Just how doomed is home insurance?

[TolmiePeak]

It won't ever happen again? Really?

Not in our lifetimes.

 

[Sandy VDH]

Insurance is supposed to be in the unlikely event. So everyone pays in, and those unlucky enough get the unlikely situation. Insurance company remains solvent.

But parts of the country where this is routine and expected, once every 10 years max, well those are not unlikely. Those places are not an IF but a WHEN. It is difficult for insurance companies to remain solvent. All premiums do not cover losses in the same period.

 

[VacationForever]

When we lived in California and had State Farm, our home insurance went up at least 20% every year and the coverage was way more than what it would cost to buy a new home. The agent refused to cap the escalating coverage amount as decided by State Farm. We moved out of State and kept State Farm and the home insurance cost was also quite high. Lo and behold, we moved to AAA and the coverage was what it shoud be and the insurance came way down, after 3 years of bad AAA customer service (no claims), we moved to Travelers'. We are only 3rd year with Travelers' and we are very happy with them. The last 6 years, our homeowner insurance has been almost flat.

 

[4TimeAway]

are you talking about bond holding asset value?

You seem to have a deeper understanding than I do and I don’t focus on portfolios. My basic understanding is that some companies maintain diverse assets. Bonds are easier for me to quantify, but there are other holdings that could be more negatively skewed than historical trends suggest. The thing is, these companies persist for decades, even AIG. That situation still confuses me, but it’s beyond my expertise.

In the past, P&C and Life insurance companies could chase stable yields and make profits with a combined ratio around 103%. I believe that paradigm has shifted. Now, the mindset seems to be that every line of business must be profitable. Yet, the fallacy of everyone rushing to the same side of the ship still persists. We still see pricing cycles in certain market segments, though not as much in Homeowners/Consumer or Property more broadly.

That said, in California and other wildfire-prone states, I’m seeing some encouraging signs of risk capital reentering the market. However, pricing remains elevated compared to historical norms. My crystal ball is broken, but I’m speculating we might see profits and some rate normalization by 2026-27. Consumers will likely need to adjust their expectations about what policies can deliver. Replacement cost policies might become less common as we recognize that overly generous provisions contribute to carrier losses. After all, it’s not carriers who pay claims—it’s policyholders.

The conversations on the retail side of the business are tough for everyone involved. But at least now, most consumers—unless they’re completely out of touch or living abroad—are aware of the challenging situation we face.

As for AI’s impact on staff, customers, and carriers, that’s still up in the air. I used to think it would save everyone money, but now I’m starting to believe it might be more of a Quixotic quest. Take social inflation as an example. As AI makes it easier to file lawsuits, can it also make them easier to defend? I’m skeptical, and this could become a bigger issue than we realize. Think asbestos. There’s always an endless stream of potential threats for carriers that are nearly impossible to quantify. I could be wrong, and no one’s asked for my opinion, but I keep doing my best to contribute where I can.

We all need a VACATION!

 

[Big Matt]

If you look forecasts from companies like Corelogic they predict that many areas along the seaboard of the US will be under water by about 2090. This includes places like Norfolk, Virginia and other very populated areas. So it's really going to happen or it won't, but at some point people will need to move farther inland, and this won't be a small number of people. As humans, we always look at things in terms of our lifetimes and often don't care about what will come after that. Unless there are huge technology advances in terms of water containment, it seems to me that this is inevevitable. As for insurance, people can say things about price gauging, but I don't think we want nationalzed insurance either. Very interesting topic.

 

[jp10558]

Not in our lifetimes.

I swear this feels like a misunderstanding of the law of large numbers. And statistics - though of course I am far from an expert. But this is like saying "I won the lotto, so I'll never win it again". But we have proof of some people "getting lucky" and winning 2x. And that's at way lower odds than 0.1%. IIRC 0.1% is like the odds of winning $100 on a scratch off ticket, but plenty of people have won a scratch off ticket at least twice.

A statistical improbability doesn't work like Jury Duty where you're then not able to have another low probability event again in any fixed amount of time.

And on the large numbers thing is we're having more and more storms, so more and more feed into the percentages. I also think the other problem is our baseline is actually limited and probably just wrong to even make the predictions.

 

[jp10558]

That said, in California and other wildfire-prone states, I’m seeing some encouraging signs of risk capital reentering the market. However, pricing remains elevated compared to historical norms. My crystal ball is broken, but I’m speculating we might see profits and some rate normalization by 2026-27. Consumers will likely need to adjust their expectations about what policies can deliver. Replacement cost policies might become less common as we recognize that overly generous provisions contribute to carrier losses. After all, it’s not carriers who pay claims—it’s policyholders.

