Inside The U.S. Insurance Crisis

The Las Angeles Times reports that State Farm will not renew 72,000 California insurance policies due.

Inputs that matter: State Farm is not alone in limiting exposure to California as residential and commercial property insurance companies raise rates, reduce coverage, or refuse to do business inside the state.

According to the Las Angeles Times, "The companies have cited high inflation, catastrophe exposure, reinsurance costs and the limitation of decades-old insurance regulations as reasons for scaling back policies in the state."

The opportunity: Californians unable to secure property insurance can participate in the state-funded Fair Access to Insurance Requirements (FAIR) plan.

California expects the FAIR system to cost the state over $300 billion in 2024.
Unlike Florida and North Carolina, the San Francisco Standard reports, "Currently, in California, reinsurance costs are prohibited from being included in company calculations around premiums."
The California Department of Insurance has proposed legislation to allow catastrophe modeling for "wildfire, terrorism, and flood lines for homeowners and commercial insurance lines."
Current rules only allow forward-looking modeling for earthquake risk.

Zoom in: California is not alone in the Insurance crisis; Texas, Louisiana, and Florida are also experiencing rising rates.

"Louisiana is experiencing the worst insurance crisis in its history," says the state's Insurance Commissioner, Tim Temple.
Aljazeera reports, "Since the 2020 hurricanes, nine insurers became insolvent in the U.S. state of Louisiana."
Newsweek reported that home insurance in Texas is currently $4,142 a year, much above the national average of $2,777.
"According to NOAA's Billion Dollar Weather and Climate Disasters database, Texas is already being hit by more disasters than any other state: 170 since they began counting in 1980," climate scientist Katherine Hayhoe, a professor at Texas Tech University, told Newsweek.

Between the lines: When property insurance goes up, there are fewer home sales and lower property values.

Redfin reports that Florida real estate sales dropped in January 2024 due to the rising cost of home insurance.
Reporting "Prices of condos in major Florida metros are dropping year over year, and sales are declining."
Orlando real estate agent Juan Castro explains, "Condos that used to have a $400 monthly maintenance fee may now have a $700 fee. It's causing buyers to rethink their plans."

Follow the money: Deloitte explains in their 2024 insurance report that the U.S. non-life market is "facing the hardest market in a generation."

The cost of building materials has climbed to 33.9%, with construction labor at 27%.
Since 2022, the U.S. has experienced ten catastrophes with more than $1 billion in losses.
Reinsurance is elevated, with more property insurers needing their protection.
Commercial property premiums are up by an average of 20.4%.

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Inside The U.S. Insurance Crisis

Mike Leslie
March 24, 2024

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Inside The U.S. Insurance Crisis

Mike LeslieMarch 24, 2024

Read More

Mike Leslie
March 24, 2024