$Economics: You Get What You Pay For?

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California Fires

Death toll climbs, thousands more structures burn as LA races to get control of fires

• Devastation could cost insurers $20,000,000,000

"There's enough water. This has nothing to do with the supply of water. It has to do with the pressure in the system." Juliette Kayyem, Harvard Kennedy School

The infrastructure isn't adequate to serve the population.
Republicans chant "tax cuts". And entire neighborhoods are laid waste.

"Everybody wants to go to Heaven, but nobody wants to die. ... People want the public services. We can't have the public services without some level of taxation."
United States House of Representatives Financial Services Chairman Barney Frank

 

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California wildfire backlash: State Farm, other insurers slammed for dropping coverage​

California's insurance market has struggled as insurers exit the market due to tough regulations and rising risk-​

By Eric Revell

The deadly wildfires that hit Southern California this week destroyed a significant number of homes after some leading insurance companies pulled back on offering policies in the Golden State in recent years due to the rising risks of wildfires as well as a challenging regulatory environment.

Several ongoing wildfires, including the Palisades Fire and Eaton Fire, have devastated communities in the Los Angeles area, including Pacific Palisades and Altadena. The fires have burned nearly 30,000 acres amid a Santa Ana wind event, with at least 130,000 people in the area under evacuation orders. At least five people have been killed in the blazes, and more than 1,000 buildings have been destroyed.

State Farm, the largest home insurance company in California, announced in March 2024 that it would discontinue coverage of 72,000 home and apartment policies in the summer. The company cited inflation, regulatory costs and increasing risk of catastrophes for its decision and had previously stopped accepting new applications in the state.

Several other leading insurers, including All State, Farmers and USAA, have also in recent years curbed new policy applications in California as part of an effort to limit their exposure to policies that carry what they see as undue risk given what the state's regulators have allowed them to charge policyholders. Similar reasons of ....

MORE (including vid)

 

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This congestion of dysfunctional illogic defies plausibility.
It is systemic failure on market scale.

If government hasn't the spine to upgrade building codes & infrastructure, insurers should step aside,
or perhaps even better, charge insurance policy premiums at commercially viable $levels (again, government related). *
Failure to adhere to these business fundamentals threatens system viability.

* This can be presented to Sacramento as a binary:
- allow insurers to apply standard cost + profit formulae for insurance policies, accurately reflecting local actuarial risk, or
- wave bye bye

 

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.... or perhaps even better, charge insurance policy premiums at commercially viable $levels (again, government related). *

There are two public perception problems here. The first is the absolute value of the required premiums ("I've never had a claim and you want how much for insurance?"). And the second is the size of the increase in premiums - people don't complain too much if premiums go up by 5 or even 10 percent but when they have to be increased by 50 or a 100 percent (or even more) ....

And that's assuming that people can even find coverage - in addition to non-renewing policies a number of companies won't even consider new applications. And the few that do are expensive.

 

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California had a home insurance crisis before the LA fires. It's only going to get worse.​

As firefighters race to control roaring blazes that have forced thousands to flee their homes, the mounting financial toll from the most destructive firestorm in Los Angeles history could deal a devastating blow to the property insurance market and the California homeowners who rely on it.

The impact of the catastrophic wildfires could drive up already sky-high premiums and prompt a new wave of private insurers dropping policies or declining to write new ones – and not just in the LA area.

“Insurance is going to be even harder to come by and it is going to get incredibly more expensive than it already is. People need to be prepared for that,” said Mark Newman-Kuzel, president and owner of The Mark Newman-Kuzel Agency in Los Angeles, who said at least six of his clients have lost their homes so far and many more have called to check on their insurance coverage. “As I tell my clients when they do their annual policy reviews, you are lucky you weren’t canceled.”

With economic losses already topping an estimated $135 billion, consumer advocates warned the state’s insurer of last resort for many homeowners, known as the FAIR Plan, could run out of funding, forcing it to .....

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Emphasis added

 

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"There are two public perception problems here. The first is the absolute value of the required premiums ("I've never had a claim and you want how much for insurance?"). And the second is the size of the increase in premiums - people don't complain too much if premiums go up by 5 or even 10 percent but when they have to be increased by 50 or a 100 percent (or even more) ...." S2 #4

Indeed.
And if such radical price structure changes reflected greedy profiteering, boosting profit margin from 5% to 105% I'd share their outrage.
Evidently profiteering is not the cause here (assuming the insurer's profit margin remains about the same).

Real estate owners are confronted with a "glass-half-full" dilemma here. Real estate is considered an appreciating asset.
If such owners can no longer afford to live there, $GREAT !

They can sell at a profit.
Expecting the cosmos to adhere to their static model fantasy simply isn't realistic.