“With record-breaking inflation, severe weather events, and reconstruction costs continuing to climb, we are focused on serving our customers while effectively managing our business, to a level consistent with the volume we projected to write each month before recent market changes.” Farmers Insurance said in a statement earlier this summer.
State Farm, Farmers and Allstate aren’t writing new California homeowners’ policies, and for those able to continue or access new policies, average homeowners’ insurance has risen by double digits. Everywhere. There are several factors at work. In high home value states, like California and New York, the cost to replace is soaring. Add the new interest rates for construction and mortgage rates with rapidly escalating building costs (labor and the cost of the underlying materials), and you have the makings of a major, middle-American financial disaster. For landlords, there is obvious pressure to pass these costs on to renters, where they can.
State Farm has requested approval from the California Department of Insurance to increase rates for homeowners by an average of 28.1% in response to wildfire risks and skyrocketing construction costs. The average rate increase there has been 16% since 2019. State Farm is hardly the first to reconsider covering California properties, but it is certainly the largest accounting for more than a fifth of all California homeowners’ policies. Farmers is the second largest such carrier in California.
Two years ago, there was a major exodus of such insurers from the state. Rex Frazier, president of the Personal Insurance Federation of California, an industry lobbying group, “believes that many homeowners will have to avail themselves of the California Fair Access to Insurance Requirements (FAIR) Plan, the insurance option of last resort for high-risk properties that cannot get commercial insurance. It costs more and covers less, but meets the minimum requirements to allow a buyer to get a mortgage and close on a home.” San Francisco Standard, June 1st. If only the costs were relegated to California… but…
If you are into tracking “natural disasters,” you will note in the pink map above that the highest homeowners’ rates seem to track areas suffering the most from the spate of floods, hurricanes, tornadoes, and wildfires. You can understand New York and California, where high housing costs determine much of the premium cost, but the most diehard aggregation of climate change marginalizers and deniers have set rates soaring in those red states. In fact, GOP House members of the Freedom Caucus, heavily represented in those expensive states, have convinced their entire party to hold firm on budget cuts intended to reverse recent Biden signature anti-climate change legislation. And their constituents are being hurt the most!
Writing for the July 30th Wall Street Journal, Jean Eaglesham notes this widespread national trend which is not just about the higher premiums: “‘Beyond [raising premiums], we’re managing terms and conditions,’ Michael Klein, head of Travelers personal insurance, said on a call with investors. ‘Think deductibles, think roof age eligibility, think coverage levels on roof replacement.’
“Tim Zawacki, an S&P analyst, said companies are ‘tightening the screws around the edges on coverage to limit their expenses.’ Some insurers, he said, are limiting coverage for older roofs to their cash value, rather than their replacement cost... Many insurers have cut coverage of wind and hail damage by increasing the deductible—or the first part of the claim that the policyholder has to pay—from 1% to 2% or more, says [Lauren Menuey, a managing director at independent agency Goosehead Insurance].
“Companies are also pulling back from some areas vulnerable to disasters. Many big insurers have exited Florida and Louisiana, both of which have suffered tens of billions of dollars in losses from hurricanes in recent years… In Florida, alongside coverage restrictions and higher premiums, there is a ‘reluctance from insurers to write policies for older homes or homes that don’t have strong wind mitigation,’ according to Miami-based Fred Zutel of brokerage Lockton… Now, he added, ‘we’re seeing similar, albeit not quite as punitive, restrictions from insurers in other low-lying coastal areas, such as Louisiana, Texas, the Carolinas.’…
“Companies are reporting significant home-insurance losses from a series of recent severe storms across the Midwest. Progressive, for example, said catastrophe losses last month [June] ate up 92% of home-insurance premiums earned. The company blamed severe weather throughout the U.S.” Several insurers are using drones to assess risks, looking for older roofs, trees and other foliage growing too close to the main structures and other obvious risks.
What exacerbates this anomaly is our predilection to grow new communities into obviously hazardous environments and to fund rebuilding severely damaged homes in areas where that damage is likely to recur. Even FEMA support often returns to areas where everyone knows the natural disaster is likely to return. We need to stop these practices, which everyone else has to pay for. Climate change is unforgiving, and for every dollar that the Republican Party can cut from state and federal anti-climate change appropriations, we can expect to see individual and governmental disaster relief losses rise to ten or more times the cost that they pretend they are “saving.” That other countries are not moving fast enough can no longer be an excuse not to act in our nation’s legislators. We call it responsible leadership, but somehow, in times of mega-costly disasters, leadership seems to have left the building and locked the door behind them.
I’m Peter Dekom, and as everything you buy or pay for rises in reaction to climate change and the concomitant increase in the cost of natural resources, the resultant explosion in intense natural disasters and the sheer misery that goes along with all that, the answer cannot be “we cannot afford to pay for what we need to do, so why try?”
Posts
No comments:
Post a Comment