This Will Be Painful
What a disaster! I’m sure all of our hearts are going out to the displaced residents of Los Angeles, who have lost much, if not all, of what they have to give. If there is to be any good news at all, it is that insurance will cover the financial portion of their loss…
Or will it?
I think we are getting ready for a very painful — and very public — lesson regarding homeowner’s insurance, and the ability of the insurance companies to be here for us when they are most needed. We have been seeing this in our part of Oregon, where our premiums have risen 20% to 30% each of the past three years in response to the wildfire risk in this area. Painful? No doubt!
But there is absolutely nothing that can be done — especially when a mortgage requires the coverage in the first place — other than write the check, and hope the insurance companies even continue to offer coverage. After last year’s bill arrived, our agent let Susie and I know that the company we have is the only one left who will cover fire risk for our home. If/when we are dropped, we’ll have to fall back to the state-funded Oregon FAIR Plan. According to the Oregon Division of Financial Regulation:
The Oregon FAIR Plan is an insurance policy of last resort if a property owner cannot find insurance coverage in the standard market. The premiums are often more expensive than in the standard market, and the coverage is less comprehensive, but the plan does provide important protections.
Yeah, good times all around.
Anyway, enough whining. It seems to my simple understanding of economics that while the loss of a single dwelling may be affordable, how can any company — or even a state — absorb the costs involved when the destruction impacts entire neighborhoods and communities? As we learned with Hurricane Katrina, this is where the federal government, with its perceived bottomless pockets, is expected to step in.
The fires currently consuming parts of Los Angeles may be a case in point. According to a New York Times opinion article from this morning (1/15/25):
The California FAIR Plan … was created by state lawmakers in 1968 to cover people who couldn’t get standard home insurance for various reasons. As climate change intensifies, the rapidly growing FAIR Plan has become the linchpin holding together California’s increasing fragile insurance market.
About what would be expected, but The Times wasn’t done…
As of last Friday, the FAIR Plan had just $377 million available to pay claims, according to the office of Senator Alex Padilla, Democrat of California. Total insured losses from the fires so far have been estimated at as much as $30 billion. Because the fires are still burning, that number could grow.
Oops! Sounds like LA homeowners are facing a shortfall of $29,623,000,000… and counting. We can only hope that the Santa Ana winds that are driving the disaster subside, and that the guys in the yellow suits with the McLeods and Pulaskis can fulfill their sacred trust here in Oregon. My fingers are crossed for both…
But fires aren’t the only natural disaster Mother Nature can throw at us (or our insurance agent). Other than wildfire, how can insurance coverage (or lack thereof) affect the rest of us? Unfortunately, it’s all too simple:
I don’t care if the rupture occurs along the San Andreas in California, the Cascadia Subduction Zone in the Pacific Northwest, or the New Madrid system that will rattle the eastern half of the country, the result will be the same: any quake with a magnitude greater than 6.5 on the Richter Scale, in any of these areas, will result in damages that will be ever so much more wide-spread (and therefore more expensive) than what is happening in Los Angeles. (Click here for an index of earlier posts that touch on earthquakes and seismic risk.)
There is little doubt that, along with the long-term economic disruptions that will surely encircle the globe, the paid-for insurance coverage will surely fall well short of the need — just like is going to happen in LA.
At least with fires we know what to do in advance to minimize the risk (whether we do it or not is an entirely different matter). Sadly, prediction and control of earthquakes — and therefore protection efforts — are likely impossible.
And by the way: most, if not all homeowner’s policies — even if they do cover fire — DO NOT as a rule include earthquake damage. You have to buy a separate policy to cover your seismic risk. If you live west of the Cascade/Sierra Mountains, Joshua Tree National Monument or the Salton Sea, or anywhere east of the Rockies, this means you.
Is your earthquake insurance paid up?
Good article Michael. We were dropped from our insurance, luckily found a new policy and wouldn’t be surprised if we get dropped again. Eek.
Oh yeah, I am so concerned that this is going to be an issue for way to many of our American friends in the NTD future. Hope you are wrong and don’t get dropped again.
The whole concept of insurance (of any kind) has an eerie twist: The insured is betting that the insured-against catastrophe will occur while the insurer is betting that it will not.
