I live in the Netherlands. My insurance already doesn't cover a flood (it also doesn't cover war or a nuclear reactor blowing up).

It is the government that picks up the bill in real disasters I suggest everyone reads the fine print on their contracts.

Government doesn't pick up bills, taxpayers do. And it introduces moral hazard when the people engaging in risky behaviors (buying homes in high fire-risk areas) don't bear the costs of those risks.

This creates larger, systemic risks and is simply unfair. Someone in Montana should not have to pay to rebuild homes in California.

No doubt the people in Montana expect help when their own houses burn down though

It's the difference between paying a few hundred dollars a year on your own insurance because it's incredibly unlikely your house burns down, and many thousands a year because your suburb burns down once or twice a decade.

We shouldn't be back stopping the insurance costs for anyone. If they can't pay it, maybe that tells them something about the place they are choosing to live in.

> Government doesn't pick up bills, taxpayers do. [...] Someone in Montana should not have to pay to rebuild homes in California.

Are Montana residents' taxes currently paying for rebuilding homes in California? How does that work - I actually don't know but I thought FEMA doesn't rebuilt homes?

I significant amount of the homes destroyed were "uninsurable" which they called an "insurance crisis" and they created an insurer-of-last-resort called the California FAIR Plan, which was socialized fire insurance:

https://en.wikipedia.org/wiki/California_FAIR_Plan

However if you look at the "Key Statistics" fact sheet, you'll see that, guess what:

>The FAIR Plan’s Highest Wildfire Exposures

>This map shows the five areas with the highest wildfire exposure concentrations each in Northern and Southern California. Each quarter circle represents a 7-mile radius where risk is concentrated.

https://www.cfpnet.com/key-statistics-data/

Pacific Palisades is one of many cities where a wildfire would bankrupt the entire system, because the plan didn't actually charge people what the actual cost of replacement value of the homes is. The system apparently has about $700M in assets, and it is predicted to have over $7B in exposure right now.

I think it's pretty clear that they're going to have California tax payers bailout the system so that people living in the best real estate all of CA rebuild their homes in a place where people probably shouldn't be building in the first place, and continue to have their insurance subsidized by normal folks who could never afford to live in places that valuable.

> I think it's pretty clear that they're going to have California tax payers bailout the system so that people living in the best real estate all of CA rebuild their homes in a place where people probably shouldn't be building in the first place

Fascinating (and thanks for sharing all that info), but I still don't see how this money would be coming from Montana residents.

My understanding is that it entirely possible that the FAIR plan might be bailed out by the Feds.

God I hope not. That would set a terrible president. Every other state insurance plan would eventually start running itself in a "obviously insolvent but it looks sane if you squint and market it with the morals of a used car salesman" manner but they'd be fools not to if the feds are in the business of picking up the tab.

>That would set a terrible precedent.

The existing precedent is the National Flood Insurance Program.

https://en.wikipedia.org/wiki/National_Flood_Insurance_Progr...

> Someone in Montana should not have to pay to rebuild homes in California.

Montana receives way more Federal aid per capita than California. So it's fair to say that Californians shouldn't be paying for road maintenance in Montana.

But obviously, more rugged individualism is the solution /s

I agree that Californians should not pay for Montana road maintenance.

Federal taxes pay for interstate highways and many large infrastructure projects in states, so indirectly CA pays for MT roads and vice versa.

> Government doesn't pick up bills, taxpayers do.

Is this an interesting comment to make? Yeah... the tax payers foot the bill because like we elect the representatives to maintain the government.

> Someone in Montana should not have to pay to rebuild homes in California.

Is this a joke? Should I, as a Californian, also be able to say "oh, my tax money? You damn well not send it to Montana to help subside program XYZ that doesn't help me."

Yes, you as a Californian should not have to pay for Montana state programs/subsidies.

The optics of very rich people building under (or impossible to) insured homes in a area where they will inevitably be destroyed by a fire then expecting the taxpayer to bail them out when it happens are terrible. There's no argument you can make where people will want to do that

can you explain this concept of moral hazard?

You realise that America was literally founded because of this? Your reasoning will inevitably lead to the dissolution of the country.

Besides Montana receives tax payer money from the people living in those California mansions.

How can there be price controls on insurance? The state subsidizes insurance in these areas?

The California Department of Insurance regulates the insurance rates, down to how much they can raise them each year. Over the last decade the real risk of these fires has become better known to insurance companies and they've been screaming to be allowed to raise rates faster. Some have even exited the state completely (to new sign ups).

CalFAIR is the state insurer of last resort but last I checked it's not subsidized. There were talks of needing a possible bailout last year, and it's going to intensify now, but it hasn't happened yet.

CalFAIR is subsidized in the sense that insurance companies are forced to pay into it. Insurers of course pass this cost on to their customers. Combined with price controls on insurance this is just taxation with extra steps.

The California FAIR Plan will almost certainly be bankrupted by this event, and then will almost certainly be bailed out by the state... which will be a direct subsidy.

Yeah, the solution isn’t divorcing risk (as communicated by cost) from reality. If the concern is usurious insurance rates, that’s where things like profit caps and other regulations come in. Society should want people to have fair insurance rates but not necessarily cheap rates.

