Eli5: Why are insurance companies leaving entire states like California and Florida?
In: Economics
The overly simple answer is that they don’t feel that they can price their policies appropriately and can only lose money.
The details get more complicated, but it’s a combination of increased costs (due in part to higher risks of natural disasters in both states), regulatory disagreements (mainly in CA), and the legal environment (mainly FL).
Setting aside the many ways in which insurance companies are problematic:
Insurance fundamentally works by collecting payments from a large group of people at least equal to the amount they predict they’ll need to pay out in that same amount of time, based on actuarial and other data.
Florida and California have made it so that the companies can no longer do this, by either limiting their payments or by having unexpectedly high payment predictions.
They are raising prices 300% in Louisiana. Paid $1400 2 years ago. $2500 the next year. This year they wanted $5000. Nope. Had to find someone else. Ever since 2020, insurance has lost a ton of money. We had Covid, 2 major hurricanes, floods, freezes, then another major hurricane, and more floods. I saw someone in Lafourche parish that had a homeowners bill for +$11,000 for the year. Outrageous. I’m assuming the insurance companies want out so they raise the price for you to go somewhere else.
In Florida specifically, it’s really an issue with the ways the laws are written, leading to more lawsuits filed against insurance issuers than any other state.
For example, if you issue homeowners insurance in the state of Florida, the homeowners insurance policy issuer can be sued by any third party, at any time. This is a big reason there are so many roofing scams in the state. Roofing company sees minimal damage, completes the work, and sues the homeowners insurance policy issuer on behalf of the insured. The insurer can either pay the claim, or spend nearly as much fighting it in court.
This is just the tip of the iceberg, but in Florida specifically, the laws are written in such a way that insurers are spending insane amounts of money in court, and in paying out claims that just aren’t worth fighting.
Fire, flood, and earthquake has officially exceeded the risk and current premium valuations.
Insurances are capped by state of California and can’t raise premiums to offset coverage.
So they are washing their hands with california.
State of California will need to step in and provide a state sponsored insurance program running at a loss each year. This will happen in 10-15 years from now.
In Cali you have a ton of factors, the first being prop 103 which limits insurance pricing. It also sets up the insurance commissioner and gives the ability to intervene to 3rd parties. So there is both the IC to convince on rate increases and there’s a 3rd party “watchdog” to appeal rate increases also. So a company needs to increase rates and files for it, the IC approves but the watchdog doesn’t 6mo or more pass and the company ends up with 1/2 the rate. This happens enough times, and then a wildfire wipes out an area, due to the insufficient rates that company no longer has the reserves, they have a choice, leave the state or file a rate increase that they aren’t going to get for 6 months or longer. State farm allstate and several other companies finally got tired of this and stopped writing new business, which combined with cancelations and new purchases put the state risk pool in a crisis so the state is being forced to let the companies take rate and since the companies do not have any reserve the rate increases are going to be truly aggressive for years before they start going down and that’s if they are allowed to take the rates they need, the watchdog group only makes money when the intervene so they don’t want the insurance companies to get well so they’re going to fight if they can.
Earthquake and earth movement caused by earthquake are not part of the issue since policies for that are separate from homeowners policies
Floriduh. Unlike the other 49 states, this state allowed you to assign your benefit in claims situations. So a storm comes through and a guy shows up with $1000 and a clipboard with a repair estimate that he made without even looking at your roof and says “sign this piece of paper and let me file a claim with your insurance and I’ll comp your deductible and give you this $1000” why wouldn’t you say yes? So the claim you signed on is for a roof twice your size with the most expensive shingles and exorbitant disposal costs and the claim gets denied, but because you assigned your benefits the lawyer for the roofing company files suit, your insurance company knows it’s going to spend as much as it’ll save fighting the bullsh!t claim or more since they might also lose punitive damages too. So they’ll settle and pass the costs on to you with rate increases. But the insurance scams have become so common some people are getting new roofs 3 or more times a year. So no company could charge enough. So the legislators changed the assignment thing to put the expense on the roofers, and they are hoping this well help but it might be to little to late.
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