Florida Insurance Industry in Flux

[Parsad]

Article on Florida's insurance industry and skyrocketing cost of home insurance.  Cheers!

 

https://finance.yahoo.com/news/floridas-insurance-industry-flux-idalia-011406505.html

[no_free_lunch]

It seems that the market is doing what it is supposed to be doing, reflecting the true costs.  In this case that means higher insurance prices in return for living somewhere with predictably nasty weather.   I don't see a problem.  The government needs to stay the hell out of this, I don't think the insurance companies are making a killing and if they start to, you will just have new entrants.  Maybe it's climate change, maybe it's not, and certainly it doesn't matter, let the market figure it out.

[Spekulatius]

With 15% of Floridians not having homeowners insurance ( I guess they have no mortgage) and 82% having no flood insurance, I think the implicit expectation is that any big catastrophe losses will be socialized.

[dwy000]

10 hours ago, Spekulatius said:

With 15% of Floridians not having homeowners insurance ( I guess they have no mortgage) and 82% having no flood insurance, I think the implicit expectation is that any big catastrophe losses will be socialized.

That's probably true but can you imagine the nightmare it would be waiting and hoping for a government solution while your house was in shambles.  It would be a miracle if that came through within 2 yrs of the event.  More likely that a smaller or midsized event prompts the discussion and a quasi solution.

[Dinar]

Th

12 hours ago, Spekulatius said:

With 15% of Floridians not having homeowners insurance ( I guess they have no mortgage) and 82% having no flood insurance, I think the implicit expectation is that any big catastrophe losses will be socialized.

This seems to be the strategy in Maui now.  Their representatives asked for $4bn in aid ($330K per man/woman/child)!  Most of the damage should have been covered by insurance.  By the way, I love the Maui locals approach: tourists do not come, while the rest of the country send us cash to rebuild because we could not be bothered to work 40 hours a week, and buy insurance.

[Spekulatius]

13 minutes ago, Dinar said:

Th

This seems to be the strategy in Maui now.  Their representatives asked for $4bn in aid ($330K per man/woman/child)!  Most of the damage should have been covered by insurance.  By the way, I love the Maui locals approach: tourists do not come, while the rest of the country send us cash to rebuild because we could not be bothered to work 40 hours a week, and buy insurance.

In addition, if you own a property in Maui, you are certainly not poor and probably in the top 3% or better in terms of wealth in the US population. That what we are really doing is welfare for the already rich.

 

I can understand some help for those who work there in tourism and are displaced and need to rebuild their life elsewhere, but if you are homeowner in one of the most exclusive and expensive areas in the US.

 

Sorry for the OT rant.

 

On the insurance, let say you pay $5K more for is insurance than in the Northeast for a $500K house, that just offsets the higher cost of property taxes in the NE vs Florida.  Fl taxes for a $500k house would be ~1% of the home value and $5k and more like 2% in the NE ($10k) roughly. So it’s probably not a game changer to prevent you from moving there unless it gets much worse.

 

Edited September 2, 2023 by Spekulatius

[Gregmal]

1 hour ago, Spekulatius said:

In addition, if you own a property in Maui, you are certainly not poor and probably in the top 3% or better in terms of wealth in the US population. That what we are really doing is welfare for the already rich.

 

I can understand some help for those who work there in tourism and are displaced and need to rebuild their life elsewhere, but if you are homeowner in one of the most exclusive and expensive areas in the US.

 

Sorry for the OT rant.

 

On the insurance, let say you pay $5K more for is insurance than in the Northeast for a $500K house, that just offsets the higher cost of property taxes in the NE vs Florida.  Fl taxes for a $500k house would be ~1% of the home value and $5k and more like 2% in the NE ($10k) roughly. So it’s probably not a game changer to prevent you from moving there unless it gets much worse.

 

Exactly. Now factor in state taxes. The owner of a $500k home probably pays another 1-1.5% of the home value in state taxes annually. So even if insurance rates double from todays levels, it’s still not really material.
 

