The Insurance Apocalypse Conversation America Won't Have

A predictable disaster unfolds apace.

Stilts aren’t high enough to box with god. (Photo: Getty)

Last spring, I wrote an essay here called “Insurance Politics at the End of the World,” discussing the climate change-fueled home insurance crisis in America and the fucked up political path that it was likely to take. Today—wallowing in the depths of winter, taking a brief pause between ever-lengthening hurricane seasons, in an election year in which candidates would, in a more rational country, be putting forward plans to deal with this issue—is a good time to take a brief look at how this crisis has been unfolding since I last wrote it about it.

It has been unfolding just as dysfunctionally as anyone could have imagined it would.

To recap: due to rising seas and increasing hurricane and wildfire risk and other long-predicted consequences of global warming, the cost of insurance for homeowners in many disaster-prone areas has been skyrocketing at a staggering rate. Many of these areas, particularly the coastal South, are the same places experiencing the fastest population growth in America. State governments want to maintain this economic influx. Because we have no coherent federal policy for managing insurance rates (much less for adequately dealing with the underlying problem of carbon emissions), states are left with the problem themselves. Because many state governments are run by some of the most craven political cowards you will find anywhere, they tend to manage the problem of fleeing insurance companies by trying to stuff policies into state-run “insurer of last resort” firms. Because state governments do not have enough money to actually pay out the claims in the event of a serious disaster in a highly populated area, what we are really dealing with is sort of the paper fiction of insurance—just enough to keep the real estate market pumping and stave off immediate exodus, with the implicit knowledge that in the worst case scenario, these (red, socialist-loathing) states will run to the federal government for a bailout, and then keep on doing the same thing. It is emblematic of our general response to the problem of climate change itself: ignore it, paper it over, and pray that the bill doesn’t come due while it’s our responsibility to pay it.

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One way to “manage” this situation would be to allow insurance companies, which are good at evaluating risk, to set their prices as high as the actuarial tables tell them they should be. This would, in short order, become too expensive for anyone but the rich to afford. Many people would go without insurance and take their chances, and that would last until the next hurricane washed them out and they left. Real estate prices would begin to plummet as buyers avoided areas with unaffordable insurance costs, probably triggering another financial crisis. New coastal construction would cease. There would be lots of blood on the floor, economically speaking, but this path would accomplish the thing that markets are supposed to accomplish: It would use price signals to create a retreat from areas where we shouldn’t be building houses.

But this would be much too messy, and the uproar from coastal residents and wealthy homeowners and the real estate industry guarantees that no state government would let it play itself out. Instead they will desperately try to pretend all is well until Mother Nature really wrecks a lot of people. Once you understand the basics of climate change and the basics of American politics, none of this is hard to game out.

Now, let’s check in on how it’s been going over the past eight months. Okay: “Buying Home and Auto Insurance Is Becoming Impossible,” the Wall Street Journal reported this month. “Huge losses from national disasters prompt industry to jack up prices and pull back from some markets; ‘worst possible scenario’ for consumers.” Allstate is threatening to pull out of California unless regulators let it raise home insurance prices by 40%. State Farm lost $13 billion on property insurance last year, its worst year ever. In the real world, there is no magic bullet to escape this math. Insurance companies like these buy reinsurance from even bigger companies to insure themselves, but—dang!—the reinsurance companies can do math too. The WSJ says that reinsurance prices last year “were up 30% to 50%.”

It’s a bit like watching a very drunk friend climb into his car and drive directly off the road. It’s all so very predictable. In Florida, state-run insurer of last resort Citizens is now the biggest insurer in the state, since 15 private insurers have left the state in the past two years. Florida state lawmakers, the group of goons who gave us Ron DeSantis, are proposing measures like cutting taxes on insurance, sending homeowners money to help them pay for insurance, and shoving even more policies into Citizens, which will only hasten the time it takes for Citizens to throw its hands up after a big hurricane and say, “Woops, we are insolvent. Help please?” All of these types of futile political efforts to artificially make insurance cheaper are like taking ever larger doses of heroin to stave off withdrawal. It won’t work forever. By not dealing with the underlying problem, you only make sure that the day of reckoning will be more painful.

Hurricane Ida, 2021.

