Inside The U.S. Insurance Crisis

Mike Leslie
March 24, 2024

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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