I think that almost everyone would want a replacement cost policy unless there's an obvious huge discount, like below current rates. The reason is, if I'm not actually insuring against my loss so that there's some realistic way the coverage would make me whole - I'm basically getting the worst of insurance and self insurance. With a car, I can go look for a similarly aged car if mine is totaled out and still end up with a car. I've already had situations where we broke 2 skylights. The Insurance claimed they should cost $2,000 to replace. That was great, but no company around would quote $2,000 and the insurance didn't provide a company that would do the work for that price. It ended up costing $4,000. Now, that's with some sort of "make me whole" plan. If it's worse than that, I should at least get the pricing as if my deductible was $2,000 rather than $200... But if Insurance is known to practically cover south of 50% of fixing the house, more and more people will say *bleep* it, I'm self insuring anyway, what are the premiums for? At least those not forced by mortgages.

Honestly, I'm kind of surprised home insurance hasn't tried to do something like Geico does or health insurance does - create a network where they can try and get bulk pricing for at least some kinds of repairs to better control prices and lower paperwork burden on customers.

The conversations on the retail side of the business are tough for everyone involved. But at least now, most consumers—unless they’re completely out of touch or living abroad—are aware of the challenging situation we face.

As for AI’s impact on staff, customers, and carriers, that’s still up in the air. I used to think it would save everyone money,

I think AI is at best still not understood as to what impact(s) it can have, and most likely well overhyped. The problem is it's still hard to lock in certain answers and prone to hallucinate confidently. I suppose in some ways it's maybe on par with the lowest end chat CS reps so there's that.

 

[Brett]

If you look forecasts from companies like Corelogic they predict that many areas along the seaboard of the US will be under water by about 2090. This includes places like Norfolk, Virginia and other very populated areas. So it's really going to happen or it won't, but at some point people will need to move farther inland, and this won't be a small number of people. As humans, we always look at things in terms of our lifetimes and often don't care about what will come after that. Unless there are huge technology advances in terms of water containment, it seems to me that this is inevevitable. As for insurance, people can say things about price gauging, but I don't think we want nationalzed insurance either. Very interesting topic.

I'm living in one of those eastern seaboard coastal areas. Chesapeake Bay islands are already disappearing
https://www.whro.org/environment/20...angier-island-from-erosion-and-sea-level-rise

 

[amycurl]

That’s a great article, @Brett. Thanks for sharing.


Sent from my iPad using Tapatalk

 

[4TimeAway]

If you look forecasts from companies like Corelogic they predict that many areas along the seaboard of the US will be under water by about 2090. This includes places like Norfolk, Virginia and other very populated areas. So it's really going to happen or it won't, but at some point people will need to move farther inland, and this won't be a small number of people. As humans, we always look at things in terms of our lifetimes and often don't care about what will come after that. Unless there are huge technology advances in terms of water containment, it seems to me that this is inevevitable. As for insurance, people can say things about price gauging, but I don't think we want nationalzed insurance either. Very interesting topic.

I think many people are don’t understand insurance and what is already being done to provide capacity and keep rates as low as possible.

It’s my understanding that Florda has an insurance company managed by the State of Florida, Citizens Insurance. Citizens Property Insurance Corporation - Wikipedia. California and several other state operate similar programs.

Most Flood Insurance is operated through FEMA. Flood Insurance | FEMA.gov

These programs are critical for many communities, businesses, and homeowners. I don’t see a way to reduce these programs, but I do remind people that many policies are written on an annual basis, so these premiums can adjust to actual losses, costs, etc. very quickly.



My primary premise for consumers is that Insurance Companies do not pay claims, Policyholders pay claims with their premiums, Insurance companies take a cut over overhead and profit, if any. You do not want an insurance company to take on too many losses or it becomes insolvent and everyone losses, especially in a market like we have right now where we are light on risk capital or perhaps deployable capital in general.

 

[4TimeAway]

I think that almost everyone would want a replacement cost policy unless there's an obvious huge discount, like below current rates. The reason is, if I'm not actually insuring against my loss so that there's some realistic way the coverage would make me whole - I'm basically getting the worst of insurance and self insurance. With a car, I can go look for a similarly aged car if mine is totaled out and still end up with a car. I've already had situations where we broke 2 skylights. The Insurance claimed they should cost $2,000 to replace. That was great, but no company around would quote $2,000 and the insurance didn't provide a company that would do the work for that price. It ended up costing $4,000. Now, that's with some sort of "make me whole" plan. If it's worse than that, I should at least get the pricing as if my deductible was $2,000 rather than $200... But if Insurance is known to practically cover south of 50% of fixing the house, more and more people will say *bleep* it, I'm self insuring anyway, what are the premiums for? At least those not forced by mortgages.

