together with everyone alive and most of their wealth in tact. If they had no wealth, by moving early they were able to make new wealth because they beat the refugee rush.
Families that thought they're small potatoes and therefore uninvolved politically, doing nothing, ended up in scenario (b) - they lost some family members to the regime and some to eventual need to scatter anyway, losing what money they had while fleeing.
The worst off group were those who had some wealth and chose to stay. They dug in the hardest because they had the most to lose, and they kept hoping longer than the rest. Lots of death in the family, and they tend to lose everything in the end.
Mind, these were political events, harder to forecast than climate change but just as easy and comforting to ignore. Within our life times we'll get to observe how climate crisis refugees' decisions plays out all over the planet.
I think you're right, but I also think that, as places become less liveable, fewer people will live there, and in worsening conditions. It might take 100 years to get there, or it might take 10, idk. Or maybe we pull a rabbit from the hat and arrest climate change, but I wouldn't hold my breath on that.
I think you just described my mother and my wife's parents in that third paragraph :)
Absolutely we should be planning for managed retreat in many many areas of our continent. But this article didn't breath a word of it.
Funny how when times are good it's all "let builders build! Get rid of all zoning! Supply side economics so EZPZ!" And then when the bill comes due it's up to, as always, the public interest to square the tab.
The old saying goes buyers beware, but how many buyers are not informed of insurance and climate change risks? Everyone is told to get a lawyer and do a house inspection and work with lying scumbah realtors, but none of these people are specifically obligated to talk about climate change and insurance risks.
It begins with severely banning at risk development and capping max prices increase for second hand home sales. Yes this will be massively "but my property value!!1!" level unpopular, but this is a situation that capitalism and NYMBYism cannot ever fix.
When I talked about checking whether houses I was looking at were in lahar zones, I almost always got one of two responses.
Two people mentioned they'd done the same thing.
Lahar zones are the sort of thing insurance companies should be checking for systematically, and regulations should allow them to change their prices based on it.
There are safer areas to upzone and build housing in California. The rural risky areas were only built out because the rich downtown cores and suburbs used their political clout to scrap housing starts (see San Francisco).
The same, but FL is even worse. In Florida that's called Citizens, the state backed insurance carrier of last resort. I never had anyone other than Citizens when I lived there. The price of insurance, even on Citizens, has been rising like crazy in the past decade (Mine went up over 900% in 12 years in the same house). I think the price increases are going to slowly kill most of the current direct waterfront property. Most older people I know that still live in FL have cancelled their homeowners insurance and are just hoping that anything catastrophic will either happen after that pass away or they can sell the lot for enough to move away. While it may be possible in the short term as most homes in that area are less valuable than the lot itself now, once the cost of insurance is high enough (could already be there), no one is going to buy those lots. It's going to be quite the shit show down there and I am glad I finally left.
Perhaps you can shed some light on the thought process? The logical thing to do, when faced with property value that is going to zero, is to sell ASAP because tomorrow's price will be lower than today's. Are there no more buyers, are people simply frozen with indecision, or have they looked at the math and selling now won't help them afford a new place so they're stuck regardless?
I do think that that some people are "stuck" as you said. I mostly attribute it to people, mostly older residents well past retirement, simply sticking their proverbial head in the sand and bring stubborn. I think that some others also think that there is no way the government will "let" it happen and will bail them out in some way.
I do not think it is going to end well for many in Florida. The horrific FL governor is just hand waving the issue away right now so he can focus on important stuff like finding new and creative ways to harm vulnerable minorities.
Or they don’t expect to live longer enough to be the ones selling the property. That’s a problem for the heirs. Why give up the ocean view for that?
Easier said than done. There can be a lot of risk exposure in places that haven't had a major fire yet, but the houses are already built and people are living there.
But as the cost of insurance goes up, it's going to become a major consideration for home buyers.
I think we should have compassion for people that bought in these places - offering them a way to move out. But we certainly shouldn't allow insurance of properties doomed to repeatedly burn down.
"You get one cash payout. You can surrender your land or rebuild....but that's all you get. Choose wisely."
I think if you choose to rebuild, it's offered but not in the same high risk zone. That settles the relocation issue plus not having to cover houses in that area anymore over time. If you don't like those terms you can take a cash paid out and figure it out for yourself.
I'm no actuarial, but I feel like there is (or should be) a difference between a house that's lost due to flood vs. a house that's lost due to fire. A flood indicates that your home lies in a flood-prone area; i.e., it's likely to flood again. However, fires burn fuel. A big fire consumes most of the fuel, making it less likely that a big fire will occur in the near future.
Fire will consume the fuel temporarily. The shrubs and plants will grow back in the rainy season and dry out during the wet season and the fuel will be replenished.
My first surprise was that Bill King's premium was only 979. We lived through a wildfire this last summer, coming within 30 ft of our house, but our premium was already at 1800 before that. Im sure its not going down. But then I read other premiums later in the article were 4000 and up.