No doubt. I’ve always thought that life insurance was especially obtuse for the same logic: I’m betting I’m gonna die and they are betting I’ll live forever. Somehow seems I’ll be on the losing end either way…
Fire risk is can be reduced to a manageable level by properly caring for our forests. New Mexico had some beautiful examples of well maintained forests, you can see through the forests because they manage them like the natives did. Natives let small brush fires burn through entire forests all summer long until fall rains put them out. There was no underbrush and natural thinning occurred as well. Too many Americans want to see thick green forests instead of well managed ones. WE have the same issue here in the desert. Used to be the underbrush was burned away every summer and while it blackened the bottom of the cactus, it didn’t kill them. Now all the brush is left to grow until it is big and if it can’t be put out it kills everything in its path. Sadly, you are right, earthquakes are a whole different ball game. There were houses that followed fire mitigation practices that survived the fires in CA but most did not. No matter, it is a terrible loss for so many.
All true, Linda, and thanks for the comment. I encourage you to read Marker Bed when it finally hits the shelves. I insert a snippet from near the end of Site Zero. We pick up after a VERY brutal and brush-choked day in the field:
Becky ignored him. “Why, Tommy? How can fire be good if it burns up the forest?”
He reached up and scratched at a yellowjacket sting on his neck “Well, that’s the problem. It’s not supposed to kill the trees—at least not the big ones. In a natural setting, fire is actually good for the forest. It helps clear out the dead and fallen branches—”
“Yeah, and the brush too,” Gary reminded them.
“You’re right, but those fires would come before too much debris had built up, so they’d stay close to the ground. The bark on the old growth is thick enough to protect them from burning. You can still see a lot of them with scars from past fires scorched into their trunks. But it’s been so long since there was a wildfire in this area—all over the West, in fact—that brush and fallen limbs have choked the forest floor. When the next fire starts, it’ll have so much fuel that everything will burn, even the old growth.
“Remember Riley Potter, the catskinner who put in the drill pads on our chromite project last summer? He was in his seventies and told me how the forest had been clear and open when he was young, and how he’d been able to ride horses and lead pack trains right through the trees, all because the woods had been allowed to burn when they needed to.”
Becky brightened. “Wow, wouldn’t that make your job easier?” Gary muttered something unintelligible from his side of the ring. “But what happened to the fires?” she continued, forgetting for the moment that she was against them.
Gary chuckled, rather unkindly. “They put ‘em out.”
This time it was Tom who ignored him. “That’s one of several problems with the Smokey Bear approach to forest management, Becky. Since they started putting them out, fires haven’t been allowed to do their job. Now it’s probably too late for most of the forest. It’s been so long since the last clearing blaze that the next fire will burn hot enough to take the trees along with the duff and undergrowth.”
“At least the brush’ll be gone,” Gary tossed in from the side.
“Yeah, but not for long,” Tom replied. “The brush will be the first thing back in. It’ll be millennia before another climax forest can fully develop.”
“But won’t someone come and put it out?” Becky asked when both guys stopped to breathe at the same time. She was having trouble remembering which side she was on, but it surely had more to do with the complexity of the issue than it did with her mental agility, or the chardonnay.
“Maybe. But how about the fire after that? Or the one after that? Sooner or later, there’ll be a fire that can’t be put out. We’re causing the problem by trying to outthink nature, Becky, but nature will fix it. Nature always fixes it. I’m sorry to say it, but Gary’s right: in the end it’s all gonna burn.”
“When?” she asked, her glance darting about like she could already sense the flames closing on their camp, and hear the explosive crackle and pop of the forest being consumed. An errant breeze wafted smoke from the campfire into her face, causing her eyes to water.
“I don’t know,” Tom answered. “I just don’t know.”
Gary drained the last of the backwash and reached for a fifth beer. “Hopefully soon.”
Spot on Mike!!!
When does your. book come out???
Hopefully off to formatting (eBook and hardcover) next week. Assuming that takes a couple weeks to whatever, I’m REALLY hoping to get it on Kindle by Saint Paddy’s Day at the latest. Got all my fingers crossed — after 25 years I need to finally get this boat in the water.