Insurance companies refusing N.E. US homeowners

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In summary: I'm not an expert on the ins and outs of the insurance industry so I can't say for certain, but that's my guess.
  • #1
Ivan Seeking
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...In Massachusetts some homeowners already are paying higher premiums as insurers abandon certain local markets. While the state hasn't experienced a devastating hurricane in more than 50 years, insurance companies, including Andover Cos. and Hingham Mutual Group, increasingly are refusing to write homeowners' policies on Cape Cod and on the islands of Nantucket and Martha's Vineyard, where many of the East Coast elite keep vacation homes. That has driven many homeowners into the state's insurer of last resort, the Massachusetts Property Insurance Underwriting Association, also known as the FAIR plan.

...Other states barely touched by last summer's hurricanes also are feeling the impact. In New York, Allstate, the largest insurer in the state, recently announced it would drop 28,000 policyholders in eight counties, including New York City, citing "overexposure" to potential weather related losses there. But other insurers, including State Farm and Liberty Mutual Group, have said they would continue writing business in the state.

In Rhode Island, insurers are beginning to alert homeowners in coastal areas that their policies won't be renewed, according to the state's association of independent insurance agents. [continued]
http://www.post-gazette.com/pg/06082/675468.stm [Broken]

It strikes me that we might see a great deal of wealth simply evaporate. If in areas once prized for their millions+ dollar homes, the land is suddenly considered too risky to insure, then the wealth simply disappears? This seems potentially significant since many coastal areas are painted with expensive homes and land.

I have often wondered how long the homes along the Pacific Coast Highway, around Malibu, California, will stand. Sooner or later these tremendously expensive homes seem destined to wash out, burn out, or slide in the mud.
 
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  • #2
Its even worse in Florida. Insurance companies are quick to leave the state, and raising their rates to crazy-high European levels, some as high as 15%. This is especially true after the 2004 hurricane season.

I don't think that the multimillion dollar homes in the Northeast will be nearly as affected as the constant onslaught coastal homes on the Eastern Seaboard and Gulf of Mexico will recieve, particularly after Katrina. Storms usually dissipate when they get too far north.
 
  • #3
Ivan Seeking said:
It strikes me that we might see a great deal of wealth simply evaporate. If in areas once prized for their millions+ dollar homes, the land is suddenly considered too risky to insure, then the wealth simply disappears? This seems potentially significant since many coastal areas are painted with expensive homes and land.
Inability to insure those homes seems like it might lead to a dramatic decrease in property values. I don't really know for certain on that, since I've never really heard of it happening before, but it just seems it would be something a potential buyer would have to think long and hard about if they couldn't afford to self-insure. If you can't get insurance, you also can't get a mortgage, as mortgage companies require homeowner's insurance. So, that reduces the potential buyers as well...how many people could afford to walk in and buy those homes for cash without a mortgage?

One thing that crosses my mind, given these locations...do you really think it's weather-related, or that the homes are becoming so over-priced that the insurance companies just can't afford to replace them for any reason?
 
  • #4
I'm surprised that you care about the plight of the super-rich, Ivan. IMO, if you build a house on a beach - any beach - you take your chances. Homeowner's insurance isn't a right, it's a business transaction.
 
  • #5
russ_watters said:
I'm surprised that you care about the plight of the super-rich, Ivan. IMO, if you build a house on a beach - any beach - you take your chances. Homeowner's insurance isn't a right, it's a business transaction.

I don't think he's saying it's a right, more of an irony that the prized possesions are no longer very prized... or well, might not be prized in the future.
 
  • #6
russ_watters said:
I'm surprised that you care about the plight of the super-rich, Ivan. IMO, if you build a house on a beach - any beach - you take your chances. Homeowner's insurance isn't a right, it's a business transaction.
While Nantucket and Martha's Vineyard mostly have a lot of rich folks living there, Cape Cod is not just populated with the rich. The super-rich can afford to self-insure; it's those who are not so rich who will be hurt most by this.
 
  • #7
Pengwuino said:
I don't think he's saying it's a right, more of an irony that the prized possesions are no longer very prized... or well, might not be prized in the future.
My take on it is that he's predicting a shift in wealth if the very rich were to suddenly lose their homes without insurance, or were to get stuck being unable to sell them for what they're worth because nobody can insure them.
 
  • #8
I'm surprised that you care about the plight of the super-rich, Ivan. IMO, if you build a house on a beach - any beach - you take your chances. Homeowner's insurance isn't a right, it's a business transaction.

You should care about the plight of any human being under hardship Russ. :rolleyes:
 
  • #9
Moonbear said:
My take on it is that he's predicting a shift in wealth if the very rich were to suddenly lose their homes without insurance, or were to get stuck being unable to sell them for what they're worth because nobody can insure them.

