Why Insurers Are Pulling Out of High-Risk Areas

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, do you like watching the weather? I can hear the pain in your voice as soon as I ask that.

Joe Weisenthal (0:25)

You know what, it's so funny, I was wondering how you're gonna start this one. I hate rain, I hate rain so much.

Other than that, I don't know, it's not a big thing for me. What about you up in Connecticut? Is it a bigger deal up there?

Tracy Alloway (0:38)

I love weather.

I am sort of an armchair meteorologist, by which I mean I have several weather apps. I get very excited about thunderstorms and other types of storms. My husband, however, does not. He gets extremely anxious whenever there's a forecast of a severe thunderstorm, because inevitably it ends up dumping like two inches of rain where we are and our basement starts to flood.

Joe Weisenthal (1:02)

I've lived in a house that had flood damage. It is an extremely stressful experience. I mean, there's just like the direct issue of like cleaning up all of the lost damage and then like compensation and damage to the house is probably one of the more like sort of like stressful things a homeowner can deal with.

Tracy Alloway (1:21)

Well, you know, one of the stressful things happening right now, and we're recording this on, let's see, September 8th. There's a major hurricane brewing in the Atlantic right now, Hurricane Lee.

It exploded from a tropical storm, I think, just two days ago into a Category 4 hurricane. Now it's Category 5, and there's a lot of deliberation about whether or not it's going to sort of run up the Atlantic coast, might even get into New England. So an interesting one to watch.

Joe Weisenthal (1:50)

Yes, and I guess I guess by the time people listen to this, it'll be resolved. But I'm glad you mentioned that. But it's also coming in the context of a time when there is a lot of anxiety about the property market and insurance. And this came up on a recent episode that we did with Howard Hughes, holding CEO.

We talked about this huge surge in the cost that the company is paying for insurance. And there have been so many stories about natural disaster prone areas and homeowners are either just getting staggering sticker shock when it comes to the cost of homeowners insurance and other property insurance, or there's no one at all, or, you know, companies abandoning markets like Florida, like California, et cetera.

Tracy Alloway (2:32)

Absolutely. And it's not just hurricanes and floods, of course. We've seen wildfire risk becoming a more major thing, particularly in Hawaii and Maui recently. There have been a number of headlines, as you just mentioned, of certain insurance companies pulling out of markets all together because they're no longer profitable or in some cases like Florida. They haven't actually been profitable for a very, very long time. And insurance premiums are going up all over the United States. But it's really interesting if you look at them on a regional basis. I think in Miami, the average cost of insurance is something like $5,000 versus less than $2,000 for the rest of the US. So that gives you some idea of how this risk is starting to get repriced. But it opens up all these interesting questions about what is going to happen to cities, to houses, to other buildings that are in these natural disaster-prone areas.

Joe Weisenthal (3:31)

You know, the thinking of things like flood insurance, which is already sort of socialized or publicly funded, there doesn't seem to be a lot of appetite politically to let property owners sort of completely be without insurance, in other words, right? So it's like if the private market leaves an area, you don't really see politicians like, OK, well, I guess we can't build here anymore.

There's usually the government steps in in some way. Maybe there's like a state insurer, a national insurer in the case of floods.

But of course, this creates its own issues. And that it's sort of another one of these financial services that's like sort of post market, kind of like banking in some respects. And so there is a lot going on with this market. And, you know, obviously comes in the time of other tightening financial conditions, comes at so much attention played to climate risk. And I think we need to understand more of this area.

Tracy Alloway (4:20)

Absolutely. It's a complex market. It seems to be getting more complex by the day. So let's dig into it. I am very pleased to say that we really do have the perfect guest. We are going to be speaking with Melanie Gall.