Louisiana—a state which is, if such a thing is possible, even more fucked than Florida, since it is exposed to the same risks while being poorer—is right now living out its role as a cautionary tale. In 2021 they were slammed by Hurricane Ida, which caused at least $75 billion in damages. Familiar story: Insurance rates soared, big insurance companies left the state, and lawmakers scrambled to fill the hole with a combination of state insurance of last resort (which is legally obligated to charge higher rates than the private market) and a bunch of fly-by-night little insurance companies that are, in essence, gambling that they can make some quick money by writing policies in areas where more reputable firms don’t want to, and then praying that no disasters strike that make them pay out. New Orleans reporter Sam Karlin has been doing an excellent series of stories on how this Very Smart and Responsible Plan is going. With their deep faith in the (surface appearance of a) free market, state lawmakers helped to shovel thousands of policies off of the book of their own Citizens state insurance and into the hands of these little crap insurance companies. After Ida, a dozen of those companies failed, ultimately forcing taxpayers to pick up the bill. Many of those private companies, not being fools, were taking in money from customers with one hand and then immediately funneling as much of that money as possible into “affiliates” where it could be safely paid out to investors, instead of keeping it on their books to be ready to pay out customers. Of course they were! They knew that the state would step in if they blew up. As Wall Street has long proven: if private companies know that they will be bailed out in a worst case scenario, they will take more risk. Why cut your own profits to hedge against a risk that will not be your responsibility?

The entire structure of Louisiana’s approach to insurance incentivizes unscrupulous companies to write ill-advised insurance policies at unsustainable prices and then to try to nickel-and-dime customers on claims, take an excruciating amount of time to pay them, or, if things get too tough, just shrug and go out of business. Regular people who had insurance can be left waiting years to receive the money they need to rebuild after a storm. (Drive the Louisiana coast and you can still see blue tarps on roofs that have been there since Ida.) All of this so that Republican state legislators can say they are not falling prey to a damn socialist insurance market. To be fair, a socialist Louisiana state insurance market would fail too, although without creating so many rich little crooks along the way.

Everyone in a position to deal with this worsening crisis is looking for a magic solution. There is no magic solution. The coastal homeowners and the private insurance companies and the reinsurance companies and the state governments are all looking at one another to rescue them, without acknowledging that they are all in the same sinking ship. The real solution is to deal with climate change, which will be a long global struggle. But even on a slightly more practical level than that, this is at minimum a federal government problem. Unfortunately, our federal government is dysfunctional and one of our two major political parties still denies that climate change is even happening. Damn! This month Adam Schiff of California introduced a bill to create a federal reinsurance program to mitigate the soaring insurance rates in states like his. This is, at least, a gesture in the right direction, but there is still some sleight of hand going on. Even if such a program were built, I guarantee you that its creation would be accomplished in large part by lying and dissembling about what the true question being debated was—namely, “Should everyone in America pay to subsidize the ability of a segment of our population to live in places that are, objectively speaking, stupid to live in, because they are very likely to be burned up or washed away or underwater in the near future?”

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And look, maybe the answer to this question is “yes!” I love New Orleans. I am glad it exists and I believe that we should enable it to exist as long as possible. I grew up on the Florida coast, and my family still lives there. I would like their kids and grandkids to be able to live there and enjoy it too. But we, as a nation, cannot make these choices honestly until we are able to have an honest conversation about this—something that we have never done, because we as citizens are immature and also because politicians consider it politically radioactive to say stuff to their constituents like “Let’s talk about whether we should allow your house to be washed away forever, or not.” Our failure to have this conversation, though, does not erase the inevitability of what is coming. Ideally, even as we aggressively cut carbon use and did the other things we should be doing to curb global warming, we would at the same time be debating questions like: What is the cost of a managed retreat from the coasts, where we pay once to help people move, as compared to the cost of fighting to maintain our current coastal development patterns, where we pay over and over to rebuild in places that Mother Nature is determined to wreck? Is fighting this battle a wise use of our national resources? If we do undertake a managed retreat, how far do we need to move? If we build seawalls, how much will they cost and how long will they last before they too are underwater? What is the maximum amount we are willing to spend before we write off a currently populated area as a total loss? How long are we willing to fight against the sea before we give up? Are we all obligated to pay every millionaire with a beachfront McMansion the total value of his home in order to induce him not to rebuild it, or is there some limit there?

Obvious questions. I am not even suggesting answers to these questions here. I am just trying to illustrate how far away we are from a genuine public discourse on this topic. We are still mired in the “Everything is fine!” phase, where nervous, sweating politicians with pasted-on smiles beckon you into their doomed states while silently praying that the collapse doesn’t come while they’re still in office. Even the more enlightened political discussions tend to focus on the near future, rather than gaming out the full, decades-long cost of our battle to defend the status quo. We need leaders brave enough to make millions of people face the fact that they are fucked one way or another, and the only question is how specifically they are going to be fucked, and how soon. Yet our electoral system is optimized against anyone who talks like this being able to sustain a long career. We prefer being soothed and lied to. So I expect it to continue in that vein for far longer than it should. By the time America is ready to talk about this crisis like adults, the method of fucking will, I’m guessing, already be decided by Mother Nature herself.

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Also

• Related: Insurance Politics at the End of the World; The Gangster Socialists of the Red State Beaches; The Heat Death of the American Frontier.

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