Is there a map of where these places are? I am willing to defer to State Farm and believe that they are very data driven. The nature of insurance is making smart bets.
Are these all clustered in a few hot spots that are likely to go under the next time there is a fire/landslide/earthquake? Why these units and not others? What does State Farm consider the most insurable places to live?
>> It also plans not to offer commercial apartment policies and won’t renew the 42,000 now in place.
That's almost 60% of the total. I'm guessing because commercial apartments present a more geographically-concentrated fire risk (either you lose all the units or none).
It seems a bit strange since you would expect the apartments to be located further away from the fire risk, closer to downtown than the outskirts of the city near the forests.
If this was State Farm deciding to drop insurance on homes that are in grossly overgrown forests with no buffer then it would make a lot more sense given the likely increase in fire activity in the coming years.
Yea, all that shade and wind cover, also holding down the soil and providing stability. I'll bet it's also "nice" to live there. Total B.S. that we ever allowed this to happen.
It's also a great idea to build homes on beautiful, yellow-sand beaches that are kept nice and clean by hurricane season!
People should be allowed to live where they want - but it's well past time this country stopped subsidizing the risk of building in places where natural disasters commonly wreck buildings.
> this country stopped subsidizing the risk of building
In the given picture how much risk is being subsidized by the government? What form does that take? What about East Palestine, OH? Can we live near train tracks? What about Paradise, CA? Can we live near power lines? Blizzards can become natural disasters, is the entire area above the snow line now facing new rules for building?
> commonly wreck buildings.
I can't say much about those buildings right there in the picture, but some of them have clearly been there for decades.
The main form of subsidy that these particular buildings enjoy is the construction and repair of roads on sliding hillsides. A further subsidy is their overrepresentation in the budget of the fire department, since this area is served by relatively more fire stations per capita than the central city. Finally, the topic of this article: in cases of fire, the owners of these buildings will expect the rest of us to bail them out.
FYI, these buildings are also directly atop the Hayward Fault.
> What about Paradise, CA?
It should be obvious that as a matter of public policy nobody should be allowed to build a dwelling inside a forest the way Paradise was built.
Insuring the building itself is far more risky when there's many tenants with relatively unknown risk profiles who could cause damage (leave the bathtub on all night, pour oil and unflushables down the drains and sewer pipes, put pizza boxes on the stove top and leave them on, smoke next to curtains, etc.). Not sure if that's the reason here.
Sure, but there's no such 'crisis' in NYC where the housing stock is considerably older and denser. Maybe it's an issue of comparably poor maintenance over the decades?
> I am willing to defer to State Farm and believe that they are very data driven
Big corporations are such that the left hand and right hand seldom know what they are each doing. A team and I consulted there about ten years ago. In the silo we were working in was the single most risk-averse place I've ever seen. On one hand, that would appear to be a good cultural element given their business, but on the other it was so extreme that I found it to be a major turnoff - it felt so extreme as to be wasteful. Not that hard to imagine then taking an extreme position on who they will insure as the world shifts.
Mercury insurance is doing the same albeit more scummy in my experience.
The criteria for flagging seems to be houses built before 1985, in areas that have had any sort of wildfire in a x mile radius over the past 20-30 years, and perhaps some other features. The insurance companies will use every possible excuse regardless of the insured's willingness to respond to their bullshit.
Most Californians are finding notice of non renewals and forcing homeowners into a CA state sponsored high cost/low coverage plan. It seems intentional by the state to pickup more money, but that's my tinfoil hat.
Lots of sad folks due to risk price catching up to risk reality. California, Texas, and Florida all hit hard, and inconveniently, most populous US states.
Move where the risk is lower, with my apologies to Sam Kinison.
If this is the case, the state of California should have no problem remaining the insurer of last resort (from a fiscal solvency perspective).
From a comment koolba provided with liability numbers, this appears to not be the case (potential losses exceeding California’s entire budget). This leads me to believe that California residents have taken on risk beyond what they and the state can afford.
Not great if the world’s fifth largest economy is experiencing this financial stress.
All I know, is that if California picks up the tab on any of these uninsurable houses, the owner better be forbidden from rebuilding on that location.
I recall a NPR story where some guy in Texas had his house flooded and rebuilt by the Fed some 13(?) times! Stop throwing good money after bad, that area is not fit for humanity.
If there are places with lower risk, certainly, extend insurance there (when reasonable) using data driven risk models. But places where the risk is high? Prohibit building by refusing to issue a building permit, and perhaps cover existing owners in some fashion. If their house burns down, they must turn over the land to be locked up and never built on again to receive their claim payout. Similar to what FEMA does for flooding.
You want to strongly discourage moral hazard (repeatedly funding rebuilds with taxpayer dollars in high risk areas) while not making housing insecurity drastically worse than it already is. I admit this is a tall order with the perpetual housing shortage.
> If the homeowner still owes a mortgage on the home, the balance due will be deducted and paid to the lienholder. After required payment(s) have been made, the structure is then demolished and the land is deeded to the local government with its use restricted to open space. The land must remain open in perpetuity.
Prohibiting building is a ham-fisted approach and it’s completely unnecessary if we just stop the government from being required to insure things.
I don’t care if people want to build in Florida, it’s a great climate… most of the time. They should just burden the real cost by having to pay an insurance rate that actually covers a new house every 5 years.
