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Comment by idbehold | Hacker News Reader

The climate is changing and is affecting regions we knew would be impacted by climate change 30+ years ago. The insurance companies cannot make a profit (and thus would not choose to operate) in these areas now that they're being impacted by climate change. On one hand this seems like the market working exactly as it should be. People should've moved out of these regions in the last 30 years given the information about climate change, but they didn't.

On the other hand many of the people living in these regions don't really have the means to move away and they're the ones disproportionately affected by all of this.

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I disagree. In my area several insurers have pulled out because of "fire risk" in areas with very little fire risk. (In one case, we're talking about a coastal home, well outside of any 100-year sea-level rise risk, where peak temperatures in the summer are typically in the 65 F, things never dry out, and the house is 4 blocks from the fire station.)

The problem is that the state mandates they use certain maps to assess risk, so the insurance company can't really use their own data to produce maps with higher resolution. So they pull out entirely rather than selling me insurance at a fair value.

That is NOT "the market working as intended". That is state regulation creating a market inefficiency, making people and businesses less able to actually adapt to climate change.

Is another regulation is also preventing the insurers from raising your insurance rates to cover the "fire risk"? Otherwise I'd say the insurer isn't acting logically. I guess I should've said that I believe the insurance companies are acting logically (and thus I don't blame them) instead of saying that the market behaving as it should.

> The problem is that the state mandates they use certain maps to assess risk, so the insurance company can't really use their own data to produce maps with higher resolution.

Are there particular reason(s) why this is being mandated? Can you point to particular examples of these mandates?

> we're talking about a coastal home, well outside of any 100-year sea-level rise risk, where peak temperatures in the summer are typically in the 65 F

If you're talking about a coastal California home, the risk you're facing is the overall risk across California as a whole. The California insurance regulator is requiring insurers to continue to offer coverage in fire-prone areas in addition to fire-rare areas. All insurance products are based on statistical averages. This is a question of what homes are included in that statistical average. If insurers are required to offer products to customers in fire-prone areas, then insurers need to include statistics on fire-prone area homes when pricing for all other homes.

If California changes its rules and stops requiring insurers to offer insurance in fire-prone areas, huge regions of California would become uninsurable for fire, which means mortgages cease to be available in those regions, which means housing prices collapse, which means politicians and the state insurance regulator get voted out of office.

For elected officials, if the choice is whether to have all non-fire-area homeowners somewhat pissed or to have all fire-area homeowners carrying pitchforks into the legislature, they'll take the somewhat pissed option every time.

The other hand, while very sad, is an investment mistake of each individual. 'How could I have known' is same as complaining certain stocks lost its value unexpectedly and retirement savings are now halved. In fact, most of these places were not OK decades ago but folks love cheap real estate and who gives a fuck about some doomsaying science, the cheaper the better, what could go wrong right?

Either insurances mark given county incorrectly, and some competition will eventually catch up or they marked it correctly. Now just because somebody invested in bad property (or property became bad), why should some private company bear this mistake outside contract? I don't see a reason, I wouldn't do it neither.

Real estate, often massive, ain't some Geneva convention-enforced basic human right, just an investment. Maybe good old 'if its too good to be true maybe it isn't' mantra is valid also here? Be smart folks, not greedy.

Also if the home on photos is really the one article is about, I don't see any meaningful bushfire protection. That would be at least 30 meter clear cut perimeter with just rocks between forest and house - no dry grass, pine needles etc. I see forest literally ending next to house itself, thus actual 0 protection. Yeah in a frequent fire country that house is a disaster waiting to happen soon.

The photos are not representative of the kind of homeowner who does all the prescribed mitigation yet still doesn’t gain on premiums or coverage.

In Colorado, the maps are fairly transparent, yet I get the feeling that mitigation work is ineffective within predictions based on newer data.

https://archive.ph/O8j2m

Part of the issue is state boundaries (at least in the US case).