Unlike some others, I dont think people are going to move away from places like ours, deeply nestled beside thousands of acres of gov owned forest. What I DO see happening is a much more concerted effort leading to a few things:
a) Active programs to clear out underbrush in the forested areas. As well as more controlled burns. This isn't an issue for our area the next few years as its already burned from last year, but it will be eventually. There is a program called FireSmart that encourages removing trees/brush from anywhere near a home and making sure there are fire breaks around a property.
b) Self insurance. At some point its not going to be economically feasible to pay for fire insurance. Once it reaches a high enough level, I believe people will start to self insure, forming co-ops in their local subdivisions to provide coverage. Monthly premiums going into a community fire fund rather than to a big insurance company. The bigger question will be whether a bank will consider this adequate to cover their risk on a mortgage and may only work for those whose homes are low mortgage or paid off.
c) Increase use of technology to protect homes. There are already several interesting but rarely used whole home fire safety methods including roof top sprinkler systems that can cover an entire home in a shower of water, and in particular, keep asphalt shingles from igniting from floating embers. There is also another intriguing system when triggered that unrolls a huge fireproof blanket from the roof that envelops and protects the entire house. Not easy or cheap but if an insurance company won't give you insurance without it, this type of tech is likely to become more common.
As for those who believe in a dystopian future where we all retreat to some safer zone for fear of the effects of climate change, I highly doubt that. Out of my four neighbors who lost their homes to the wildfire, only 1 is moving away, the other 3 are in the process of rebuilding. The one who is moving is not because of concern for another fire, its because they were surrounded by 10 acres of beautiful forest, and it was a prime playground for their kids. With that gone they want to move to somewhere they wont have to wait 30 years for it to regrow.
I expect that in some places, you just won’t be able to get either a mortgage or home insurance. I know a place in Hawaii (on the side of a volcano) like that. People still live there, but it’s sparsely settled, and at least in Google Maps, I don’t see a lot of nice houses there.
I wonder if there are any interesting innovations around rebuilding cheaply, perhaps using manufactured housing?
You mean in Puna, just below the town of Pahoa where I had a tiny house on 2 acres til the lava covered it in June 2018?
Not a lot of people rebuilding there, agreed, but not just because of insurance risk, but largely because the county doesnt want them to after the gov paid them out for their property (we're still waiting). There are no services on the lava and the county doesnt want to bring in either. Plus there are new bylaws that dont allow dumping of sewage in to pools or raw land, all homes must have to have septic systems now, not easy to do in hard lava.
We bought there because it was cheap for such a beautiful place with lava being a known risk.
I was thinking of Ocean View, in the southwest corner. I used to know someone who I heard moved out there, so I looked it up online. I don't think there are any services there either? (I don't know what it's really like.)
Oh yeah Ocean View. There a few areas with decent houses but honestly the affordable land is mostly a barren wasteland with houses that look like this
And you can still get really cheap land, 8k, if you dont mind living on something that looks pretty ugly and needs 20k worth of bulldozer work to even be able to drive onto it and flatten a building pad.
I looked at places there too, because it was pretty cheap. But there's nearly zero services (10 years ago), no water, sewer or power on the higher, cheaper lots and only one store was all I saw and it looked sketchy. And very little security there - the closest police station is quite a long way, so you dont want to have much of value in Ocean View.
I just looked it up on TripAdvisor and the second most recommended traveller spot in Ocean View is the local laundromat. Looks like things haven't changed much.
But on the up side, it does indeed have a view of the ocean.
2018! And your family is stil waiting for payout. How are people who have been evicted off of that corner of planet earth supposed to find somewhere to live without speedy pay out? Or did you mean insurance paid the house rebuild portion for the disaster, and just waiting for the land value portion?
There were three levels of payout. The first was to people who lived in their principal residence. Some of those people had house insurance but STILL had to fight the insurance companies for payout because they tried to claim 'total loss by lava' was excluded but the homeowners eventually won their house claims. Then they got paid for their land from the gov disaster fund. Its Hawaii so NOTHING move quickly there, especially bureaucracy but those people finally got settled out last year.
The next is people like us, who owned property but didnt live there full time, as the property was rented out to local Hawaiians. With any luck, we are supposed to be contacted this month regarding our payout after filling out the forms 5 years ago. We've already mentally and financially written off our loss and it would be nice to get some of it back but I'm not holding my breath.
Last are the people who owned undeveloped land. But the disaster fund is going to be gone before it gets to them so they will more than likely get nothing. House size lots around our area were in the 7k to 30k range so its still a blow but not like some of the nicer houses near the ocean at 1.3 million.
There are a ton of manufactured homes in SoCal. I don't have any data to prove the connection, but it definitely could be related to fires and fire insurance premiums.
From the article:
Also, here's an editorial from November by the San Francisco Chronicle (archive):
California’s insurance market is a ticking time bomb. All of us are at risk of being caught in the blast
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