Tue, Apr

Climate Bubble Ups the Cost to Insure Your Overvalued Home


GELFAND’S WORLD - An organization you've never heard of has suddenly hit the headlines due to its projection that nearly forty million properties in this country are substantially overvalued, creating another kind of real estate bubble. The cause this time isn't loan policy. It's the reality of climate change and how this is now affecting insurance rates. Bluntly put, there are now properties that are essentially uninsurable due to the long-range risk of being destroyed by hurricanes or wildfires. Private sector insurance companies are increasingly unwilling to cover such properties.

States are being forced by the resulting political pressures to create and fund insurers of last resort. The result is that homeowners face substantial increases in insurance premiums. Those premiums will continue to grow, even as private sector insurers pull out of risky markets. When State Farm and Farmers pull out of a market, that ought to be a sobering message.

The organization that has been provoking these headlines is known as the First Street Foundation, and you can read what it says here

Let's summarize the argument. Even as politicians such as Ron DeSantis and Vivek Ramaswamy are denying the reality of global warming, people in Florida and here in California are getting the other side of the argument from a source that they cannot deny, their insurance agents.

The climate-driven changes were predictable, but the publication of a detailed report (including a statement of methodology) spiked the interest of the news media. For example, a CBS story which you can find here  shows the direct human cost in a small mountain town in California and for homeowners in coastal Florida.

Stressed homeowners are left with state funded policies that can cost much more than what insurance used to cost. One homeowner in the CBS story explained that her insurance premium has doubled, costing her several thousand dollars. The Florida couple managed to pay off their mortgage and are now doing without hurricane insurance.

The situation in California is largely limited to the hazard from wildfires. This will affect all the small towns in the mountains. It's a fairly large number of people because California is a populous state, but it isn't an all-encompassing issue for the majority of people who live in the coastal cities. If you live in Westwood or Northridge, the issue of wildfire doesn't affect you the way it would, say Malibu.

But Florida is a different matter entirely, because pretty much anywhere along its coast, it is susceptible to hurricane damage. That has always been the case at some level, but the realists who determine insurance premiums are being forced to take the increasing risk due to global warming into account. The calculation goes something like this: We don't necessarily expect more hurricanes on the average, but what we will be seeing are bigger, more damaging storms.

As coastal properties from Florida to Texas become increasingly harder to insure, the property values will inevitably show the effect. If insurance is unobtainable or grossly expensive, this cannot help but have an effect on selling prices.

So. it comes down to this for property owners and prospective buyers in forested mountains and everywhere in Florida and everywhere along the Gulf coast. Politicians can lie to you all they want, but you will be hearing the truth from your real estate agents and insurance brokers, and eventually from the banks and mortgage brokers. They will be adjusting their rates and their lending rules based on global warming because they have to. They will regret the decisions they have to make, but they won't have a lot of choice, because the sea water is hotter, and will remain hotter, until humanity gets real about the problem. There will be seasonal and year-to-year variations, but these won't affect the overall average increases which are going to make property ownership in many parts of the world a crap shoot.

The United States hasn't done much so far. As one commenter to a previous column pointed out, we really have lost 50 years that we could have been preparing and looking for solutions, which include wide scale adoption of solar energy and the research and development that would allow for a new generation of nuclear power plants. This is 50 years that we can't get back, but we could start now by adopting a more rational and intelligent approach to the reality that we all face.

One additional problem here in California: Someday there may be a giant earthquake along the San Andreas Fault, the kind that will generate a magnitude 8 event starting south of here and pounding us for more than a minute. The state wants you to carry earthquake insurance, but it is expensive and really isn't very good in terms of coverage. Would the earthquake insurance that is now available help save the California economy if we were to have The Big One? I suspect that nobody really knows. But meanwhile, Californians have been facing something analogous to what is now happening in Florida, but it is for a one-time seismic event rather than for an unending series of catastrophic storms.

Addendum: The Neighborhood Council Congress

The Neighborhood Council Congress will be this Saturday at the L.A. City Hall. There will be lots of breakout sessions on feel good topics and designed to help newcomers learn to behave in a way that your city government would like. We won't be having a lot of discussion about the recent disgraceful behavior of the City Council, including the substantial number of indicted council members or the slap in the face to our neighborhood councils over the rejected appointment of an Ethics Commissioner.

I asked repeatedly that we have some open discussion about the sad realities but was turned down. They did allow me to have a table alongside those reserved for city agencies that want to give out pens and keychains. My table is reserved for the discussion of reform in government. Everybody is invited to stop by, although there will be sometimes when I am attending one of the sessions. We will be using the Reform table to publicize the Neighborhood Council Declaration of Rights, which has been developed by our Los Angeles Neighborhood Council Coalition. It is pretty much the opposite of most everything that the city government, including its Board of Neighborhood Commissioners, has tried to foist upon us. Perhaps we will get the chance to talk a little about the proposed Code of Conduct, which would abolish your rights to freedom of thought and conscience.

(Bob Gelfand writes on science, culture, and politics for CityWatch. He can be reached at [email protected].)