If someone moves from Florida to Georgia, or California to Colorado, then the former state loses their tax base (even in FL: sales/corporate tax).

So it sets up a musical chairs scenario where the state in question has every incentive to keep the game going.

Which will ultimately mean (a) using state revenue to balance out insurance plans and/or (b) outright fraud and shifting the risk burden onto someone else (looking at you and Fannie/Freddie, Florida).

Could you elaborate about the outright fraud by Freddie Mac? This is a genuine request for information.

Not OP, but GSEs are transferring unknown climate risk to investors (and potentially taxpayers if a bailout is required) by not updating their insurance guidelines around climate risk models and the mortgages they securitize for sale into the bond market. Insurance repricing or wholesale refusing to underwrite a territory is the leading indicator of stress, because they can move the fastest (versus mortgage market regulators, federal flood data mapping, etc).

TLDR There is an enormous amount of unpriced risk between GSE securities and potential insurance liabilities everyone is attempting to ignore.

https://www.nytimes.com/2024/12/07/business/economy/mortgage... | https://archive.today/wVcoy

> Mortgage Regulators Are Shrugging Off Climate Risk. It Could Cost Taxpayers Billions.

> Fannie Mae and Freddie Mac, which backstop most U.S. mortgages, know floods and fires are a growing problem. But little action has been taken.

https://www.richmondfed.org/publications/research/economic_b...

> The increasing frequency and intensity of extreme weather events present potential risks to real estate finance. It has been argued that mortgage lenders may be able to securitize and sell mortgages that are more exposed to risks of flooding to government-sponsored enterprises (GSEs). This possibility arises from two factors: the limited spatial variation in GSE guarantee fees (e.g., the fees are similar between houses with different flood risks) and the fact that GSE insurance mandates rely on outdated floodplain maps (which may fail to account for predicted increases in flood risks over the next 30 years). If this is the case, then there may be a concentration of flood risks at the GSEs, which play an important role in guaranteeing the stability of the mortgage market.

> However, the flood risk exposure of the portfolios of mortgages backed (purchased or guaranteed) by GSEs — specifically Fannie Mae and Freddie Mac — remains unknown. This article summarizes my examination of projected flood-risk exposures and the actual impacts of Hurricane Irma on mortgage defaults, documented in detail in my recent working paper "Leveraging the Disagreement on Climate Change: Theory and Evidence," co-authored with Laura Bakkensen and Russell Wong.

> Our first finding focuses on the GSE exposure to future flood risks. Restricting our attention to mortgages outstanding in 2023, the following table summarizes GSE portfolio exposure to future flood risk. We estimate that more than a quarter of outstanding mortgages — or more than 23 million loans, with a total outstanding balance of more than $2 trillion dollars — are at risk of future flooding, defined in this subsection as lying in a ZIP code with an average flood factor of at least 2.5 A smaller fraction (nearly 6 percent) are at higher risk, defined as lying in a ZIP code with an average flood factor of at least 3.

https://www.newyorkfed.org/medialibrary/media/research/confe...

> Conclusion:

> Mis-calibrated GSE insurance requirements → growth of fragile insurers.

> GSEs bear large unpriced exposure to climate due to insurance risk → taxpayer externality.

> Too much GSE mortgage origination in risky areas → distorted credit supply.

Tagging this previous HN submission on: https://news.ycombinator.com/item?id=41664750

tl;dr - When insurers pull out, Florida creates some new insurers, rubber stamps them as financially solvent (even though they're not), these new entities insure properties, and then banks can originate new mortgages (because the properties are insurable) before rapidly transferring them to Fannie/Freddie (as they're secretly trash, but compliant). End result if properties are flooded, demolished, or burned? Insurers go bust and leave Fannie/Freddie holding the bag (the mortgage, now with no property securing it).