Shouldn't competition take care of usurious rates in relatively free and working market? That is people will move to cheaper offerings which likely are close to real price.

In a market with high uncertainty, more companies are likely to abandon it than hope that their actuaries get the numbers exactly right.

Profit caps are a bad idea in general, but they are an especially terrible fit for companies insuring against tail risks, because you need to eke out a small profit for years or decades to hedge against the black swans with massive costs. The 2017 and 2018 wildfires wiped out _25 years_ of insurance company profits, for example: if you had said in 2013, "hey, these guys have made 20 straight years of profits, we need caps to control costs", you'd have left them insolvent against the fires.

This is all a moot point though: you cannot force companies to offer insurance. If regulations prevent them from offering policies at a profit, they just leave. Which is exactly what is happening in California (and Florida): every company is bailing out and refusing to renew policies.

Profit caps are not the same as disallowing profit. They make sure insurance payouts are fair given the insurance premiums. Distributing "profits" back to shareholders to the point that the insurance company cannot honor policies is a disingenuous use of funds for an insurance company. You seem to think profit cap = no profit, which is not the case. It means the profit ROI cannot take precedence over the insured ROI.

Profit caps in general are a bad idea, and should only be considered in a near complete absence of competition.

In insurance the problem is even worse, because you can’t compute what a reasonable profit cap is. Because of tail risks, you often see insurance companies making a profit of $1b each year for 30 years, then suffering a loss of $40b. Looked at during the typical year you might conclude the profits are excessive, but over a long term it might become apparent that the average profit is actually zero or even negative.

As is often the case, more competition and better competition policy is the solution.

Except they end up paying most of that out in stock buybacks and dividends each year, then the state has to bale them out for tens of billion after 40 years anyway, either directly by taking on the liabilities or by bailing out the homeowners after the insurance company goes bankrupt.

Insurance is an industry with great cashflow. They should be able to keep any profits they make off of investing the premiums, but not the premiums themselves. The incentives just do not line up, they siphon off the money and scream about over regulation before they need to get bailed out.

Do you have an example of the government bailing out an insurance company that couldn’t pay claims?

Or an insurance company that went bankrupt?

Insurance companies are already highly regulated (especially in CA). There are regulations around how much money has to be held in reserves to pay claims. There are regulations around what investments can hold reserves in.

Hell in CA, there are regulations around how premiums can actually increase and a mechanism for returning “excess premiums” back to policy holders.

In fact those regulations are one of the reasons insurers are leaving CA. They can’t increase premiums sufficiently to cover risk.

You can read all about them: https://www.insurance.ca.gov/01-consumers/130-laws-regs-hear...

> Or an insurance company that went bankrupt?

Yes. There were 6 insurance companies that went bankrupt in Florida in 2022. I am surprised you didn't know insurance companies go bankrupt all the time due to mismanagement.

https://news.climate.columbia.edu/2022/11/03/with-climate-im...

Insurance should not be used as a profit source. It is antithetical to the purpose of insurance.

Those are tiny state insurance companies. I was thinking large national ones.

Regardless, the Florida examples are eligible for FIGA insurance that covers claims that insolvent insurer can’t.

> The 2017 and 2018 wildfires wiped out _25 years_ of insurance company profits

Money spent to repay loans or to make reserves are not profits.

It’s all in the nuance. Currently the insurance companies have too much moral hazard, as they are able to extract profits during the “good” years (like AllState’s recent $3B stock buyback) and then deny or default during disasters. An extractive profit cap could allow companies to take in more than they spent and save it to prepare for major catastrophes. They wouldn’t have to simply disperse these funds back to policy holders or something. I’m sure that idea would need more refinement, but my overall point was that our regulations should directly target the incentives we actually care about. And we have to rely more on regulation in these situations because the market can’t properly price the risk of companies disappearing during major payout events.

I’d really argue that for-profit insurance companies are a bad idea in general, but that’s a higher-level debate. There’s an interesting idea where governments handle all disaster-related insurance handling but are then also able to have a more comprehensive approach to management (though that’d be hard to trust in the current US political climate).

Really hard to make the argument for this politically when the state is also facing a housing crisis. Unfortunately, a lot of undeveloped land is also prone to wildfire. The solution is zoning relaxation and building dense but there's also a lot of resistance to that.

Newsom is proposing waiving CEQA for rebuilding destroyed homes in the wildfire zone, but only for low-density structures, which makes me want to scream until my throat bleeds. California infallibly manages to zero in on the worst possible solution; waive CEQA either entirely or not at all, and let the Palisades homeowners wait for their decade of environmental review like the rest of us have to.

I think CEQA only applies if you aren't building a similarly sized/footprinted structure, which seems reasonable enough. So I don't see why it would need to be explicitly waived, except to give people with the means to to rebuild bigger/etc.

Let’s start with 1978 Prop 13 and end their property tax subsidies though. Go look up how much the owners of these eight-figure properties paid in taxes over the past five decades.

https://www.taxfairnessproject.org/map only has it for the Bay Area, but Zillow and the county tax assessor websites can show for any address — it’s public record.

Here is a screenshot of Pacific Palisades property taxes https://imgur.com/a/1G6pLap

More exploration can be done here https://www.officialdata.org/ca-property-tax/#34.04626347956...

Pretty cheap considering average house costs $6-7 million.