… Texas and Florida won’t be far behind. Climate change won’t be kind to either state.
… Texas and Florida won’t be far behind. Climate change won’t be kind to either state.
Nothing new. Have a friend who is a claims adjuster for State Farm. He said they often pull back from certain areas because they have become too much of the market share.
Don’t think climate change has as much to do with the risk as people building in once undesirable areas because those are the only areas now left. Plus, look at places like 30A in the Floria panhandle, 40 years ago mostly empty now you can’t find an empty lot. More people, more buildings, more risk, simple math.
I believe Florida has the biggest vulnerability to insurance capriciousness. The majority of taxes is gather in Florida from the most vulnerable areas. And Florida has the most vulnerable areas per square mile.
The second most vulnerable is not Texas, it is Louisiana. Most of the economic activity is near or south of I-10. What is more, unlike Florida, which can be inundated without breaking the national economy, Louisiana is the linchpin of the national economy in two ways. First it holds down the east end of the Petro Chemical complex that stretches from Mobile to Corpus Christi. New Orleans is the major hub on the east and Houston holds down the west.
Second, it is the key to the trade along the Mississippi, Missouri and Ohio rivers. In other words, trade from Omaha which gathers trade from the great planes, Minneapolis which processes a lot of the grain from the upper midwest and materials from up and down the Ohio rivers from Chicago which gathers good from the Great Lakes.
An inability to get people and infrastructure into southern Louisiana would create a lot of difficulties for the national economy.
Texas on the other hand does have some vulnerabilities between the border at Beaumont Texas and Houston due to the Petro chemical complex, other than that, the rest of the Texas economy is inland.
I’m not sure what you’re envisioning. Sea level rise is slow and steady so that economic activity has time to adjust. If you are thinking about hurricanes, look back at Katrina. The local gulf area and the lower Mississippi were shut down. Then look at a graph of quarterly GDP for 2005. You can’t see an impact.
Actually, it is my belief that elevated the rising fuel costs from 2005 hurricanes prompted the Fed to raise rates and that rise rates exposed the weaknesses in the banking system and led to 2008. It
seems like butterfly wings, but in reality, that small blip of Katrina and Rita upset energy markets world wide and even changes the balance of trade. (One of, if not the biggest exports of the USA is refined petroleum products)
Now imagine that the entire petro chemical complex is weakened because there is limited or no new investment in vulnerable areas on the Gulf Coast for not 5 months but for 50 or 500 months.
Add in a sudden failure of the Mississippi river transportation system and you will see a step change, not a blip in GDP.
Yes, Florida is the most, by a long ways vulnerable place to climate change. The danger is not from mother nature so much as from Warren Buffet. Further, the country would continue to function without Florida, except the southern tip controls one half of one of the two exits from the Gulf of Mexico, it will not continue without southern Louisiana .
The problem with Louisiana is not sea level rise, it is the massive annual marsh/wet land loss to erosion due to all the pipelines, etc., from all the petro/chemical companies. Then throw on top Mother Nature. The oft quoted stat, loses a football field every hour.
While inland Texas may be safe from increased hurricane intensity or frequency, can the same be said for tornados?
Tornados are much different than hurricanes. The swath of potential destruction caused by a tornado is tiny in comparison to that of a hurricane.
Remember, this conversation started about insurance. Insurance is the vulnerability, not the climate. Maybe a better way to say it would use some fancy words that I really don’t know the meaning of, so here goes.
If we consider that increased energy in the earth’s atmosphere including the oceans, then that would be a first order affect.
In general this energy tends to cause changes in the earth’s climate. This would be the second order effect.
Now it gets weird. These changes in climate are very difficult to model. Some like sea level rise tend to be slow and steady, others like rain events, hurricanes, droughts and tornadoes tend to become intense then dissipate. These third order events bring in fourth order events.
When it comes to economics, these fourth order events tend to be painful. What happens, and is happening, is that statistics cannot predict the risks, there is simply no reliable data, or at least the people taking the risks cease to trust the data.
There are several fourth order events that I see happening. These are the events that matter. Climate change happens at time scales so long that they can be adjusted for by intelligent societies. Unfortunately we are not an intelligent society. So, the fourth order events are caused by men and men work at men time scales.
We have already seen the problems with insurance. We will see problems with investment and infrastructure.
While recent headlines have followed State Farm pulling out of the new homeowners insurance market in the state, Allstate says they paused it last year.
“We paused new homeowners, condo and commercial insurance policies in California last year so we can continue to protect current customers,” Brittany Nash, spokesperson for the company, told ABC10 in an email…
CDI said Allstate paused new homeowner’s insurance policies in November 2022. They represented 4.9% of the homeowners market in the state in 2022.
Interesting blog by Hamilton Nolan on insurance and climate change. I haven’t read anything by him before but I like that he doesn’t hide his socialist perspective and he’s amusing. I like to read people with disparate viewpoints when I know they are not trying to con me into thinking they’re someone they’re not.
insurance can tell you things about reality. … the business is all about understanding the true and unvarnished state of the world in order to manage risk in order to protect wealth … This is why every leftist and revolutionary should read the Wall Street Journal. There are far fewer lies when money is involved.
when you brush away the soothing fictions and political slogans, there are only a few ways to handle this:
- You let private insurers set rates appropriate to the actual risk of insuring billions of dollars worth of property that is increasingly likely to flood, blow away, or burn up. … Real estate prices in all of these areas plummet to almost nothing, because only very rich or very insane people can afford to live there. …This is the free market functioning perfectly!!! This is actually how capitalism is supposed to solve problems.
- The second possibility—the one that will actually happen—is that the private insurance market collapses and then the emergency quasi-fictional state insurance market fills the gap but then it runs out of money at the first big disaster and then all of these states and their homeowners go to Washington for bailouts. … Climate change deniers quickly turn into climatologists when they start asking for the government to build sea walls to keep their garages from flooding.