None of this ever gets mentioned though because there’s a very obvious agenda underpinning it. Even if both were equal, you then have the whole better weather element. Myself? I don’t get the attraction to 90+ and humid as shit 85% of the year…but lots of folks definitely like it. It’s not a coincidence that anyone who’s half successful moves on from being a full time resident in the northeast by 65. 

[gfp]

28 minutes ago, Gregmal said:

Exactly. Now factor in state taxes. The owner of a $500k home probably pays another 1-1.5% of the home value in state taxes annually. So even if insurance rates double from todays levels, it’s still not really material.
 

None of this ever gets mentioned though because there’s a very obvious agenda underpinning it. Even if both were equal, you then have the whole better weather element. Myself? I don’t get the attraction to 90+ and humid as shit 85% of the year…but lots of folks definitely like it. It’s not a coincidence that anyone who’s half successful moves on from being a full time resident in the northeast by 65. 

 

I just got off the phone with an old friend who recently moved from Cook County, IL to Naples, FL.  She mentioned offhand that she immediately got $400 more in each paycheck (I assume every two weeks, didn't ask) when she became a Florida resident.  She promptly pre-spent it on financed durable goods but that's the American way...

[Spekulatius]

6 hours ago, Gregmal said:

Exactly. Now factor in state taxes. The owner of a $500k home probably pays another 1-1.5% of the home value in state taxes annually. So even if insurance rates double from todays levels, it’s still not really material.
 

None of this ever gets mentioned though because there’s a very obvious agenda underpinning it. Even if both were equal, you then have the whole better weather element. Myself? I don’t get the attraction to 90+ and humid as shit 85% of the year…but lots of folks definitely like it. It’s not a coincidence that anyone who’s half successful moves on from being a full time resident in the northeast by 65. 

Weather in FL is a bit of a question mark. I prefer the weather in the NE over FL except 4 month in winter.

 

MA is not too bad with 5% state  income tax and the revenue tax is actually a bit lower than FL. NH is hard to beat with no income and no revenue tax and it’s a beautiful place, except in winter. My wife thinks we should just move over the border once we retire and stay here in the area. The RE taxes are sort of high through, just like in MA. Many ways to slice the cake depending on your preferences.

 

States like NY or IL are definitely not place to be when you are retired.

[Gregmal]

45 minutes ago, Spekulatius said:

Weather in FL is a bit of a question mark. I prefer the weather in the NE over FL except 4 month in winter.

 

MA is not too bad with 5% state  income tax and the revenue tax is actually a bit lower than FL. NH is hard to beat with no income and no revenue tax and it’s a beautiful place, except in winter. My wife thinks we should just move over the border once we retire and stay here in the area. The RE taxes are sort of high through, just like in MA. Many ways to slice the cake depending on your preferences.

 

States like NY or IL are definitely not place to be when you are retired.

Yea to me it’s basically about taking that 4 months and sacrificing 2 more plus a day and that is how you get the best of both worlds. Not everyone can or wants to carry two properties though. There’s nowhere better than the northeast in the spring. There’s little worse than the northeast from January through mid March.

[Parsad]

11 hours ago, Dinar said:

Th

This seems to be the strategy in Maui now.  Their representatives asked for $4bn in aid ($330K per man/woman/child)!  Most of the damage should have been covered by insurance.  By the way, I love the Maui locals approach: tourists do not come, while the rest of the country send us cash to rebuild because we could not be bothered to work 40 hours a week, and buy insurance.

 

Those costs aren't solely related to home losses or personal property...that number is related to the destruction and rebuilding of infrastructure.

 

Imagine a 7.5 earthquake hitting the centre of Los Angeles.  A lot of the loss would be related to rebuilding of infrastructure that isn't directly covered by insurance.

 

Cheers!