Honestly, I'm kind of surprised home insurance hasn't tried to do something like Geico does or health insurance does - create a network where they can try and get bulk pricing for at least some kinds of repairs to better control prices and lower paperwork burden on customers.

I think AI is at best still not understood as to what impact(s) it can have, and most likely well overhyped. The problem is it's still hard to lock in certain answers and prone to hallucinate confidently. I suppose in some ways it's maybe on par with the lowest end chat CS reps so there's that.

I totally get is. In California and many other places, if you have water claim, or in some cases any claim(s), your available pool of potential insurance companies is greatly reduced. This means that your actual “claim cost” can be significantly higher over the multiyear lookback used by insurance companies than what was paid or your deductible.

In California, the largest insurance program for high risk, The FAIR Plan, is providing Actual Cash Value. This is not unique to CA.
What Exactly Is Actual Cash Value? Better Yet, How Do You Calculate It? (irmi.com)

Some polices like Flood (FEMA managed federal government insurance program: Flood Insurance | FEMA.gov) has caped the value of what they will offer and done some other things to reduce the insurance company’s exposure. Please review your policies before a loss and consult an appropriate professional for advice. YMMV and remember there are exclusions to watch out for.

Repair cost containment has been tried. We mainly saw it attempted in Auto Insurance Claims, many state now have consumer’s right to choose their repair facility. Most good ideas have been tried, then greed steps in and messes it up and the kneejerk reaction is to ban it. In the repair of a home, I think I would not trust an insurance company and would pay the extra premium. I see it as like the HMO vs PPO debate, depending on the cost of “choice” I might still pay the extra to have a less biased service.

On that topic, some insurance companies are easier to work with on claims and might be worth paying more for, but even that logic can become manipulated and not be in the best interest of the consumer.


I think it's the things we think we know that just ain't so, that get us. (derived from Rumsfeld and others).

 

[jp10558]

I totally get is. In California and many other places, if you have water claim, or in some cases any claim(s), your available pool of potential insurance companies is greatly reduced. This means that your actual “claim cost” can be significantly higher over the multiyear lookback used by insurance companies than what was paid or your deductible.

In California, the largest insurance program for high risk, The FAIR Plan, is providing Actual Cash Value. This is not unique to CA.
What Exactly Is Actual Cash Value? Better Yet, How Do You Calculate It? (irmi.com)

Some polices like Flood (FEMA managed federal government insurance program: Flood Insurance | FEMA.gov) has caped the value of what they will offer and done some other things to reduce the insurance company’s exposure. Please review your policies before a loss and consult an appropriate professional for advice. YMMV and remember there are exclusions to watch out for.

Repair cost containment has been tried. We mainly saw it attempted in Auto Insurance Claims, many state now have consumer’s right to choose their repair facility. Most good ideas have been tried, then greed steps in and messes it up and the kneejerk reaction is to ban it. In the repair of a home, I think I would not trust an insurance company and would pay the extra premium. I see it as like the HMO vs PPO debate, depending on the cost of “choice” I might still pay the extra to have a less biased service.

On that topic, some insurance companies are easier to work with on claims and might be worth paying more for, but even that logic can become manipulated and not be in the best interest of the consumer.


I think it's the things we think we know that just ain't so, that get us. (derived from Rumsfeld and others).

This is fascinating. I do wonder how depreciation works when houses often appreciate in value? I suppose as long as depreciation is defined in the policy it's probably fine. I know it'd likely be higher premiums, but I still don't really get why car insurance can be "go to registered shop for repair" and the companies can do amount for repair - deductible but home insurance can't do the same thing with registered contractors say. I suppose the main reason is wanting to keep the premiums low in comparison, but this leads to not really insuring what people want / need - i.e. to have a functional house after a storm and insurance.

 

[4TimeAway]

I suppose the main reason is wanting to keep the premiums low in comparison, but this leads to not really insuring what people want / need - i.e. to have a functional house after a storm and insurance.

I think its capacity after a storm. Everyone is slammed with work. It would take a large organization of skill labor and to pull people to other regions would be tough.

I think this would mainly be small claims, but I see those as mostly water and smoke. Every home is unique, can include lead paint, asbestos, etc. it is really a personal asset and people tend to get emotional. Cars are way less personal, unless NOT. Everyone is different.

