Just how doomed is home insurance?

[DrQ]

Just how doomed is home insurance?​

Hurricanes like Milton and Helene are making it harder than ever to insure your home.

Just how doomed is home insurance?

Hurricanes like Milton and Helene are making it harder than ever to insure your home.

www.vox.com

 

[pedro47]

IMHO. I’m expecting home owners insurance to increase in all fifty states and territories because of all the natural disasters in the past decade.

 

[DrQ]

IMHO. I’m expecting home owners insurance to increase in all fifty states and territories because of the all natural all disasters in the past two (2) years.

That is what the article states, the cost rise is is due to the increasing cost of reinsurance (Lloyds of London ... etc)

 

[4TimeAway]

I'm in the industry and there are limited options to address this.

At this point almost everywhere has the reinsurance capacity constraint and it shows limited signs of slowing down. There are parts of the country where the Loss Ratio (claims/premiums) are good, but mostly it is not. In California we have some places where rate are up 10x in the last few years and some of those places are seeing "savings," That said, if you are still paying 5x what your costs were 5 years ago, I'm not sure you can honestly call that savings.

Don't get me started on the inflation costs in the last decade for building. I'm not sure there's a single area where those costs are moderated. Design requirements, permits, inspections, insurance, labor, materials, interest cost during construction.....

As silent issue is that buildings keep aging, and most owners don't have repair budget like Timeshares. We mostly wait for something to burn down, a roof to leak or a pipe to break before we address it. Insurance company claims trends are showing this and older homes have become more of an issue than newer construction. On the other hand, a lot of newer construction is nearer brush, so nobody really feels good.

Every time a reinsurance company takes a loss, that capital must be earned elsewhere or from profits on other policies. Personally, from what I've seen the Lloyds data on compounded returns would not be something I would invest in. I see them as highly speculative and the only hope for descent returns is that the deployed capital in those reserve funds can be deployed in positive return scenarios where claims can be paid in the future. Commercial real estate was a place for much of this and that hasn’t been so good. Then we had some bond holdings and that’s not been so good. I’m speculating and have no firsthand knowledge of this, but I speculate that many carriers are not fully marking to market on liquidated capital value. On the other hand, being an insurance company is about the law of big numbers and in the fullness of time it mostly works out if companies underwrite good business.

That said I'm more a Mark Twain, Will Rogers type. I'm more concerned about the return of my money than the return on my money.



PS- Let’s not talk about Auto Insurance claims and attorney billboards on the freeway.

 

[jp10558]

I'm in the industry and there are limited options to address this.

At this point almost everywhere has the reinsurance capacity constraint and it shows limited signs of slowing down. There are parts of the country where the Loss Ratio (claims/premiums) are good, but mostly it is not. In California we have some places where rate are up 10x in the last few years and some of those places are seeing "savings," That said, if you are still paying 5x what your costs were 5 years ago, I'm not sure you can honestly call that savings.

Don't get me started on the inflation costs in the last decade for building. I'm not sure there's a single area where those costs are moderated. Design requirements, permits, inspections, insurance, labor, materials, interest cost during construction.....

As silent issue is that buildings keep aging, and most owners don't have repair budget like Timeshares. We mostly wait for something to burn down, a roof to leak or a pipe to break before we address it. Insurance company claims trends are showing this and older homes have become more of an issue than newer construction. On the other hand, a lot of newer construction is nearer brush, so nobody really feels good.

Every time a reinsurance company takes a loss, that capital must be earned elsewhere or from profits on other policies. Personally, from what I've seen the Lloyds data on compounded returns would not be something I would invest in. I see them as highly speculative and the only hope for descent returns is that the deployed capital in those reserve funds can be deployed in positive return scenarios where claims can be paid in the future. Commercial real estate was a place for much of this and that hasn’t been so good. Then we had some bond holdings and that’s not been so good. I’m speculating and have no firsthand knowledge of this, but I speculate that many carriers are not fully marking to market on liquidated capital value. On the other hand, being an insurance company is about the law of big numbers and in the fullness of time it mostly works out if companies underwrite good business.

That said I'm more a Mark Twain, Will Rogers type. I'm more concerned about the return of my money than the return on my money.



PS- Let’s not talk about Auto Insurance claims and attorney billboards on the freeway.

That article is interesting - I still come back to - there are places it doesn't make a lot of sense to live in anymore given the disaster risk. Choosing to live there means greater costs. I've thought that about flooding in some areas for decades. And I don't just mean in Florida or on the coast - I mean in areas like parts of Owego NY that get flooded out something like every 10-15 years from the river. There's like no pressure from available land like there might be in a coastal city, there's not very much "want to be here" like there is on the ocean, and the whole reason people live there is in the 1880s or so the easiest place to build was on a river due to transportation offered. Clearly that's not the case today, we could move up some of the hills etc.