Yah but like you said, they're rich enough to self-insure. Plus if you only really get a $10,000,000 house if you're worth $100,000,000 so i don't see any dramatic or even noticable shift in wealth if anything happens. I've been censored!
 
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  • #10
Moonbear said:
While Nantucket and Martha's Vineyard mostly have a lot of rich folks living there, Cape Cod is not just populated with the rich. The super-rich can afford to self-insure; it's those who are not so rich who will be hurt most by this.
How can the not-so-rich afford beach-front property? :confused:

By far, the most in danger are those who are right on the beach - in most places, if you go even a couple of miles inland, you get away from the strom surge and there really isn't much chance of losing your home. The article isn't all that specific, but in areas such as Martha's Vinyard, property values are extrordinarily high. We're not talking about "working-class" people here unless they inherited the land.
 
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  • #11
cyrusabdollahi said:
You should care about the plight of any human being under hardship Russ. :rolleyes:
The question is, is it a hardship for the very wealthy? I don't know how extensive the area is that is not being insured, though. There are a lot of fishing villages along the coast there too, where the people are certainly not wealthy. For them, it would be a hardship to lose their home, which is quite different from losing your vacation home.
 
  • #12
cyrusabdollahi said:
You should care about the plight of any human being under hardship Russ. :rolleyes:
I should? Why? :confused: :confused:
 
  • #13
Moonbear said:
The question is, is it a hardship for the very wealthy? I don't know how extensive the area is that is not being insured, though. There are a lot of fishing villages along the coast there too, where the people are certainly not wealthy. For them, it would be a hardship to lose their home, which is quite different from losing your vacation home.

It's called moving. Do people even have any responsibilities anymore? Afraid your house isn't in a perfectly safe community and geographical location? move. I'm sure someone will take your beach front property off your hands. If the insurers refusing to insure you isn't a big enough sign, oh well.
 
  • #14
russ_watters said:
How can the not-so-rich afford beach-front property? :confused:

By far, the most in danger are those who are right on the beach - in most places, if you go even a couple of miles inland, you get away from the strom surge and there really isn't much chance of losing your home.
Until only a few years ago, my family owned waterfront property in Maine (I wouldn't exactly call it beachfront, as the coast is all rock there). The family had owned the property for generations, long before it was so coveted. If my great-aunt hadn't willed it away to a gold-digger, maybe we would have been wealthier to sell it at current market value, but short of selling it, we are not a rich family, and were not while that home was in the family.
 
  • #15
Pengwuino said:
It's called moving. Do people even have any responsibilities anymore? Afraid your house isn't in a perfectly safe community and geographical location? move. I'm sure someone will take your beach front property off your hands. If the insurers refusing to insure you isn't a big enough sign, oh well.
If your livelihood is fishing, how do you move away from the coast?
 
  • #16
Moonbear said:
If your livelihood is fishing, how do you move away from the coast?

live with it.

Don't like your job? quit. Life isn't supose to be a joyride. Some of the only good things about this world are the people like those who do make their livelihood off fishing full well knowing the risks but don't complain.
 
  • #17
I should? Why?

It's called compassion for your fellow man.

(Maybe we are not on the same page)
I am talking about the loss of their home.

If they can't get insurance, they knew about that risk when they purchased the home. That's a different story.

(Now if we are talking about a historic house or a famous house by an important architect, then I do feel sorry and think we should try to save the house or move it)
 
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  • #18
live with it.

Don't like your job? quit. Life isn't supose to be a joyride. Some of the only good things about this world are the people like those who do make their livelihood off fishing full well knowing the risks but don't complain.

The people who spent generations as fishermen should all just sit back and shut up as they loose their livelyhoods and their homes? I would like to see you quit your job with rent and a family.
 
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  • #19
Pengwuino said:
live with it.

Don't like your job? quit. Life isn't supose to be a joyride. Some of the only good things about this world are the people like those who do make their livelihood off fishing full well knowing the risks but don't complain.
Nobody said they don't like their job. If they wanted to change jobs, moving from the coast would be easy, but if they want to keep their job, they need to stay near the coast. These people don't exactly live in mansions you know. And, if the current fishermen move away, someone else willing to take the job can't even afford to buy a home to do that if they can't get a mortgage...and you can't get a mortgage if you can't get homeowner's insurance.

Russ, as for the issue of storm surges only affecting people right on the coast, that really isn't going to matter if someone a bit inland also has their insurance dropped because the insurance company decides they are "close enough," and a tree falls on their roof, does it? They aren't talking about flood insurance here, the article is talking about homeowner's insurance.
 