 

[WaikikiFirst]

don't really get why car insurance can be "go to registered shop for repair" and the companies can do amount for repair - deductible but home insurance can't do the same thing with registered contractors say

3 things seem obvious, I'm sure there are other differences
1) except for the most basic STRUCTURAL repairs to a home, the rest is very PERSONAL / FASHIONABLE / HAS A HUGE ARRAY OF OPTIONS. Cars are not like that. A fender is a fneder. The "self-driving" sensors are sensors. The owner won't have some "preferred supplier", as in "OH. I REALLY like the look of Moen faucets better than everything else."
2) homes last longer than cars do, so there is more chance that a "replacement part" for a home is not the same as the original, aka "They don't make those anymore." Functional equivalence and aesthetics are 2 VERY different things. In a car, that doesn't matter much.
3) the "registered contractor" population for homes is a very shady, highly variable market. It is full of fly-by-nighters, undocumented workers, etc etc etc. An insurance company would have a heck of a time maintaining a list they felt they could really count on.
Did you know that (tempted to say "ALL" but who knows what is out there) PRACTICALLY NONE of the top "N" (where "N" covers all of the national market) new homebuilders in the USA actually employ any people who "build" a home? Nobody who swings a hammer or puts in the wiring, or plumbing or sheetrock, of framing or pours foundations or installs windows, doors, carpets, whatever. Nobody. It is all done thru independent contractors, who themselves have a, let's call it "variable" workforce..

 

[WaikikiFirst]

people tend to get emotional. Cars are way less personal

exactly what I was typing at the same exact time

 

[WaikikiFirst]

This is fascinating

I constantly grin at how thoroughly you use basic logic to try to analyze "markets" and economics. LOL. There has never been a govt that didn't think it could define and manipulate "markets" and economics better than rational thought can.
In fact, the fundamental basis of "Classical Economics" is "The Rational Man". For 99% of all people, that is a foreign concept. For 100% of all govts, that is a foreign concept. Thus, most people today consider "Classical Economics" to be discredited. Google BEHAVIORAL ECONOMICS.

Then consider: all economics is based on BEHAVIOR. The question is: Is the behavior rational or not?
And the answer: it almost never is, thus BEHAVIORAL ECONOMICS has been the place to be for the last, idk, 40 yrs maybe?

 

[WinniWoman]

Our free standing umbrella policy came up and doubled! So now I am cutting the liability coverage in half to bring the premium due. To what it was for twice the coverage.

I just can’t wait to get our homeowners next month and our auto in February!

I just might be calling a broker to shop all three for us once I see what the total is.

No claims on any of them btw.

 

[jp10558]

3 things seem obvious, I'm sure there are other differences
1) except for the most basic STRUCTURAL repairs to a home, the rest is very PERSONAL / FASHIONABLE / HAS A HUGE ARRAY OF OPTIONS. Cars are not like that. A fender is a fneder. The "self-driving" sensors are sensors. The owner won't have some "preferred supplier", as in "OH. I REALLY like the look of Moen faucets better than everything else."

This is fair enough - I always figured insurance wouldn't care about my preferred supplier, but would cover basic functionality. For instance I had 0 interest in what kind of skylight replaced the broken ones, just that it was replaced. I would have been fine with the insurance picking, but they basically "made up a price" that didn't exist from companies I could google in a 60 mile radius. I think maybe the "solution" is whatever they do now that mostly sucks, with clear recommended add ons like the (I forget the name, it was linked here in the thread) if a bathroom is destroyed, your bought policy pays you $10,000. If a skylight is broken, your paid policy pays you $1,000. With modern online systems and insurance experience with scheduled coverage it feels like you could use an app where you can say here's a pic of the skylight, I want to get a premium for adding x thousand coverage if it's damaged in any way. Geico does this for liability / comprehensive/ etc mixes just fine, my local inland marine policy requires an agents time, but handles listing specific things with a serial # or description for a agreed value just fine. Heck, even something like a rider for +10%,+25%, +50%, +100% on the basic coverage payout because you know your area doesn't have 50 competing companies and you want to actually cover your losses. Insurance can do it for a variable deductible, it seems like the above should be possible too, though maybe the premiums wouldn't be palatable, but I think psychologically people do better being told "here's what it'd cost" and turning it down cause they think it's too much than basically being "mislead" as to what the actual coverage is.

2) homes last longer than cars do, so there is more chance that a "replacement part" for a home is not the same as the original, aka "They don't make those anymore." Functional equivalence and aesthetics are 2 VERY different things. In a car, that doesn't matter much.