[Dinar]

8 hours ago, Parsad said:

 

Those costs aren't solely related to home losses or personal property...that number is related to the destruction and rebuilding of infrastructure.

 

Imagine a 7.5 earthquake hitting the centre of Los Angeles.  A lot of the loss would be related to rebuilding of infrastructure that isn't directly covered by insurance.

 

Cheers!

Parsad, with all due respect, that's just not true.  You have water & sewer systems, which should have insurance, electric (private again should have insurance), internet (Again private should have insurance), no gas since no natural gas on the island.  Roads have not really been damaged severely, at most ten or twenty miles of roadwork in the affected area anyway.  Yes, an elementary school has been destroyed, but when I talked to two local builders, they told me that it would cost at most $5MM to rebuild.

 

But let's assume that you are correct.  I know of no other place in the US where the replacement cost of infrastructure on a per person basis, is $350K per person ($4bn / 11,300 Lahaina residents.)  If locals want to live in a place where infrastructure is so expensive, they should pay for it themselves rather than make taxpayers around the country pay for it.  Why should the rest of the country subsidize people living in paradise?  I am sure people in Alaska or the Bronx would be delighted to live in Lahaina at taxpayers' expense.  

[no_free_lunch]

2 hours ago, Dinar said:

Parsad, with all due respect, that's just not true.  You have water & sewer systems, which should have insurance, electric (private again should have insurance), internet (Again private should have insurance), no gas since no natural gas on the island.  Roads have not really been damaged severely, at most ten or twenty miles of roadwork in the affected area anyway.  Yes, an elementary school has been destroyed, but when I talked to two local builders, they told me that it would cost at most $5MM to rebuild.

 

But let's assume that you are correct.  I know of no other place in the US where the replacement cost of infrastructure on a per person basis, is $350K per person ($4bn / 11,300 Lahaina residents.)  If locals want to live in a place where infrastructure is so expensive, they should pay for it themselves rather than make taxpayers around the country pay for it.  Why should the rest of the country subsidize people living in paradise?  I am sure people in Alaska or the Bronx would be delighted to live in Lahaina at taxpayers' expense.  

 

I completely agree.  Isn't the saying there, keep hawaii hawaii or something like that, meaning don't build, don't develop the island.  That is fine but it's also isolationist when you really dive into it.  It's hard for me to go from there to "socializing" the fire costs.  If they want to be isolated and independent so be it, but then hawaii can pay for natural disaster relief on it's own.

[Cigarbutt]

Hawaï is very interesting (for many reasons in excess of insurance moral hazard issues) but isn't the topic of this thread the state of the insurance market in a state where a government-owned not-for-profit entity (charging less than private rates) representing Citizens holds the largest market share (18%) of the home insurance coverage and where a government-sponsored and only partially funded catastrophe fund is responsible for 87.4% of the reinsurance coverage?

[Dinar]

Maui matters because if the local population and politicians that behaved irresponsibly (including not bothering to get insurance in many cases, and not deal with fire hazards the local government was warned about for years) is bailed out, then there is no incentive for anyone in the US to get any catastrophe insurance.

[Parsad]

On 9/3/2023 at 5:47 AM, Dinar said:

Parsad, with all due respect, that's just not true.  You have water & sewer systems, which should have insurance, electric (private again should have insurance), internet (Again private should have insurance), no gas since no natural gas on the island.  Roads have not really been damaged severely, at most ten or twenty miles of roadwork in the affected area anyway.  Yes, an elementary school has been destroyed, but when I talked to two local builders, they told me that it would cost at most $5MM to rebuild.

 

But let's assume that you are correct.  I know of no other place in the US where the replacement cost of infrastructure on a per person basis, is $350K per person ($4bn / 11,300 Lahaina residents.)  If locals want to live in a place where infrastructure is so expensive, they should pay for it themselves rather than make taxpayers around the country pay for it.  Why should the rest of the country subsidize people living in paradise?  I am sure people in Alaska or the Bronx would be delighted to live in Lahaina at taxpayers' expense.  