  • #20
cyrusabdollahi said:
If they can't get insurance, they knew about that risk when they purchased the home. That's a different.
I agree it's different if someone buys a home knowing they can't get insurance. It's different if someone who currently owns the home and does have insurance suddenly has that insurance dropped, especially if none of the buyers in their market range would take the risk of buying without insurance...in other words, they're stuck with a house they can't sell and can't insure. Moving is not an option if you can't sell your current home, or if you have to take a substantial loss on it that won't even pay off the mortgage because nobody is willing to pay what you paid for it when they can't get insurance.
 
  • #21
What are you going on about? Who said anything about irresponsiblity, pengwuino?
 
  • #22
cyrusabdollahi said:
What are you going on about? Who said anything about irresponsiblity, pengwuino?

If you live in a dangerous area, don't complain about not being able to get insurance or the risk associated with your decision.

If people have lived there for generations, they obviously udnerstand hte risks and aren't complaining.
 
  • #23
If you live in a dangerous area, don't complain about not being able to get insurance or the risk associated with your decision.

Read moonbears post #21.
 
  • #24
Pengwuino said:
If you live in a dangerous area, don't complain about not being able to get insurance or the risk associated with your decision.

If people have lived there for generations, they obviously udnerstand hte risks and aren't complaining.
No, if they've lived there for generations and have always been able to get insurance, they know they are taking less of a risk. They know they won't be completely homeless and penniless if their home is destroyed in a storm, or because it catches on fire. Not having insurance changes the risk completely.
 
  • #25
Ivan said:
I have often wondered how long the homes along the Pacific Coast Highway, around Malibu, California, will stand. Sooner or later these tremendously expensive homes seem destined to wash out, burn out, or slide in the mud.
In the last rainy season there were a number of homes seriously damaged by land slides. It was a bit of a contraversy that these people, well off in the main, were seeking government aid to rebuild their homes. These people bought and lived in these homes even though they were uninsurable. People didn't like that their tax dollars were being used as insurance by these people and that the government was proposing spending millions to reinforce the land so these people could keep their expensive beach front homes.

Moonie said:
I agree it's different if someone buys a home knowing they can't get insurance. It's different if someone who currently owns the home and does have insurance suddenly has that insurance dropped, especially if none of the buyers in their market range would take the risk of buying without insurance...in other words, they're stuck with a house they can't sell and can't insure. Moving is not an option if you can't sell your current home, or if you have to take a substantial loss on it that won't even pay off the mortgage because nobody is willing to pay what you paid for it when they can't get insurance.
Then what do the insurance companies do? They aren't obliged to give anyone insurance. It's a service they offer to 'help' people.
Also the insurance companies don't exactly have some secret information that no one else does. If anyone researches their investment into a home then they should be well aware of the possible problems. Any one who has lived there then should obviously know that there are issues and expect that they are running a risk by continuing to live there. Having insurance isn't a right garanteed by the constitution.
 
  • #26
Moonbear said:
One thing that crosses my mind, given these locations...do you really think it's weather-related, or that the homes are becoming so over-priced that the insurance companies just can't afford to replace them for any reason?

As reported, this is a direct result of Katrina.
 
  • #27
russ_watters said:
Homeowner's insurance isn't a right, it's a business transaction.

Besides you, did someone suggest that it is a right?
 
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  • #28
russ_watters said:
I'm surprised that you care about the plight of the super-rich, Ivan. IMO, if you build a house on a beach - any beach - you take your chances. Homeowner's insurance isn't a right, it's a business transaction.
Insurance is about risk (chance, probability). The greater the risk, the higher the premium.

Now, if one builds a house on a beach along the east coast of the US, it is very likely that in about 10-20 years, it will experience some damage from high wind or waves or both (hurricane or Nor'easter), so why shouldn't an insurance company expect to be able to cover an 'almost certain loss'. The chance (risk) of property damage seems to be increasing recently.

The idea is to spread the risk among the population, but that is predicated upon people taking similar risk and minimizing risk as much as possible. People on the beach are assuming way more risk than those in-land, and so they should be expected to assume greater cost of insurance.

Insurance works well when 1 in 1000 or 1 in 10,000 claim, but when 1 in 10 or more (high fraction) start claiming, then insurance is no longer insurance, but subsidy. :rolleyes:

Moonbear said:
One thing that crosses my mind, given these locations...do you really think it's weather-related, or that the homes are becoming so over-priced that the insurance companies just can't afford to replace them for any reason?
It's both. The chance of extreme weather events is increasing AND the value of the property is increasing = more to lose.
 
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  • #29
Ivan Seeking said:
http://www.post-gazette.com/pg/06082/675468.stm [Broken]

It strikes me that we might see a great deal of wealth simply evaporate. If in areas once prized for their millions+ dollar homes, the land is suddenly considered too risky to insure, then the wealth simply disappears? This seems potentially significant since many coastal areas are painted with expensive homes and land.