> The climate is changing and is affecting regions we knew would be impacted by climate change 30+ years ago. The insurance companies cannot make a profit (and thus would not choose to operate) in these areas now that they're being impacted by climate change. On one hand this seems like the market working exactly as it should be. People should've moved out of these regions in the last 30 years given the information about climate change, but they didn't.

The businesses[1] invest in fossil fuels. Meanwhile the humans keep living in dead-end locations for emotional and illiquid nonsense reasons, like “my parents” or “my job” or “stability for my children’s upbringing”. Then when the stove gets too hot Capital can just move. No skin off its back.

Yeah that sounds exactly like the market that I know is supposed to be working.

[1] https://news.ycombinator.com/item?id=42450560

How do you feel about the denialist argument that since people still buy expensive waterfront property, climate change is not a big deal?

My interpretations would probably be some combination of

- information asymmetry leading to demand distorting upward

- the people who are buying the property have priced in the loss relative to their utility and will be relatively unaffected should they be left holding the watery bag

Eh, people (including me) are very good at optimizing for short-run happiness and less-good at optimizing for longer-run happiness.

A million people a year get arrested in the US for drunk driving...and that's apparently the equilibrium. If that many people are willing to risk their lives and their freedom to save money on an Uber, it's not hard to believe that millions of people would be happy to buy beautiful waterfront property.

The risks are known but not totally apparent.

There’s also this notion of normalcy bias: even if I accept the risk in the abstract, I genuinely believe it won’t happen to me personally.

https://en.m.wikipedia.org/wiki/Normalcy_bias

The German stock market produced excellent gains in 1933-41. When the Nazi government closed the stock exchange after Stalingrad, the index was near its all-time high. (When the market finally reopened in 1948, German companies were valued some 80% lower.)

Even in large aggregates, investment decisions are ultimately made by people with their own biases. Markets are not infallible predictors of anything.

There’s some degree of risk-shifting, too, right? Since insurance is a precondition for a mortgage and therefore for homeownership (the way Americans like to do it, anyway), states are wont to arrange an “insurer of last resort” that supports the excessive risk through industrywide levies and is ultimately backed by the public purse. So in effect a chunk of that risk is being socialized.

For that matter while some people are rich and flinging money at “expensive waterfront homes,” it seems like most of the people who are being nonrenewed here would have made their decisions before the risk environment shifted in these ways that their insurers are now moving to price in.

Forcing people out of their homes is always going to be painful and ugly; and it’s always going to be politically popular to “keep insurance rates down,” further blunting the raw, market-based risk signal in ways both blunt and subtle.

From a market-level view, that looks impure and improper. From a human, family-level point of view, it’s hard not to sympathize with people who feel like they did everything right, only to have their biggest asset, the totem of generational security that they worked their entire lives for, suddenly turn toxic.

Just as this Times article demonstrates, a lot of these folks don’t have a whole lot of attractive alternatives available to them by the time they’re in this situation. And this market, more than most, seems to come down to deeply human stories, and to images of sympathetic families paying the price for developers’ profligacy.

Why so uncharitable? You could at least consider the possibility that their understanding of the situation is better than yours.

There are supposedly two climate-related threats from living on the coast: sea level rise and storm risk. Sea level rise is so trivial that many Pacific islands have been getting bigger, not smaller as was predicted, and it's a very steady rate of change. That leaves storm risk. NOAA is a group of people with a long history of scientific scandals who owe much of their funding to their claims about climate risk, but let's see what they say about living on the coast:

https://www.gfdl.noaa.gov/global-warming-and-hurricanes/

> "it is premature to conclude with high confidence that human-caused increases in greenhouse gases have caused a change in past Atlantic basin hurricane activity that is outside the range of natural variability"

Mankind has been emitting CO2 for 150+ years but there's no data showing it's made the weather worse.

So, all claims that living on the coast is a bad idea are based 100% on modelling predictions. Given they've been diverging over time and divergence has got worse instead of better, the opposite of what should be happening, reasonable people can certainly conclude it's OK to ignore them when considering property prices.

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