 

We're frickin' subsidizing people in Florida from hurricanes and flooding! 

We're subsidizing Californians and Seattleites from massive earthquakes! 

We're subsidizing Oklahomans and other mid-westerners from tornadoes and drought! 

We're subsidizing Alaskans because of their remoteness and inhospitable landscape! 

We're subsidizing the Northern East Coast from blizzards and freezing pipes! 

We're subsidizing the Gulf Coast from rising sea levels and flooding! 

 

Almost every region of North America is subsidized by taxpayers for something related to Mother Nature. 

 

And guess what else?  Almost every one of those regions has their properties rebuilt on the same shitty location, only to have it happen again over and over and over. 

 

Everyone calls Citibank, Shittybank...but we should be calling Florida and Louisiana Shittystates!  Two states where Mother Nature loves to take a dump over and over.  And we keep building and building.  Insurers would walk away in droves if we simply let free markets decide where they should operate and who they should insure.  

 

Yet you have a 1 in 100 year fire in Maui and we're telling them they are essentially welfare cheats.  Cheers!  

[dealraker]

2 hours ago, Parsad said:

 

We're frickin' subsidizing people in Florida from hurricanes and flooding! 

We're subsidizing Californians and Seattleites from massive earthquakes! 

We're subsidizing Oklahomans and other mid-westerners from tornadoes and drought! 

We're subsidizing Alaskans because of their remoteness and inhospitable landscape! 

We're subsidizing the Northern East Coast from blizzards and freezing pipes! 

We're subsidizing the Gulf Coast from rising sea levels and flooding! 

 

Almost every region of North America is subsidized by taxpayers for something related to Mother Nature. 

 

And guess what else?  Almost every one of those regions has their properties rebuilt on the same shitty location, only to have it happen again over and over and over. 

 

Everyone calls Citibank, Shittybank...but we should be calling Florida and Louisiana Shittystates!  Two states where Mother Nature loves to take a dump over and over.  And we keep building and building.  Insurers would walk away in droves if we simply let free markets decide where they should operate and who they should insure.  

 

Yet you have a 1 in 100 year fire in Maui and we're telling them they are essentially welfare cheats.  Cheers!  

We been subbed for so long we don't recognize it 'cause we's too busy doing the grievance.

[Cigarbutt]

^i guess 'we' could spend all day 'discussing' the 'political' aspects and i wonder if switching theme to "public governance issues" would make us all relatively more intelligent (or the same level of brightness with less contamination?).

One could venture to say that Florida is a great State (i do, for many reasons) but that the governance has been extremely poor for the socialization of risk in the homeowners' segment. Can the tribe live with that statement?

The retention of wind risk by the public 'residual' (not so residual anymore) entities means that there is a high likelihood of unusual 'redistribution' patterns going forward. That's all.

-----

Now, maybe a more interesting question is why has BRK recently entered into a giant agreement to backstop this mess?

https://www.reinsurancene.ws/berkshire-gets-giant-1bn-share-of-florida-citizens-reinsurance-renewal/

The following is an attempt at an answer.

First, reinsurance prices have gone up +++.

Second, BRK has carefully chosen the layers of participation staying away from 'coastal' accounts.

Third, in a contrarian way (profitability in the property segment has been dismal lately), BRK has invested to potentially benefit from the political attempts recently enacted to improve the legal context (part of the social inflation theme) which has been dismal in Florida.

[gfp]

Thanks for the post Cigarbutt.  It certainly is interesting to see a big headline where Berkshire writes $1 Billion of cat reinsurance to Citizens and then read the details to see that they didn't participate in the Coastal account at all.  PLA layer is further inland, non-coastal areas of the state.