This again seems like it could be handled by upsell options - just like how there has been replacement cost policies, I'd say there could be replacement in that a faucet is replaced with a faucet, and an aesthetic policy that is an add on to better specify how fancy the faucet should be. This all sounds like a lot of work, except there are all sorts of policies in other areas written more or less like this - just people don't know or bother to take them out. And I don't really see why it isn't possible to build something like GrubHub where you can have all sorts of modifiers etc in the website when writing / renewing the policy.

3) the "registered contractor" population for homes is a very shady, highly variable market. It is full of fly-by-nighters, undocumented workers, etc etc etc. An insurance company would have a heck of a time maintaining a list they felt they could really count on.

I'm not really sure why random independent auto shops are somehow more trustworthy than random contractors though? I would imagine marketing, an industry "badge", and proper contracts with the network contractors could all make it possible.

Did you know that (tempted to say "ALL" but who knows what is out there) PRACTICALLY NONE of the top "N" (where "N" covers all of the national market) new homebuilders in the USA actually employ any people who "build" a home? Nobody who swings a hammer or puts in the wiring, or plumbing or sheetrock, of framing or pours foundations or installs windows, doors, carpets, whatever. Nobody. It is all done thru independent contractors, who themselves have a, let's call it "variable" workforce..

I think that whole "independent contractor" thing is generally bad, but we deal with that sort of thing in large commercial buildings all the time. Proper contracts and incentives could go a long way IMHO. It works for IT "on site service technicians" which is at least a little comparable for instance...

Look, like timeshares - it may be that everyone is going to be fine continuing on as is, but clearly retail home insurance providers are facing cost and other issues in multiple states. You can only pull out of so many states before you put yourself out of business. It seems to me that someone is going to be trying to move into the areas these companies won't try and innovate to manage - it may be a fools errand, but I would have said the same thing about Uber or Grubhub 20 years ago. Someone will try and get a peer to peer app like they do for some lending and the like... And it'll probably be "illegial" but that hasn't stopped the tech bros in the past.

 

[VacationForever]

Our free standing umbrella policy came up and doubled! So now I am cutting the liability coverage in half to bring the premium due. To what it was for twice the coverage.

I just can’t wait to get our homeowners next month and our auto in February!

I just might be calling a broker to shop all three for us once I see what the total is.

No claims on any of them btw.

It is usually cheaper to have one insurer carry all three.

 

[4TimeAway]

Our free standing umbrella policy came up and doubled! So now I am cutting the liability coverage in half to bring the premium due. To what it was for twice the coverage.

It is usually cheaper to have one insurer carry all three.

Sometimes just the Auto Carrier is needed and it can be reasonable.

In some state Uninsured/Underinsured coverage is something you should carry. Basically you're buying insurance for the other driver when they injur you.

Lower limits is always a concern for me. I'd try to find another way.

 

[4TimeAway]

This is fair enough -...
Someone will try and get a peer to peer app like they do for some lending and the like... And it'll probably be "illegial" but that hasn't stopped the tech bros in the past.

I guess. The issue is after a claim, there will be lawsuits. It happens all the time now and a name your own price like Auto Insurance will lead to crappy coverage and complaints.

I guess you could say $10,000 for a Bathroom, $20,000 for a Kitchen, etc. but that is way different than it has been for 100 years (?). I think its more likely for a co-insurance, but there would be just too much fraud to make that work.

 

[WinniWoman]

It is usually cheaper to have one insurer carry all three.

Yes, but not always which is why we ended up with a stand alone. Last time we shopped we did better this way.

 

[WinniWoman]

Sometimes just the Auto Carrier is needed and it can be reasonable.

In some state Uninsured/Underinsured coverage is something you should carry. Basically you're buying insurance for the other driver when they injur you.

Lower limits is always a concern for me. I'd try to find another way.

Yes, we have Progressive home and auto and a few years ago they dropped their umbrella division and passed it off to RLI which does stand alone.

All three total was still very reasonable until now.

We have some uninsured/ underinsured coverage included in our auto policy.

The funny thing is in NH auto insurance is not required, but you must have proof that you can cover liability. I’m not sure of the particulars because we, of course, would never consider not having insurance.

 

[Glenn2]

It is usually cheaper to have one insurer carry all three.

In Florida there are few auto insurance companies, or life insurance companies that would even touch homeowners coverage. Years ago you could bundle all three in one company.

 

[ScoopKona]

And it won't ever happen again there.

What kind of odds are you offering?

I'll take that action. I can literally bet a farm.