Is an American Home Insurance Apocalypse coming
It comes as no surprise that out of control US Inflation has huge institutions and consumers on edge. This may turnout to be more of physical edge than symbolic. Stick with me as I unpack this idea banging around in my head.
Consumers are being hit very hard in Florida, Texas and California when Home and Auto insurance policies come up for renewal.
Could this be the perfect storm? Allow me to explain
US Consumer make up 70% of US GDP, said US consumers have $1T in credit card debt, many are living paycheck to paycheck as inflation has taken a massive bite for part 20-24 months. Can you imagine your home owners insurance policy doubling? What if it went up up more than that? If you are living paycheck to paycheck how to you come up with that cash? If you have no more lifestyle spending and you are down to making very difficult decisions what must go? This of course assumes you have already been playing the game properly, bundling home and auto, shopping your policy around for lower rates. How long before you have cut and cut and the only thing left to do is walk away from your home? Think I am wrong well home many over priced latte's does it take to make a $2000 Home Owners Insurance Policy (just about a years worth but your policy is due in 6-weeks not 52 weeks).
On the other side of the coin the Insurance firms have their own basket of concerns.
Let's start at a very high level, when you hear about institutional investors what types of firms come to your mind? Sure University endowment funds, Pensions, did it ever occur to you that Insurance companies have huge investments in equities, yes both stocks and bonds. Insurance firms being rather risk adverse probably have more invested in Bonds than stocks. Since, the US Fed had interest rates near zero for let's call it 2-year for simplicity sake, this means that those Bonds are worthless just likes the Banks bonds at near zero percent return. So just like a family the Insurance companies have to decide where to trim some fat. Well, their pie is much larger than my perception so they think at the state level. They have been hammered with costs from Hurricanes, Tornado's, suspect fires but hey they knew the risks going in.
For example, just this year in Florida (FL)Farmers insurance notified the state regulatory body they will be pulling out of the state and that all their policies will be null and zoid at that time. To add insult to injury, AAA (American Automobile Association) also informed the FL state regulatory body they would not be writing any more policies.
Think Florida is unique; nope. State Farm and Allstate stopped writing new Insurance policies this year too. So assume the same issue in Texas. This boils down to less competition for the consumer to select polices from, allowing prices to creep go up 50%, 100% or more.
At what point are people forced to sell their homes?
IF they are were do they move as a move within the state will still be ultra expense, an EXODUS of people moving out of these states will take place. Can the neighboring states absorb this influx? So, what then happens to all those that can afford to continue to pay for Home Insurance? Their rates go up as there is a smaller pool paying into the insurance fund and we have to keep the funding level up. Quickly the payee's are surpassed by the non-paying community.
What happens if car insurance becomes to expensive to keep a vehicle?
A two car family becomes a one car family for as long as they can afford that! Until that doesn't work and the cycle continues.
Now wait a minute haven't I heard something about owning nothing and being happy?
Oh yeah, Klaus the non-elected official making policies for countries he doesn't reside in. Funny now their plan is almost making sense. You will own nothing as you will be priced out onto the street like a peasant from middle evil times.
Summary
So higher rates have a breaking point for the consumers and themselves, this could lead to a full blown Insurance industry collapse. When you ask? My crystal ball is out for service so no date from me. Put the pieces together yourself don't take my word.
Credits - Blog pic credit belongs to 'caton