Similarly, Orlando was hard hit by the hurricanes, but not anywhere near what on the coast was flooded out etc. It may just be even more that you'll have to be rich and self insuring if you want to live where there's a hurricane 2x a year going forward on the coast.

So far, I still believe Helene was unusual, but IDK if that's going to become the "new normal" or not. I really hope not - Hurricanes coming inland that far would make building costs even higher.

 

[Brett]

Just how doomed is home insurance?​

Hurricanes like Milton and Helene are making it harder than ever to insure your home.

Just how doomed is home insurance?

Hurricanes like Milton and Helene are making it harder than ever to insure your home.

www.vox.com

Most mortgages require home insurance so it's not "doomed", just gonna cost a lot more especially in Florida.
And why are these 1,000 year weather events happening every 10 years?

 

[pedro47]

Most mortgages require home insurance so it's not "doomed", just gonna cost a lot more especially in Florida.
And why are these 1,000 year weather events happening every 10 years?

Climate Changes.

 

[Rolltydr]

And why are these 1,000 year weather events happening every 10 years?

And, why is this fact being ignored?

 

[joestein]

Most mortgages require home insurance so it's not "doomed", just gonna cost a lot more especially in Florida.
And why are these 1,000 year weather events happening every 10 years?

Because they need to hype up everything. They were calling Milton the worst storm this century, yet it was relatively mild compared to other storms.

 

[joestein]

The real problem is the insurance companies in my opinion. They need to charge insurance premiums based upon actual risk. In my 24 years of home ownership - I have made only a few claims. During Sandy - I lost power and lost food and some of the aluminum on the side of the roof came off. Maybe a $3K or $4K claim. I also lost a tree during a storm that fell on the cable wire and dragged down a gutter and the downspout the wire was being ran through. Maybe a $3K claim (mostly for the tree work). Yet I have been paying $2K to $3K a year for home insurance for all that time. TONS of profit for the insurance company.

Meanwhile, some houses are older, some are located near the shore, etc. They need to do a better job of charging higher premiums to those homes and the less risky homes shouldn't have to shoulder the premiums.

 

[jp10558]

The real problem is the insurance companies in my opinion. They need to charge insurance premiums based upon actual risk. In my 24 years of home ownership - I have made only a few claims. During Sandy - I lost power and lost food and some of the aluminum on the side of the roof came off. Maybe a $3K or $4K claim. I also lost a tree during a storm that fell on the cable wire and dragged down a gutter and the downspout the wire was being ran through. Maybe a $3K claim (mostly for the tree work). Yet I have been paying $2K to $3K a year for home insurance for all that time. TONS of profit for the insurance company.

Meanwhile, some houses are older, some are located near the shore, etc. They need to do a better job of charging higher premiums to those homes and the less risky homes shouldn't have to shoulder the premiums.

It's like you misunderstand how insurance works - most of the time most people pay more in premiums than they would get in claims for the assurance that if they're unlucky enough to have a claim they won't be on the hook for catastrophic loss amounts as defined by their finances. It sounds to me like what you're saying is you ought to drop the insurance and self insure - you'll only pay for what actually happens to *you*.

What I find hard to understand (aside for the obvious greed) is how insurance companies are claiming they "have to raise premiums" because of all the events but are at the same time making record profits. This does not compute. If you're making record profits - the premiums are fine. They're more than covering your losses - it seems like this part would be simple math.

 

[WaikikiFirst]

I’m expecting home owners insurance to increase in all fifty states and territories because of

I’m expecting home owners insurance to increase in all fifty states and territories because of INFLATION & especially SOCIAL INFLATION.
I guess most here will have to google "SOCIAL INFLATION".

 

[WaikikiFirst]

why are these 1,000 year weather events happening every 10 years?

because some people actually BELIEVE that statement

 

[WaikikiFirst]

sounds to me like what you're saying is you ought to drop the insurance and self insure

Yup, that is basically what he is saying

making record profits - the premiums are fine. They're more than covering your losses - it seems like this part would be simple math

The "math" is simple, but most people's understanding of finance and econ is sorely lacking. These "record profits" are in INFLATED $s.
Revenues rise with inflation.
Assuming constant margins, profits rise with inflation.
Assuming constant investor "animal spirits" the stock mkt rises with profits.
Further, insurance companies (other than a few that I won't bother to name) hold the huge majority of those premiums you pay (known as "Float") in BONDS (aka "Fixed Income") matching the duration of the bonds to the expected duration of the actuarily-forecasted losses (aka claims). When the Fed drove interest rates toward zero, the income from all those bonds dove dove dove. So, recent higher rates push more $s directly into the P&L. There has been a lot of inflation since the last time "rates" were = 5%.
The missing piece is that margin I mentioned (well, in insurance they generically mostly talk about ratios, as "loss ratio", "combined ratio", etc). Margins are good but not at record highs for most companies, and the reason they're not at record highs is mostly due to that Social Inflation.

