Louisiana
Flood area?
No, we’re not in a flood zone (in terms of required to have flood insurance). Of course, even houses that never flooded in their histories flooded in Katrina, but that also had some man-made elements come into play. But even then our 100+ year-old house only had about 18 inches of water in it. But after the storm, the previous house I lived in which was purchased for less than $200k had its insurance go up to about $5600/year. THAT was super painful.
Wow—fortunately premiums are still under 5 figures here and many properties are >$1mm. Prices may go up due to Maui fires but no idea what until our agent tells us.
My friend in FL complained about insurers collecting premiums and then declaring bankruptcy and not paying any claims. She also said it’s hard to get insurance and even if you do have insurance they really lawball you and offer 50% or less than cost to repair.
1 Like
Sounds like premiums are too low and that’s part of the problem. I am paying slightly more than that for about 25% of value of your house. And we don’t have the natural disaster issues that California does.
5 Likes
What is the value they make you insure your house for? The “replacement cost?” That’s what kills us. I’d be so thrilled to sell my house for $250K. But like yours, it’s over 100 years old and 4000 SF finished, 6500 if you include non finished. They make me insure it for $1 million! It was “only” $700K last year, but I would have also been lucky to get $150K for it a couple of years ago, if I could have sold it at all.
But homeowners is now $2000 a year bundled with auto. (The Auto is additional $ over the $2K). And we are not in any kind of hazard zone - no floods, earthquakes, fire, nothing. And, at least I got them to drop the coverage of the contents down to $250K. They tried to tell me “oh you’d be surprised how it adds up.” Uh no. We shop at Walmart. Our furniture is cheap. I have no jewelry. People here have ovens that cost more than my entire kitchen remodel a few years ago.
1 Like
Oh, thankfully they don’t make us do anything hideous like that. I think ours was what our original mortgage was for (we put 20% down) and then our particular insurance company had a policy of doing 15% extra included as replacement costs, or something like that. Considering how much insurance costs, I’m grateful that we don’t have to pay a lot extra in “replacement” costs.
I’m not sure how they calculate rates. We bought our house for 500k, 20 years ago and that is bundled with auto, which is very high with young drivers.
Whether the premium is high/low depends on the specific coverage, chance of claim, and cost of replacement. This can vary tremendously between different properties, which makes it difficult to compare insurance costs directly.
For example, my home is worth ~$2.5M. My insurance rates increased substantially this year, up to $1800 for the Oct 2023 to Oct 2024. One of the contributing factors to why my premium lower than others in this thread is I chose a high $5k deductible. If I went to $10k deductible, the premium would drop further to $1600/year. I also likely chose more limited coverage options than most others. I primarily get insurance to protect against catastrophic events. I would pay out of pocket for most non-catastrophic events. So I favor a different type of insurance coverage than most, which is often less expensive.
Cost of replacement is also probably very different for a $2.5M house in my area than a $2.5M house in your area. In my very high cost of living area, $2.5M is not a big mansion. It’s a basic home that might cost $300k a low cost of living area. The home value is 8x higher, but the cost of replacement is not 8x higher since its the same sqft, with same materials.
Chance of filing a claim is likely different. With me only filing for catastrophic events, I’ve only filed one claim, which was 10+ years ago. My previous insurer chose to drop me after the large claim. Other insurers were able to write off the risk due to having photographic evidence of eliminating risk of a similar type of event in the future. There is a low personal risk of a claim. I believe there is also a low climate risk of claim. While some areas of CA are prone to wildfires or other extreme climate events, my area is not. It’s one of the most mild climates in the US.
That said, I do agree that low premiums are part of the problem, or more precisely government regulations preventing insurers from being able to raise premiums fast enough to keep up with the increased replacement cost with rapid home price/material/labor increases since COVID, combined with the perceived increased risk of a group event that impacts many homes at the same time, such as wildfires.
4 Likes
Aaargh! I hate insurance companies (sorry to offend any working for one of them).
Insurance companies may be refusing new policies in a state or region because their risk exposure is too concentrated in that state or region. High house prices mean more risk exposure per house insurance policy.