It will force it to be the luxury it really and it will spur construction shifts to hurricane proof pillboxes.
I stated the risk is lower in many parts. However the areas of low risk aren’t the ones facing insurance crises. It’s mostly fire prone areas being dropped. For example you’ll find no challenges getting insurance in San Francisco city or San Jose for the most part.
Your point is taken and I am mindful that SF isn’t say, an hour outside of Sacramento or closer to the national forest range. California is handling this as a state crisis though, which is good from a governance and fiscal strength approach, but not so good considering the significant delta in risk between cities and high risk areas (due to the wildly disproportionate costs).
> For example you’ll find no challenges getting insurance in San Francisco city or San Jose for the most part.
While some of that is climate, much of that is because the natural environment was wiped out and urbanized years ago.
I have a higher wildfire risk not because my home is in some wooded canyon, but there are more plants, trees, and open areas around vs paved cityscape.
> But the enrollment surge is putting a financial strain on the state insurer as it faces a potential loss of $311 billion, up from $50 billion in 2018.
For reference, the entire budget for the state of CA is $224 billion.
It's sad and kind of ironic that the thing that may end up pushing climate action the most will be insurance. Eventually the premiums will be so high in vulnerable areas (including coastal regions) that living there will become a lottery.
We've already seen those poor people who tried to hold back the sea with a $350,000 sand barricade which lasted one hour. Their homes are now effectively worthless.
Agree. For example, those people still moving to the Florida coast really should spend a bit more time thinking it through. But there are a lot of other circumstances where climate impacts could not have been clearly foreseen.
Good for the bit at the end, where the state takes the posture that the root of the problem is incompetence at State Farm, and a gang of regulators are just the folks to remedy it:
>Michael Soller, deputy insurance commissioner with the Department of Insurance, said in a statement that State Farm’s decision “raises serious questions about its financial situation — questions the company must answer to regulators.”
>“As state regulators, we deal with companies that are national and multinational in scale. To be effective for Californians, we join forces with other states so we can understand the basis for insurance companies’ decisions and how they plan to recover financially,” Soller said. “In this particular situation, we have been working with State Farm’s home state of Illinois to get a full picture of its financial condition and plan for improvement. We need to be confident in State Farm’s strategy moving forward to live up to its obligations to its California customers.”
I wonder what obligations the State of California is referring to. It’s not like insurance companies are required to underwrite policies they are uncomfortable with.
Somewhat related: The book When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm (by Walt Bogdanich and Michael Forsythe) exposes the short-sighted, amoral, and insidious way the firm often operates and advises. There are many instances recounted (advising oil companies, tobacco, Saudi Arabia, the Sackler family on how to sell more OxyContin, etc.).
What made me most angry, though, is how they turned an insurer (AllState, if memory serves right) from a sleepy mom-and-pop shop that collected premia and paid most of them out again when a covered loss occurred into a profit-maximising entity whose bosses were "incentivised" with stock options and implemented McK's glorious plan to boost profits by making it incredibly hard for victims to get their rightful payments. Absolutely despicable.
Also frustrating is that the advice given by McKinsey, in general, seems to be rather mundane and obvious. But it is completely amoral and sometimes cruel, so executives need someone else to come in and suggest it so they can push the bad PR as well as the guilt off to the consultancy who is long gone by the time the blowback starts.
California, or at least it's major population centers, have been leading forces in global culture and technology for a couple generations. For some people that brings an incomparable value. For others, not so much.
But what I miss most are not the urban areas (where I lived most of my life), but the countless gorgeous destinations outside of the cities. I know I'm biased, but I can't think of many other places in the world that have as much to offer within a couple hours drive (that's for both LA and the Bay Area, among other metros).
Frankly California is probably one of the best states. I love being here. Everyone could be bias but as some one working on tech, it's exciting to learn about new tech. There's nothing much I miss here and willing to pay a premium
Do you disagree that the Bay Area and LA have been leading producers/trendsetters of culture on a global scale for the past 50 or so years? I'm thinking movies, television, music, internet culture, counterculture... the examples are kind of endless.
I live, work, and shop all within a few blocks, so traffic for me is the exact same as any other mid-sized city suburbs.
Oh, sure, occasionally I get caught in traffic on the freeway because I have to go somewhere farther away. But even then, I only travel between 10 am - 2 pm to reduce chances of freeway traffic jams. Or after 8 pm, too. But, of course, jams can happen at any time. So for when it happens, I just turn on some tunes, and chill out. I think about 150 years ago when I'd have to travel by horse or carriage over rough and dusty roads. So, I get a sweet climate-controlled vehicle, comfortable, with great roads. Traffic jams in my car are still faster than horse and buggy. That's how I look at it.
Oh man. I miss proper Midwest-style Asian food. I’d kill for a good general chicken, where “good” is defined here as “the kind slopped up in 100 little holes in the wall in my hometown”.
The quality and variety are vastly better here, but sometimes you just want comfort food.
It's such a huge and varied state it always amuses me when people say this. I tend to read it as "I'm glad I moved out of whatever city I used to isolate myself in."
Are these all clustered in a few hot spots that are likely to go under the next time there is a fire/landslide/earthquake? Why these units and not others? What does State Farm consider the most insurable places to live?