I have often wondered how long the homes along the Pacific Coast Highway, around Malibu, California, will stand. Sooner or later these tremendously expensive homes seem destined to wash out, burn out, or slide in the mud.
Technically, the value of the homes are put into a more accurate perspective, since the risk factor is coming into play. The fact that 'someone else' would pay for the losses may have given the illusion that the houses are more valuable than they really are, but the real value of the homes hasn't changed a bit.

Unless insurance companies have miscalculated the risks, there are no 'free' chances. The idea is that everyone facing a common risk chips in for every loss rather any individual being devastated by a single loss (plus a profit for the company that's running the pool).

The only way to reduce the insurance costs are to get individuals less likely to file a claim to chip in, as well. For example, convince people in Nebraska to chip in for hurricane losses on the coast. It's hard for insurance companies to do that (it takes the government to do that by making it mandatory via higher taxes).
 
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  • #30
No one needs to own beachfront property, even fishermen. Fisherman can't drive a few miles like professionals of every other kind?

Beachfront property is a luxury, not a necessity for survival. Certainly, these people have the means to survive -- they can move, they can save up money for their own expected loss, they can redesign their property to make it safer for their houses. They're not going to end up begging on the side of the road.

You also have to keep in mind that the houses themselves (the timber and shingles) are practically worthless compared to the market value of the land. The potential for loss is not over timber and shingles, it's due to an investment that didn't pan out.

So, let's compare it to any other kind of investment. People know that the land has no intrinsic value -- sure, it's got a pretty view, but the lots are small, there are no stores of natural resources, etc. The land only has significant value because other people are also willing to pay significant prices for it.

Now, it seems pretty obvious that an investment with no real intrinsic value -- a plot of land in Martha's Vineyard, or a stock with a price to earnings ratio of 200 -- is a gamble. It only gains value if the market drives it to have value, and there's no such gaurantee.

People who make their real-estate buying decisions because they like the view from the breakfast nook are making risky (stupid?) investment choices, and the needed to consider the implications of those choices before making the purchase.

No one feels sorry for day-traders who don't do enough research and lose their shirts on high-risk stocks; why would anyone feel sorry for real-estate investors who don't do enough research and buy property with ultra-inflated prices and no intrinsic value?

- Warren
 
  • #31
BobG said:
Technically, the value of the homes are put into a more accurate perspective, since the risk factor is coming into play. The fact that 'someone else' would pay for the losses may have given the illusion that the houses are more valuable than they really are, but the real value of the homes hasn't changed a bit.

It seems to me that wealth evaporates. For example, I might sell a home to someone from Japan which brings some number of Yen, then dollars into the economy. Likewise, if my home floods or burns, the insurance money, much of which often comes from foreign investors, in put back into the economy. So if the value of a large sector of the high priced housing market takes a huge and permanent drop, this would seem to represent a direct loss to the economy. If a million homes along the South, East, and West coast, see a million dollar loss, this represents a potential loss of one trillion real dollars, which, interestingly, just happens to be near the minimum price to end our dependence on oil. In any case, if this trend continues, the potential effects would seem to be significant.

This also reminds me a bit of the loss to the economy during the transisiton from manual to computerized banking. As the ability to float checks diminished, all of the pseudo cash in "mail space" slowly evoporated. As it was explained to me, it was like removing billions of dollars from the economy.
 
  • #32
Oh yes, IIRC, it is thought that in part, the double digit inflation experienced in the US, in the early 70's, was ultimately due to the loss of pseudo cash in the banking system.
 
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  • #33
Ivan Seeking said:
Besides you, did someone suggest that it is a right?
If you aren't suggesting it is a right or an entitlement, then what is the point of this thread?

I really don't get it. Yes, insurance companies are constantly re-evaluating their risks and sometimes that means they stop insuring some types of properties. Ok...so what? Why is this worth discussing?
 
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  • #34
Ivan Seeking said:
It seems to me that wealth evaporates. (snip)

Depends. If homes are purchased with cash and the market falls as a function of insurance companies' policies, yes. If homes are purchased with lenders' money, no --- that was never "real" money. The banks show smaller profits for defaulted mortgages (actually larger given tax write-offs and other creative bookkeeping tricks).
 
  • #35
russ_watters said:
If you aren't suggesting it is a right or an entitlement, then what is the point of this thread?

I really don't get it. Yes, insurance companies are constantly re-evaluating their risks and sometimes that means they stop insuring some types of properties. Ok...so what? Why is this worth discussing?

The point is that it may have a significant impact on the economy. I'm not making a value judgement.

Edit: In fact, IMO, many homes never should have been built. I'm not faulting the insurance companies - less their refusal to pay claims on homes that were properly insured, in the gulf states.
 
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