Home Insurance: Crisis without a Fix

Climate Change FEMA

        New Orleans     Having a big insurance company, like State Farm, pack up and leave the state is old news in Louisiana.  Big companies, little companies, medium-sized companies come and go all the time here.   Nonetheless, when State Farm, the largest insurer in California, the most populous of the states in the US and pretty much the richest, says it’s going to stop insuring homes in America’s vaunted paradise, that’s national news.  Wildfires are part of it, but not enough to understand this move, because State Farm is not just leaving threatened areas, but everywhere from ocean to desert, mountains to Mexico.  The spokesperson for the company gave a mealy-mouthed statement saying that state officials had made progress and all of that in dealing with fire and climate threats, but they had to look after themselves, being that they are a private company in the heart of capitalism and not a public enterprise.  Sounds cold, doesn’t it?  There might be some hope though.  If this is happening in California, and not just Florida, Louisiana, and the like, maybe people will figure out what to do about all of this.

Sitting in New Orleans and in Louisiana generally, I can tell you folks don’t have a real clue.  Rates this year are up 60% on average.  I got my bill this week.  I need to get up in the attic and check the roof, because this bill may have gone straight through.  We didn’t flood.  We’re on high ground, at least in local terms, almost eleven feet above sea level.  We’re with Citizens which is the state-backed plan, which actually makes us semi-lucky, regardless of the bill.  My son’s place has gone through a bunch of companies that are based in Florida, where climate change and regular hurricanes have diluted the standards for company registration so much that these are basically shell companies with little asset base that will just declare bankruptcy if there’s another big one.  Most Citizens-type insurers have a top limit on what they will cover in the range of $700,000.  That might work in Louisiana, but you can hardly buy a house in California for that price, so even with a cobbled together operation, homeowners will be burned.

Some experts say this is unsustainable.  The government and FEMA should simply move people in harms way.  That might work for some families right at the water’s edge watching it rise, but not whole populations.  The government can’t afford to move enough people, and there’s nowhere safe for them to move.  Policymakers and politicians need to face the facts.  Talking to our members, we know who is taking the risks when the State Farms, Liberty Mutuals, and the like head off somewhere else.  They are going naked with no insurance.  This has been a well-documented fact for flood insurance for years.  In Houston, when the rains came recently, people acted shocked when they realized the low percentage of flood policies.  What do you think people do when they can’t afford insurance?  They are forced to absorb the risks.

Hope is not a plan, but that’s the default now in the face of no alternatives and price hikes.  Why wait for the next catastrophe?  We need to fix this now!