Day 794: Homeowners Insurance – New Orleans vs. Southern California

Today’s USAToday analyzes New Orleans’s sluggish housing market and points out the exponential increase in local homeowners’ insurance  following Katrina and The Flood.

For a $175,000 home, a buyer will have to shell out $4,200 to $4,800 a year for insurance, says Lisa Heindel, an agent at Latter & Blum Realtors. Before the hurricane, the cost was about $1,200 annually. That huge spike is pushing buyers into lower-priced housing.  Homes are sitting on the market, on average, about 80 days ” a month longer than this time last year.

Contrast this with southern California, where homeowners’ insurance rates are going down despite their being an equivalent disaster magnet, if not more.  Last Thursday, Robert Siegel of NPR’s All Things Considered asked Candysse Miller, executive director of the Insurance Information Institute of California, “How big an insurance claim are southern Californians going to be making collectively after the fires are out and the damage is appraised?”  Here is my transcript of this very educational interview:

RS: How many homeowners in Southern California are going to be making insurance claims after these fires?  Are they all insured? 

CM: We see at least about 5000 claims coming in right now.  The estimates this morning showed that 1500-1600 homes have burned.  To give you a little context of that, in 2003, the firestorms caused about 3000 homes to burn.  So, this is definitely a large catastrophe but we have been through this before.

RS: Having been through it before, I would have assumed that people’s rates would have gone up after 2003.  Did insurance get more expensive?

CM: Interestingly, California has a very lively, extremely competitive homeowners’ insurance market and rates have been going down by and large.  Major insurance carriers, mid size carriers and even small insurance companies have been filing for significant rate decreases in the last year to year and a half.

RS: When you compare these fires, used as a benchmark to the big fires of 2003, just 4 years ago, is there any risk here of insurers saying some of these areas we are not going to insure anymore, fires are just too common here?

CM: Well, two things.  First of all, insurers are constantly evaluating the landscape of California, because we have a number of risks we face on a daily basis, virtually just about everything but hurricanes.  We’ve got earthquakes, we have windstorms (we had a windstorm this week and that’s resulting in thousands of insurance claims as well), we have floods. 

If insurance companies are constantly evaluating risk, were they even marginally aware of our levees’ unpreparedness for Category3+ storm surge, did they factor that into risks and rates and warn us?  Even now, is that how they evaluate Orleans Parish risk, constantly and flexibly like the insurers in California seem to be doing? 

CM: … We do face risks, and insurers look very carefully at that and sometimes you will find that insurers are evaluating communities for wildfire risks, of course they are.  We are in the midst of a drought, there is brush buildup from a rainy period that preceded the drought and firefighters have warned us year after year of a big year coming up for wildfires and we need to be prepared for it and insurers do as well … if you have a shake shingle roof and you live in the west, what are you thinking?