2 Likes
A $1.7 million market value house does not necessarily require insurance on that amount, since it may have much of the value in the land it is on. House insurance is based on the cost to rebuild the house, rather than the market value of the house.
What insurance companies may be afraid if is that if lots of houses are exposed to similar risk factors (e.g. an entire area being burned down in a large fire), that concentrates the risk, as well as making rebuilding costs greater than estimated since there will be a shortage of building contractors relative to the amount of rebuilding work needed after the event that destroys lots of houses. Earthquake and flood insurance have similar issues.
5 Likes
The replacement / rebuilding cost of a house may be higher or lower than the market value of the house. In places where land by itself has high market value, the replacement / rebuilding cost of a house is likely to be lower than the market value. But there are places where the market value of houses is low enough that the market value is less than the replacement / rebuilding cost of the house. For example, this house is listed for $5,950, but would cost more than that to rebuild if it burned down.
We just bailed on buying a second home on Marco Island, FL (which we intended to eventually retire to). The insurance quote came in at $30,000/year plus we’d be required to also a separate FEMA policy on top of that. We considered not insuring the house at all, since the value is in the canal-front lot (what they are selling it for is really the price of the lot - we were going to salvage/remodel the house - my H does that for a living) but in the end, we had too much of worry that because of the insurance issues, we’d never be able to re-sell if we wanted to.
Lots of info out there warning people not to invest in coastal FL homes because the insurance issues will eventually cause the housing market there to tank. Friends of ours recently bought a condo on Marco and pay $1800++/month HOA, part of that covers insurance on their structure, but they have to pay separate insurance on their own for the contents of their condo. They have no control over the HOA going up because of rising insurance costs. I still see homes going under contract there and I wonder how people are responding to the insurance issue.
Eventually, (if there isn’t one in the works already) there will be a giant class action against the insurance companies.
It sounds like CA law is keeping insurance rates artificially low for existing homeowners. And frequent storms in other areas.
So who pays? I’m guessing all of the insurers. Including those in areas not controlled by laws.
At some point, you have to pay the piper. It sounds like that time is coming for new customers in CA. And all customers in FL.
Didn’t mean this for @Data10. It’s a general response
4 Likes
There was a lengthy article about this topic on CNN just yesterday. Areas of the sunbelt, popular with retirees, are going to be significantly impacted by climate change which will bring extreme weather and serious weather events which insurers don’t like to be responsible for. It talked about how insurers are pulling out of states like CA and FL because of the risks.
2 Likes
Maybe we need a homeowners insurance thread…but our house is worth half that amount, insured for replacement of the house and contents, and costs about $2000 a year.
But $20,000? Yikes!
After superstorm Sandy, a number of insurance companies refused to write new policies for homes in newly-defined flood zones in New Jersey.
1 Like
If you guys could see this house you’d be confused too. It’s not in what I would consider a fire prone area. The lots are large and there are lots of oak trees, but it’s not on the edge of a new subdivision or something where it would be at high risk for wildfire. I’m not sure what the solution to all this is, but clearly we are in a big shift that’s going to impact the real estate market.
It sounds like what needs to happen is policies for big natural disasters need to split off from regular homeowners insurance. In California home owners insurance does not cover earthquake. No one has earthquake insurance because of the exorbitant cost. After the Northridge quake in 1994 people repaired their homes with SBA loans. There was a whole program set up, but it wasn’t through homeowners insurance.
Based on what? I could see if they insured a property and then failed to cover something if there was a claim but that’s not what we’re talking about. You can’t sue a company for not providing coverage in a specific area or specific situation. If someone were to prove they were intentionally gouging for profit maybe but if they are pulling out of markets it’s due to increased risk of catastrophe that could ultimately bankrupt the company.
We look at insurance companies that are sitting on BILLIONS of dollars of cash reserves as “gouging the public” but all it takes is one major natural disaster and it will wipe all that out. Yes, they re-insure each other but that’s a house of cards too.
6 Likes