American Homeowners Are One Disaster Away from Losing Everything | Hacker News Reader

American Homeowners Are One Disaster Away from Losing Everything

insurancedimes.com

36 pointscrookedroad4429 comments

I'm insured, but I'm considering dropping insurance for the most likely disaster: earthquakes.

I'm in CA, and even though I'm not on top of an active fault, I'm close enough to be impacted. When the big one gets here, if it's big enough to affect me, then everyone else will be affected. I don't have any reason to expect them to stay solvent if a third of the CA population files for benefits.

I've thought about taking the money I pay for earthquake insurance premiums, and instead putting it on polymarket, betting that an earthquake will happen. If it doesn't, then I'm no worse off than I was paying for insurance. If it does, then polymarket just distributes my "winnings".

Convince me to keep my insurance.

I won't try because I did something similar. If it happens I can guarantee that the insurance companies won't be solvent.

Instead we are focused on investing our money as a form of self-insurance.

It's kind of like life insurance; term makes sense but whole life doesn't (vs investing the premiums).

As far as polymarket: I can't say there. I've never used it (though I know what it is).

>It's kind of like life insurance; term makes sense but whole life doesn't (vs investing the premiums).

But in term, you lose everything that you ever pay. Even If you consider the loss of interest in whole life, would the difference be huge?

The issue isn't the big one. The issue is a minor tremor that happens to crack a vital support beam, or cracks a pipe, and causes $25k of damage.

Alas, not. Most policies in California have a 15% deductible. That’s 15% of the insured value of your home. So for nearly all houses, a $25K bill is not covered. California policies are and have always been to cover catastrophic damage.

Wait I'm sorry but if the policies are to cover catastrophic damage, but if catastrophe actually strikes and the insurance company becomes insolvent, What's the actual point or purpose of insurance then?

> Wait I'm sorry but if the policies are to cover catastrophic damage, but if catastrophe actually strikes and the insurance company becomes insolvent, What's the actual point or purpose of insurance then?

Making the insurance executives ultra-rich.

Hence the original question. I've always wondered the same thing.

2/3 of policies sold in California are assigned to the California Earthquake Authority (CEA), which is a semi-private/semi-public corporation that carries the principal risk. It was formed in 1994, when many private insurers discontinued earthquake insurance after the Northridge quake.

Insurance agencies serve primarily as vendors, customer service, etc., but the risk is carried by the CEA. The remaining 1/3 of policies are carried by a few private insurers who still underwrite policies.

In theory, that system should prevent insolvency. Remember that California is a huge state and even a very strong earthquake would still have fairly localized damage. For example, the 1906 earthquake (Richter 8.0) that levelled San Francisco did comparatively little damage to Petaluma, a city 40 miles to the north.

Most homeowners are going to get through a $25k bill ok. That’s about the price of the cheapest new car on the market, less than half the median wage in California. Worse case you add it to your mortgage.

A $250k bill is a different matter, that’s the sort of thing that will bankrupt many.

The most convincing argument I could make is that the government could step in and keep the insurance agencies solvent. Sort of a too-big-to-fail situation.

Ding ding.

Look at Hurricane Katrina. FEMA will not bail you out of a disaster that affects just you, but they will step in for one that affects lots of people.

Needs to hit the news cycle.

Of course, that’s probably still an argument for dropping insurance…

Two years ago I'd agree with you. Today I'd be concerned that an executive order would direct FEMA not to help out of spite against CA politics. I can already hear the arguments, blaming us for living in a high risk area.

> I can already hear the arguments, blaming us for living in a high risk area.

That argument is true though.

Build your house on the beach, a flood zone, top of a cliff, wherever. And insure it.

But don't expect the taxpayer to subsidize your risk. (Though I suspect they are...)

If you own an older house then the economically rational choice is to drop your insurance and put that money into seismic retrofits instead. Better to prevent earthquake damage in the first place rather than hoping that insurance will cover repairs. There is even financial assistance available in some cases.

https://www.crmp.org/

I highly doubt that math makes sense. Especially for an older home.

I don't. Growing up our house was built in 1910. In '88 we do a retrofit, just in time for the '89 earthquake. Zero damage to the house or anything in it. Friends nearby who didn't retrofit had cracks. They were in the process of figuring out how to handle it when the firestorm of '91 made it moot.

But I'm in new construction. Built in 2015, so I think I'm good on seismics.

I think it is sound advice.

Insurance quotes rebuilding my older home at 1.1 million due to cost of construction in california. A seismic bolt and brace costs 10k. There is a 70% chance of a M6+ in the next 15 years in my area

I was thinking shear walls, steel moment frames, foundation cap and stitch, etc.

You're right that bolt and brace is great.

CA average new construction is $680k. [1]

[1] https://www.costtobuildhouse.com/cost-to-build-a-house-in-ca...

Yes, and you can double or tripple that $/sqft in sismically active areas like the bay area.

Insurers rely on reinsurance (insurance against their insurance) for precisely this reason. And if a disaster bad enough to take out a major insurer happens, it wouldn’t surprise me if the government stepped in.

Too big to fail!

>The homeowners most exposed to climate-driven disasters are, in many cases, the same ones least likely to have insurance when those disasters arrive.

I wondered whether this is a signal that the insurers don't want to insure for those risks and unsurprisingly there is a Wikipedia page for it! [1]

[1] https://en.wikipedia.org/wiki/Climate_change_and_insurance_i...

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

You have to have insurance if you want a mortgage so not having insurance is basically just a proxy for (mostly old) people who own their house outright.

I would carry a $50k deductible if I could. No insurer I've encountered would let me. I don't really care to insure against anything other than a total loss.

It would be more useful to determine why insurance premiums are rising faster than almost every other homeowner expense. At the same time noting that insurance companies are making massive profits and squandering millions on executive salaries and advertising.

This article states that poor people cannot afford insurance. Is this a portal about insurance? Maybe they could help lower the cost for those in need?

This applies to us Europeans too, only that the most likely disaster is permanent unemployment, not a health issue. You americans have had practical full employment for decades.

It's all compromises.

Everyone is one death away from losing everything anyway...

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