Homeowner and Apartment building insurance are The Road to Hell Paved with crassly politicized money grabbing politician bribing hoodlums playing on the IDIOTIC GOOD INTENTIONS of mostly leftist jerks and NOSTALGIC DELUSIONS of right wing pseudo-libertarians living where people ought not live.
I have long cheered the fact that beachfront Malibu homes of zillionaires are uninsurable and will steadily vanish in future storms. I once spent a glorious stormy night with a very handsome petty drug dealer ‘caretaking’ an absurd house on stilt-like piers on the rocky Topanga Canyon coast. He had his “go bag” by the door ready for the house to start to collapse into the sea at any moment, and all I had was my surfboard, wetsuit, and body; thrilling and fun and idiotic. You should KNOW when everything is at risk and act accordingly, but subsidized insurance is a deadly blindfold for millions.
We are already up to our necks in extremely bad investment.
STOP IT NOW!
(Military and Real Estate corruption dwarf all other forms of satanism)
Great post, spinning!
Ironically the insurance companies will solve the nation’s problems with ignorance and innumeracy.
That said, you want to purchase as little insurance as possible because of the high “skim rates” in the industry. I’d only buy rolling stock like cars and boats that I can replace out of petty cash, and keep your real estate footprint as small as possible – preferably to the level where you can comfortably write-off a total loss.
The only Florida property I’d consider would be a concrete pad with utility hook-ups, and I’d put a fully-fueled RV on it so that I could make an easy getaway ahead of the storm.
That’s hilarious! And exactly backwards.
Farmers has put a cap on the number of homeowner policies it will write in California. Chubb and AIG are also cutting back. Now two more companies are exiting.
AmGUARD Insurance—a subsidiary of Berkshire Hathaway GUARD Insurance Companies—will withdraw its homeowners and personal umbrella programs in California, while Falls Lake Insurance will also end its homeowners program. Both companies made the announcements in little-noticed filings submitted to the state regulator on July 21…
But unlike heavyweights State Farm and Allstate, which declined to sign new homeowners business in the state, AmGUARD and Falls Lake will drop their existing policyholders.
Good article in the NYT today about this.
In 1988, California passed Proposition 103, a law requiring insurance companies to get approval from the Department of Insurance to change property and casualty insurance rates…
But this system has kept the state’s insurance rates “artificially low” relative to the risks that insurers are taking on, said Janet Ruiz, a spokesperson for the Insurance Information Institute, an industry group…
Whereas other states consider the current risks associated with the area where the insurer is operating, California calculates rates based on the average of how much a company has paid in claims over the past 20 years.
“How would you do business in a wildfire-prone area where you’re not allowed to look at fuel density around you?” said Frazier, referring to uncleared brush that could fuel a wildfire near homes.
THIS! When something has been operating for decades in a way which you THINK you understand (even though you might NOT understand it…) then CHANGES substantially in a short period of time for additional reasons you do not understand, look out. The ponies are trying to tell you something. ***
The insurance business is unlike any other business segment involving vast amounts of money and long term trends, primarily because it allows a company in the business to adjust their risk profile nearly continuously. If you invest $500 million in a chemical plant but that industry takes a short dip for 2-3 years, there is nothing you can do to cut your losses short of selling the asset on a firesale basis. In insurance, if your statistical analysis begins telling you that loss profiles for the next three years are going to quadruple your payouts, it is not strictly necessary to hang in that market and take your lumps and eat the forthcoming claims. You can simply decline to renew the policies. Sure, you might forfeit $50 million in cash up front for premium payments but if you avoid a $1 billion dollar spike of claims, you’re miles ahead.
*** One of my favorite movies is Little Big Man which depicts the evolution of the relationship between Jack Crab (“Little Big Man” played by Dustin Hoffman) and Old Lodge Skins, his adopted, on and off again Cheyenne chief father. At a certain point, Old Lodge Skins loses his sight but becomes highly attuned to his hearing and spiritual unity with the horses of the tribe. Towards the end of the movie, at a point when everything should be going well for the Cheyenne tribe as they live in land promised to them by the US Federal government “as long as the grass grows, the wind blows and the sky is blue…”, Custer’s troops come by in a raid and wipe out most of the tribe. As they approach from miles away, the ponies begin whinnying and snorting and only Old Lodge Skins can understand why. He can pick up on the fear of the horses who can hear troops approaching and realize danger is coming.
It doesn’t really work because of how reinsurance works. Insurance company 1 cancels 50,000 policies. Those 50,000 people go to insurance company 2 and 3. Insurance company 1, 2, and 3 have reinsurance. The reinsurance companies raise their rates to match the risks for all the insurance companies.
The mechanism you’re describing assumes either:
Right? What if the original insurer just decides to drop the homeowner and stop writing new policies in that market? What if no other insurance company will write a new policy? At that point, all of the firms are essentially withdrawing from that market. No income from premiums but no downside.
I get what you’re saying at an overall market level but clearly individual firms feel they can come out ahead by dropping specific policies and not have those savings eaten by higher re-insurance rates. Recent stories have covered how insurance companies are flying drones over customer houses, noticing clutter in the yard or empty pools and dropping the customer because of “undue risk” from hazards or “failure to maintain” the property.
At a national level, re-insurance is EXACTLY what is needed to keep insurance companies solvent after disasters because it spreads the risk beyond county / state boundaries and any state level regulatory limits and gets the underlying balance of the premiums income stream and outgoing claims cash stream more in line. However, one could argue re-insurance softens the message sent by Mr. Market to people living in areas prone to disaster by spreading the risk and artificially lowering the cost of living there below the level that reflects the true risk.