This morning’s Seattle Times had an article reprinted from the Washington Post on home insurance companies AND their re-insurers continuing to pull back on issuing/renewing disaster insurance. The Seattle Times own print edition published the article under the title “Home insurers cut natural disasters from policies as climate risks grow” (hasn’t made the web site), the same title as the WaPo’s original piece (which is available free on their web site and you can get more articles with a free account according to their ending blurb).
There have been previous rumbles going all the way back to Hurricane Andrew (August, 1992), which caused some insurance companies to stop issuing new policies, causing Florida to have to cobble together a consortium including smaller insurers and some state backing. Then Katrina hit in 2005, Irma came along in 2017, followed by some additional hurricanes that really piled up the damage bills. A number of the smaller insurers went under, additional big players started pulling back, and the reinsurance companies started getting antsy — and without re-insurance to cover unusually rough years, the retail insurers are in deep, um, waters without a life vest.
The same thing started happening on the West Coast of the US with fire insurance and CA now has the possibility of getting hurricanes itself after Hilary went through and demonstrated a new danger vector. Idalia last week hit areas of Florida that had “never been experienced direct hits from a major storm”. Maui’s estimate of property damage alone is up to $3.2 billion — and given the destruction of irreplaceable historic artifacts, that’s a massive undervaluing of what was lost before we even get to the people who died.
The list of large US property insurers is now up to “at least” five — Allstate, American Family, Nationwide, Erie Insurance Group, and Berkshire Hathaway (see below about what to expect). More small insurers have failed. Now the re-insurers are starting to get worried about their own ability to survive back-to-back bad years (actually if their actuaries are competent they probably started sweating after Andrew).
One worrisome observation in the Wapo article was that a survey was distributed in 2022 by 15 states and received responses from companies covering 80% of the US insurance market. Three of the 5 biggies (named in my prior paragraph) confirmed that they were going to be setting additional limits on coverage in areas prone to heightened risk. Any other big insurer who hasn’t already put out warnings would be foolish in the extreme to not be thinking seriously about it and preparing to do the same(IMHO). As the reinsurers also continue to put out warnings and get noisier, I predict this will build, likely ending in almost nobody being able to afford to access disaster insurance, followed by the general collapse of the industry.
Time to start thinking about major government intervention, potential national insurance plans, backed directly by the feds. Think Federal Reserve and other programs that back financial institutions, but one hell of a lot bigger and probably WAY more intrusive, cause things are moving fast!
Edit: Minor punctuation correction in paragraph 2
Edit 2: Add missing “setting” additional limits in paragraph 4, second sentence
