The national flood insurance program shows one of the downsides with government participating in the private market (there are some plusses as well) - their rates were set too low, and that created a group of people who were politically motivated to agitate to keep them low. It's very hard to find the political will to raise insurance prices on those people, even though the majority of people/voters understand that it's a subsidy that doesn't make sense - first because its not fair, second because it encourages outsizes risk taking.
People will always be willing to pay a premium to live near the ocean. There are some places where that premium will be too high except the very very wealthy - living on a barrier island - for example.
In order to enjoy living in places where nature exact a larger toll - near the ocean, on a mountain that gets dry and doesn't have a fire station nearby - homeowners will need to invest in hardening their homes, invest in buying more expensive insurance and will need to make sure they have the financial buffer to rebuild if their home is damaged by the weather.
As the ocean rises, we will need to move more inland.
In Florida Citizens is the largest homeowners insurance company and it competes vigorously with the private market.
The issue with Citizens is that it does create a lot of financial risk for the state, especially since it doesn't buy as much reinsurance as a private company would.
The issue in Florida is also idiosyncratic to the state -- in addition to macro factors such as an increase in reinsurance costs (driven by increased cost of capital) and increased weather volatility (driven at least in part by global warming), Florida has had an issue with insurance fraud. They had a set of laws and court cases, unlike any other state in the country, that created a financial incentive for contractors to inflate (or make unnecessary) insurance claims. They would work in concert with litigation mills to further inflate the size of those claims. The way the laws were setup it often allowed the attorneys to get a 3x multiplier on their fees (which they would inflate to begin with).
So you would have a situation where a roof needed to be replaced, should cost $30k. A roofer comes up with an estimate for $60k (and maybe pays the homeowner back a $10k kicker), gets the homeowner to sign over the insurance policy to him. Then he hires a lawyer who spends $50k of his time litigating the case. Let's say the court sides in favor of the insurer and awards $30k, the lawyer still gets $150k (3x multiplier on the $50k of fees).
As a result you had Florida accounting for 8% of the homeowners insurance claims nationally and 75% of the lawsuits nationally. There are billboards for insurance attorneys EVERYWHERE in florida.
The phenomenon impacted big national companies like State Farm that have similar claims handling procedures across their book. So State Farm would handle claims exactly the same in Florida as in Illinois and get sued 10x more often in Florida because of the financial incentive to sue. It also impacts Florida's state-owned insurer, which does compete very vigorously in the market and is the largest insurer in the state.
Fortunately Florida took a really good stab at fixing the problem with some legislation passed last December. It will take a while to see if the legislation worked, however. Meanwhile we still have the macro factors (climate change, reinsurance costs) to contend with.
https://bestsreview.ambest.com/edition/2023/february/Florida...
The issue in CA is idiosyncratic to the state. In 2020 the average price of homeowners insurance in CA was $1,241 and in Illinois was $1,144. It probably doesn't make sense for California to be only 8% more expensive than Illinois.
I don't think that's a fair characterization of how pricing works in homeowners insurance. Every time you want to change prices, you need to justify the price change to the regulator using the actuarial math. The regulator's own actuaries review the actuarial math and, if they don't agree, will not change allow the rate change.
One of the hardest things about insurance is figuring out the probabilities of very unlikely events. Hurricane Andrew was a moderately large storm that directly hit three major population centers - Miami, Ft. Myers and New Orleans. That circumstance is infrequent enough that modeling it statistically leaves a wide range of uncertainty.
I would think about insurance as more of a smoothing mechanism of inherently uncertain outcomes. When something happens that's unexpected and causes a larger loss, that is typically recouped by the industry over a few years of higher rates. That way the industry is still absorbing volatility, which is valuable to their customers, but doesn't require that they be 100% correct about the probabilities of infrequent events.
This is right, there's a lot of regulatory capture and cronyism, so it's far from perfect, but the real story is that actuarial tables are not keeping up with 500 year events becoming 50 year events and 100 year becoming 2-5 year events. The pace of change and severity of events is unprecedented and no one can figure out how to keep profits rolling.
I am the CEO of a tech company that provides homeowners insurance in hard to insure places.
I don't think it's really a bad thing for a company like Farmers to cut costs. Insurance companies are by and large pretty bloated from a cost perspective and could do to be more efficient, reduce overhead, use more technology.
It's very common for homeowners insurance companies to have expense ratios of 30-40%. So if you are paying $3000 per year thats ~$1000 EVERY YEAR that is being wasted on branches/agencies you don't visit and corporate overhead.
+1 -- Chicago is top 5 in startup/vc activity, has a number of big/successful tech companies -- groupon, orbitz, 37s, Braintree, etc. Google has nearly 3000 people there (including the 2500 or so from Motorola mobility). There is an active tech community lots of events meet ups, two top 10 national universities and 4 other large universities.
There are some expensive neighborhoods but also many cheap ones that are super fun if you are young and don't have kids or care about school quality.
Public transport here is ok - very extensive systems but some lines are pretty slow. Culturally we have everything you would expect of a very large city - great restaurants, museums, music, etc.
