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JUNE 15, 2023

Cooper on TAP

The Climate Home Insurance Apocalypse Is Nigh

Farmers Insurance Group and AIG are halting home policy sales in
Florida. They weren't the first and they won't be the last.

The reason the Obamacare exchanges have so many complicated regulations
is that a lot of people require treatment that costs more money than
they possess. To get a health insurance market to work, the government
has to set up structures that group people into big risk pools that have
systematic transfers from the young and the healthy to the old and the
sick.

Home insurance, by contrast, is a lot simpler. You, the homeowner, pay

**individually** what you are statistically expected to claim for
repairs or replacement, plus a profit margin. So if conditions change
such that the likelihood of your house being destroyed (or the price of
replacing it) goes up, your insurance premiums will also go up-or the
insurance company will simply refuse to offer you a policy.

Farmers Insurance Group and AIG recently made the latter decision in
Florida-two of 16 home insurance companies
<[link removed]>
that have pulled out of the state market over the last 18 months.
Farmers was reportedly blindsided
<[link removed]>
by Hurricane Ian last year, which caused some $60 billion in insured
damages across the state. It also has been hit with the increasing costs
of labor and materials for home replacement. That's why Florida's
home insurance costs are up an estimated 57 percent
<[link removed]>
since 2015, by far the biggest hike of any state.

Insurers are also pulling out of California
<[link removed]>,
thanks mainly to wildfire risk.

The most obvious backstop here is for the state to step in and either
subsidize private companies, or offer its own insurance policy of last
resort. "Florida and California will need to offer state-backed
reinsurance so that insurers can issue actuarially sound policies,"
suggests one consumer advocate. Florida indeed does this with its
Citizens Insurance <[link removed]> program.

But this is not going to work over the long or probably even the short
term. With increasing temperatures fueling ever more extreme weather,
and especially sea levels rising near trillions of dollars' worth of
Florida coastal real estate, damages are going to keep rising, fast. As
Hamilton Nolan points out on his Substack newsletter
<[link removed]>, no
state has the budgetary capacity to shoulder a really sensational
disaster. $60 billion from a single powerful hurricane (that narrowly
missed the extremely vulnerable Tampa Bay area, by the way) is not far
off the entire Florida state budget of $117 billion
<[link removed]>.

There are three clear options to avoid a complete implosion of the
extant home insurance market in Florida and other vulnerable states. The
green-energy transition could be dramatically accelerated around the
world. Or nations could try to cut down global temperatures with some
geoengineering scheme
<[link removed]>. Or the
federal government could step in with enormous subsidies.

But one thing is clear: Without some major changes, great swaths of
Florida's cities will soon have to be abandoned.

~ RYAN COOPER

Follow Ryan Cooper on Twitter <[link removed]>

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The Most Interesting Bipartisanship of the Year
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Fights over domestic spying typically follow a familiar pattern. That
might end this year. BY DAVID DAYEN

[link removed]
Black Political Power Still Traumatizes the White South
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After 'Milligan,' some redistricting cases may find their way back
to state lawmakers who fear Black voters-and the multiracial
coalitions they can anchor. BY GABRIELLE GURLEY

Pandemic Fraud Is Really, Truly Not a Big Deal
<[link removed]>
The media's focus on waste misses key context, and ignores the
stunning success of the lockdown-era welfare state. BY MAX MORAN

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