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Insurance: Why so many houses in LA had no fire insurance.

 In 2019, the governor of California passed a new law which prohibited insurance companies from raising insurance premiums, without the express authorization of the California legislature.   This was following the massive brush fires that saw entire towns burned to the ground, and insurance companies re-pricing the risk of fire, following dry weather.  California enacted rules where clear brush cutting around powerlines was made illegal...

That was the first blow to the insurance industry, which was already having issues across the entire country, excessive competition had kept rates too low for too long.   

The second hit was the rise in the cost of construction, in 2018 the cost of a one-inch sheet of plywood was $24.15, and in 2024 the same sheet of plywood was $82.45.   The average annual cost of construction across the United States has grown by 8% per annum for the past 10 years.   Yet insurance premiums increases in California were capped at 2% per annum.

That was the second blow,. so starting in 2022 4 national insurance companies quit California (they quit Florida too).   Two reasons, first the re-insurance premium had exploded, the re-insurance market could see as well as anyone else that construction costs were rising, so a $400,000 house may well cost $600,000 to rebuild, and again the re-insurance company did not have to guess, they had the data.   

Insurance companies were being squeezed from both sides, by the low premium, they could get from the insured parties and by the re-insurance companies which required much higher premiums.  

The outcome was predictable, first as the US insurance market was being rationalized, and small players that were bottom-feeding (e.g. taking premiums but not paying out) were cut out, the bigger players raised rates, but then politicians found an easy exit by regulating insurance rates.  So nearly 40% of house owners in Pacific Palisade did not have coverage...

Everyone here is guilty, the insured complaining that their insurance rates were rising when they knew full well that a 2x4 had gone from 2 bucks to $8.   The politicians for taking the easy way out and the insurance companies for being slow in rating out the bogus insurers (trust me its a thing).  finally, insurance company for paying their CEO insane salaries for idiotic jobs.





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