[Saluki]

Well, it's not just a Florida problem.  The National Flood Insurance program charges way less to insure those Outer Bank mansions in North and South Carolina than they should.  I saw an interview with the director of that program a few years ago on TV and he said something so stupid that it could only come from a bureaucrat.  He said that they were raising the premiums a little bit each year and hoped to eventually get to market rates one day.  In the meantime, people whose mansions were destroyed in hurricanes, just rebuilt them in the exact same spot using the cheap insurance they bought. When asked why they didn't raise the rates to market rate if they knew what they should be charging to make up for the losses, he said that if they raised it too high all at once then people might not buy the insurance and they wouldn't have any coverage.  

 

OR they might use common sense and not rebuild in the same area. Or they might build a small summer cottage instead of a McMansion. Or they might take remediation measures (hurricane tie downs on the rafters, sump pumps in the basement, hurricane shutters, build with cinder block instead of sticks). Or they could pay what it costs and not have low and middle income tax payers subsidizing your beach mansion. 

[ValueArb]

I'd like to see a federal national natural disaster fund to stop politicians from using these disasters as political opportunities to spend our "unlimited" national funds to improve their political standing. A national disaster shouldn't require a special action from the president or congress, we should have a framework in place with defined benefits and include resources like FEMA. They'd send in immediate help, and also be responsible for paying to rebuild.

 

Specifically, the fund would cover all the standard disasters, wildfires, earthquakes, tornadoes, hurricanes, etc. It would charge each state based on their relative size and risk. To ensure the rates weren't manipulated, 20% of the coverage would have to be purchased from private insurers which would set the rates for the entire pool. Have a board of directors elected by the states, who'd be responsible for hiring and overseeing the manager of the fund. No president, no congress, no politics, if any states had complaints they could address them through their board members.

 

 

[rogermunibond]

7 hours ago, gfp said:

Thanks for the post Cigarbutt.  It certainly is interesting to see a big headline where Berkshire writes $1 Billion of cat reinsurance to Citizens and then read the details to see that they didn't participate in the Coastal account at all.  PLA layer is further inland, non-coastal areas of the state.

 

That's kinda Buffett and Jain's MO in providing reinsurance.  Get paid handsomely but with attachment points way up the stack and not be in the first loss or even second loss position.

 

[gfp]

11 minutes ago, rogermunibond said:

 

That's kinda Buffett and Jain's MO in providing reinsurance.  Get paid handsomely but with attachment points way up the stack and not be in the first loss or even second loss position.

 

 

One of my favorite deals they did years ago with Florida Citizens was get paid an insurance-like premium up-front - not to insure a claims risk directly - but to commit ahead of time to buy some newly issued municipal bonds from Citizens in the future if losses exceeded a certain threshold.  No mega-cat, collect your premiums and book the profit.  Huge mega-cat, buy a few hundred million dollars of muni bonds.  Nice work if you can get it.

[Libs]

Along those lines- after enduring the Northridge quake ( we were just a few miles from the epicenter, it was pure hell), I was stunned to see Buffett come up with this little nugget. The man is  hell of a bookie.

 

https://www.latimes.com/archives/la-xpm-1996-11-18-mn-386-story.html

 

 

 

 

[Parsad]

3 hours ago, ValueArb said:

I'd like to see a federal national natural disaster fund to stop politicians from using these disasters as political opportunities to spend our "unlimited" national funds to improve their political standing. A national disaster shouldn't require a special action from the president or congress, we should have a framework in place with defined benefits and include resources like FEMA. They'd send in immediate help, and also be responsible for paying to rebuild.

 

Specifically, the fund would cover all the standard disasters, wildfires, earthquakes, tornadoes, hurricanes, etc. It would charge each state based on their relative size and risk. To ensure the rates weren't manipulated, 20% of the coverage would have to be purchased from private insurers which would set the rates for the entire pool. Have a board of directors elected by the states, who'd be responsible for hiring and overseeing the manager of the fund. No president, no congress, no politics, if any states had complaints they could address them through their board members.

 

 

 

+1!  Totally agree.  Unfortunately politicians want to appease constituents.  Cheers!