California's largest home insurer won't renew 72,000 policies

Re:California's largest home insurer won't renew 72,000 poli... by bombcar on Friday March 22, 2024 @10:14AM (#39790958)

> the most substantial wildfire or fire following earthquake hazards

The key here, and what insurance companies really don't like dealing with, is coordinated payouts.

If you insure 10,000 homes, and 10 burn down every year, that's quite manageable. If instead you have years with nothing and then a thousand burn down at the same time, that's much harder to manage. It's also harder to build the actuarial tables, because there's too many unknowns.

And wildfires and earthquakes almost by definition affect large areas.

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Re:California's largest home insurer won't renew 72,000 poli... by silverquiet on Friday March 22, 2024 @10:18AM (#39791000)

The industry came up with reinsurance for this reason.

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Re:California's largest home insurer won't renew 72,000 poli... by bkberry352 on Friday March 22, 2024 @11:46AM (#39791829)

Reinsurance doesn't make the problem go away. Sure it caps State Farm's exposure to these correlated events, but it won't bring their combined ratio into balance. State Farm would still be on the hook for the first $XXX million in losses. I would also expect it to be harder (read: more expensive) to buy the reinsurance given the increasing risk.

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Re:California's largest home insurer won't renew 72,000 poli... by bombcar on Friday March 22, 2024 @10:29AM (#39791090)

I think the main disconnect is the state believes "incident X" will happen Y% of the time, and the insurance companies believe it will be Y+X%, and they're not willing (or can't find a reinsurance backer) to roll it.

The state, of course, can be the reinsurance issuer of last resort if they really believe their numbers are correct. Or do something like the California Earthquake Authority which everyone knows is vastly underfunded, but at least there's the hint of a promise that when the Big One™ comes, they'll get emergency funding: https://www.earthquakeauthority.com

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Re:California's largest home insurer won't renew 72,000 poli... by lotsofpulp on Friday March 22, 2024 @12:02PM (#39792002)

Step 1: purchase reinsurance

Step 2: use reinsurance to cover losses

Step 3: reinsurance premiums go up or reinsurer refuses to insure you

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Re:California's largest home insurer won't renew 72,000 poli... by bombcar on Friday March 22, 2024 @01:14PM (#39792799)

Sell reinsurance in a loop via tranches and everyone makes cash until the disaster happens and everything goes bankrupt.

AIG anyone?

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Re:California's largest home insurer won't renew 72,000 poli... by crotchfire on Saturday March 23, 2024 @11:58PM (#39805065)

This is exactly what Lloyds does.

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