13
votes
California insurance crisis: Angry Orinda homeowners want action
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- Title
- Angry homeowners in affluent California city demand faster action on insurance crisis
- Authors
- Megan Fan Munce
- Published
- May 30 2024
- Word count
- 935 words
$3m seems more than adequate to me for unprofitable insurance provided by the state -- it's more than enough to build a reasonably sized home. The climate is changing, and these residents know that. Unfortunately, some property that used to be livable, will become non-feasible to maintain. I have no problem with state or the federal government subsiziding this in some way, but $3m is a more than reasonable limit.
Totally, the context here is that Orinda is a very wealthy community and as is the norm here, we provide socialism for the wealthy and leave capitalism for the poor. I hope they stick to the 3m limit as well.
Putting aside the desire to build unreasonably sized mansions, the main concern I can think of would be buying land. Like you said, some of the properties will be non-livable, so they'd need to buy new land. And with prices in California, depending on where they want to live, just the land can get into seven digits based on a quick Google search.
That said, $3 million still seems pretty decent to me for building a house. I can get the overall frustration though. If you lose a house to a fire, you lose everything inside it too. So you'd have to rebuild a house, find a place to stay until construction is finished, furnish it from scratch, replace your wardrobe, etc. If they decide to just buy a house... Well, with California's prices, $3 million can be pretty limiting depending on the area.
They have their own money they can use for the new houses of course, but it's still a big financial hit and could easily lead to a massive downgrade from their current homes. I was going to make a quip about just moving away now, but with the insurance situation, I don't think they can really sell their houses right now either. Even if they totally abandon the houses for one in an area that is insured, they're basically guaranteed to lose whatever money they've spent on these houses. So, I do get their frustrations.
Just a bit less sympathetic given the scale of the numbers involved.
We're basically in the same place. I get why they would dislike the limit and why it is hurtful to them, I just think they are an acceptable minority to be hurt at the scale they will be as a public policy choice. Otherwise, they would end up with an outsize amount of the funding (and with a $3m limit, they probably will anyway)
This seems like the right move to me. It'd be way better to have expensive insurance as an option than no insurance options at all. The homeowners seem reasonable from the article; they're not asking for their property to be subsidized.
Newsom has proposed a bill to move the rate increase review timeline from 180 days to 120 days, but did so without the 50% increase in funding needed to maintain the current level of quality in the Department of Insurance, such as it is. It'll mean far more rate increases going unchallenged. It would also mean a more flexible structure, allowing insurance rate increases of 21% a year without review (7%, 3x per year.)
But it's possible that even 21% increase per year is insufficient to actually cover the increased risk to some of these houses. My expectation is that some of the insurance companies opting to no longer insure in California are only doing so temporarily. If there's actually money to be made at any price point, they can bail for a little bit, abandoning all their old policies and then when there's no current offerings at the old price point they'll come back offering all new insurance only at a rate that's profitable.
I'm genuinely unfamiliar with this: are insurers unable to simply not renew their old policies? Or is this a matter of the capped increase per plan per year vs new signups?
As for Newsom's plan, I feel like that approach doesn't address the actual issue. They could have just lifted the cap and kept the timeline at 180 days if it takes 180 days to do a good job of reviewing increase requests.
As I understand it, they're predicting more losses due to fires (etc) and aren't able to raise their rates enough to be profitable with their new estimates of what the risk is. So, they pull out rather than take too many losses.
California Insurance regulations about prices are based on historical losses. Or were, anyway.
And also, insurance companies pay into the fund for "last resort" insurance based on how many policies they have, so as more people get the "last resort" insurance, their expenses go up. Having fewer policies means they don't pay as much for that either.
The refusal to renew policies is exactly what is happening, but when it comes to price increases on an existing policy offering there are caps. So if in their calculations a given policy will never break even, they can't just raise the price to what would actually cover costs plus their preferred level of profit. To my understanding, leaving means that when they return they're proposing new insurance plans and can then price them at a level that fits the current market.
I agree wholeheartedly that Newsom's approach is shortsighted. If it takes 180 days to properly review the impacts of a new policy, maybe there is a real shakeup that's needed, but maybe they're understaffed and underpaid. I have no insight into the issue, but my business experience says that just asking a department to do the same work in 2/3 the time without any additional funding or time to develop process improvements is just asking them to fail harder.
This is the classic result of price floors: you get shortages, and shortages are usually worse than expensive goods. This is another classic example, to add to the pile of price floor failures.
This would be a price ceiling rather than a floor, wouldn't it?
This is an archive link.
A follow-up to this article: Homeowners can keep other parts of their existing insurance, but only if they take the SAFE fire insurance. This lets insurers push the unprofitable fire insurance off onto the state while keeping the profitable parts for themselves.