aside for the obvious greed

It is funny how it is always "greed this", "greed that", except when it come to the speaker's own personal actions and decisions.

other fun googles (ymmv)
"Catastrophe Bonds"
"Insurance-Linked Securities"
"Re-insurance attachment points"

 

[WaikikiFirst]

from what I've seen the Lloyds data on compounded returns would not be something I would invest in. I see them as highly speculative and the only hope for descent returns is

LOL, some actual to-the-point analysis. But, really, all you insurance people are a bunch of greedy youknowwhats living in penthouses and taking baths in Perrier. We know that. Or not.

 

[WaikikiFirst]

Because they need to hype up everything

During hurricane season, it is fun to compare the headlines on The Weather Channel with the headlines from, umm, more objective sources.

 

[WaikikiFirst]

speculate that many carriers are not fully marking to market on liquidated capital value

are you talking about bond holding asset value?

 

[WaikikiFirst]

Simple math. You there, you're making record AGI. Your salary is fine, more than covering your expenses. Now stop it.

 

[4TimeAway]

Meanwhile, some houses are older, some are located near the shore, etc. They need to do a better job of charging higher premiums to those homes and the less risky homes shouldn't have to shoulder the premiums.

Agreed.

Every state is like a country when it comes to regulations. The State Department of Insurance is the rule maker. Talk about a game with numbers, makes Timeshares look easy.

I've seen blocks of 1,000 policies lose money over a couple of years. Your claims are ones that the average policy should not cover.

 

[4TimeAway]

LOL, some actual to-the-point analysis. But, really, all you insurance people are a bunch of greedy youknowwhats living in penthouses and taking baths in Perrier. We know that. Or not.

There are some but mostly I see people that care getting yelled at.

I wish it was as you say.

 

[jp10558]

The missing piece is that margin I mentioned (well, in insurance they generically mostly talk about ratios, as "loss ratio", "combined ratio", etc). Margins are good but not at record highs for most companies, and the reason they're not at record highs is mostly due to that Social Inflation.

I wondered when reporting "record profits" if they meant margins or just dollar values. Of course I made the mistake of assuming they meant the meaningful margin percentages as that scales (AFAIK) more or less with inflation. Yes, if it's inflated dollars than that doesn't matter. Though I would still maintain that if your margin was 5% in 2000 and you're doing 5% in 2024 - you have properly worked in everything to the existing premiums.Of course the other thing is trying to factor in the other side of the cost increases, the more expensive repair costs. Ideally for the consumer you'd try and smooth that out somehow, but no one can tell the future.

It is funny how it is always "greed this", "greed that", except when it come to the speaker's own personal actions and decisions.

I think plenty of people can realize when they're greedy vs not. To me, it's looking for a reasonable rate of return that hopefully is sustainable vs looking for the next "gamestop" or bitcoin and trying to "go to the moon" on a bet. I don't even thing greed is a problem per se - there's plenty of places (non-life destroying) where I'm fine with it. Want to offer custom cakes as a business? Be as greedy as the market will bear. Want to sell designer handbags? No problem. But I have far less patience for it in places where it's basically forced on people by circumstances like in home insurance (both by mortgage lenders and financial realities make it untenable for non billionaires to self insure their primary house).

 

[Brett]

because some people actually BELIEVE that statement

Those silly scientists !

https://www.nbcnews.com/science/science-news/hurricane-milton-rain-1-in-1000-year-event-rcna174838

.

 

[TolmiePeak]

Because they need to hype up everything. They were calling Milton the worst storm this century, yet it was relatively mild compared to other storms.

Winds were 185 mph at one point. They hardly over hyped it. Tampa got lucky this time. Winds sheared apart the hurricane as it approached the coast weakening it. Plus the storm came ashore south of the bay actually sucking water out of the bay instead of the other way around. If a cat 5 storm came ashore just north of the bay the city would be wiped out.

 

[TolmiePeak]

Those silly scientists !

https://www.nbcnews.com/science/science-news/hurricane-milton-rain-1-in-1000-year-event-rcna174838

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Most news articles don't do a good job explaining what 1 in 1000 year events mean. 5.09 inches of rain in 1 hour have a 0.1% chance of happening in that area. It has never happened in the 100+ years of weather recording in St Petersburg. And it won't ever happen again there.

 

[WorldT]

Most news articles don't do a good job explaining what 1 in 1000 year events mean. 5.09 inches of rain in 1 hour have a 0.1% chance of happening in that area. It has never happened in the 100+ years of weather recording in St Petersburg. And it won't ever happen again there.

It won't ever happen again? Really?