The Home Insurance Crisis That Could Crash the Housing Market with Chloe Demrovsky

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LLC, member, and risk, advisory services via Sofai wealth LLC, an SEC registered investment advisor. Probability of member receiving $1,000 is 0.026%. If you don't make a selection in 45 days, you'll no longer qualify for the promo. Customer must fund their account with a minimum of $50 to qualify. Probability percentage is subject to decrease. I'm Nicole Lathen. The only financial expert you don't need a dictionary to understand. I used to find talking about home insurance policies

to be so, so boring. Like 0 out of 10 did not want to do it. But now, I find it to be one of the most important personal finance stories in the country, and most people don't realize it yet. I learned this firsthand when I lost my home in the palestades fire. Now, I have been through a lot of trauma in my life, but losing my home was maybe the hardest thing I have ever gone through.

So, I sincerely hope that you never have to go through anything like that, but if you do,

I want to make sure that you're prepared. So, for this episode, I'm teaming up with the coalition

“for an insurable future to tell you about what you need to know about this looming crisis and how to”

protect yourself. The coalition for an insurable future is a non-partisan group of independent experts in economics, insurance, finance, government, and media, all working to raise awareness about what they believe could be the next big financial crisis in America. And the numbers do not lie. Insurance prices have risen 74% since 2008, far outpacing inflation and wages. To help us understand why we could be staring down the next 2008 and what to do about it, I'm talking with Chloe

Demrovsky, one of the nation's leading voices on disaster risk and resilience. She was president and CEO of disaster recovery institute international for seven years, and she served on FEMA's national advisory council. So, she has literally been in the room after the flood, after the fire. When people discover what their insurance actually covers, or what it doesn't. I've already called my friends who are homeowners or those in the market to buy a home to tell them about

Chloe's advice, because now is the time to act. Chloe Demrovsky, welcome to Money Rehab. I'm so happy to be here. Nicole, thanks for having me. I'm so happy to have you here. This is a topic, as you know, that's very personal to me. And I'm so honored that you're here to have the conversation with me. I gave some of your bona fides in the intro. I could not possibly do

“your life's work justice, though. So, I really want to get to the why? Why are you doing this work?”

This is such important work. It's so deeply personal for so many families. It touches. Households, it touches. Families, it touches communities. I've been working in disaster recovery for, you know, for more than a decade. My ran a large disaster management institute. I was on FEMA's national advisory council. Lots of blah, blah, blah, bona fides, like you said. But what that really translates into is helping people. After a disaster, after a wild fire, after a hurricane,

after a flood, there's so much that we have to do. There's so much we have to learn about preparing for responding to recovering from these sorts of tragedies. And it's really my life's work to help people build resilience and to help them to recover faster, to build a more resilient future for our kids. Amen. And there's so much that I wish I knew when I was going through my own disaster. As you know, this is really personal for me. So, perhaps, you know, before I went through

all of this, I would have thought insurance, so boring, like next topic. But I would love to save

a disaster is never going to happen to me. Yeah. So, I so appreciate this because there's that

first disaster. There's that first trauma. There's that first horrible experience that people live through. And then they have to relive it all again in this, like, secondary trauma of the paperwork. And it's not even on your kitchen table often. It's on somebody else's kitchen table. If you're lucky to have enough to have relatives to stay with, or it's in some like horrible rental that you have to pay for on top of it. It's so expensive. It's so much work. And most American households,

the reality is, like, they don't have a thousand dollars in emergency savings to cover something like that. So, yeah, it's insurance is one piece of it, but it's also making sure that you have

“saving. So, I think the first place to start is like being aware of what you have and what you don't”

have because, you know, as you said, insurance is kind of boring. There's a lot of fine-print.

Most people are like getting homeowners insurance because they have to have a mortgage. And so, in order to qualify for a mortgage, you generally need homeowners insurance. Because that's the bank protecting their assets, right? They're part of it. They're their loan. And so, that's the trigger. So, most people are like, okay, let me see what I can get as cheaply as possible. And I've checked that box. I've done that. But that's not really what it's about, right? In the face of a warming

planet, we are seeing more extreme weather all over the place. And so, it's not just important, like, what that you have insurance, it's important, what's in that coverage. And a lot of people don't really understand their coverage. So, I'd say that's really the first step is like knowing

that you have insurance and then understanding what that actually means for you. Oh, yeah, I never

“read my insurance policy. So, I don't know if I've actually ever said this on the show. But my insurance”

was canceled the year before the fire. And so, we got whatever insurance we possibly could, because so many insurers are pulling out of this area. So, to even get coverage was not a problem, I thought I would ever have. Yeah. So, these plans are, you know, year to year, right? People buy a policy for a year. And so, what's happening in so many of these markets is that, like, the insurance companies, their businesses, right? They have to build a business model around this.

And so, they price the insurance year to year to year to year. So, if you're a homeowner and you kind of, you bought that property, you've got that mortgage, you took out that insurance policy, and then it's non renewed, or it shoots up, right? A lot of people are seeing their premiums increase. We've seen insurance premiums increase 74%. That's 40% faster than the rate of inflation. And I don't know about you, but inflation's been hitting hard, you know, gas prices, egg prices, all these things

“that we, like, see and touch and feel every day. Yeah, say that one more type. 74% have seen their”

insurance premiums increase. And then that is 40% faster than the rate of inflation. So, insurance is exponentially more than what we're seeing day to day on everything else that's inflated. Yeah, and it's something that you don't want to think about it. Nobody wants to think about risk, and certainly nobody wants to think about insurance. So, you just sort of, like, go, oh gosh, okay, I'm going to pay that. But if you game that out further into the next decade,

people are likely going to spend more on their insurance premiums than they're spending on their property taxes, then they're spending on gas in a lot of markets, then they're spending on groceries. So, this is becoming a meaningful part of household budgets. And it's just not something that people can really handle. It makes it's sort of a creeping affordability crisis. You were saying that people don't usually go through and read what's in the policy. I did not until I had to. And then there were

things that I learned out of necessity. A.L.E. had no idea what that afternoon was. And sort of what happens and who pays for what after disaster happens. So, which should somebody look for in a policy? Yeah, someone. One is, like, for example, a lot of people, there's a big gap in perception of, like, I have homeowners insurance. Therefore, it's going to cover whatever happens to me. The biggest one where this occurs for people is flood. Most homeowners insurance does not include

flood coverage. I'm going to say that again. Most homeowners insurance coverage does not include flood. Flood is one of the big dangers that happens, right? And it's not just on the coast. We think of this as like a coastal problem. You know, it's storm surge. It's the ocean during a hurricane. But we're seeing extreme rainfall all over. We saw it in North Carolina. We see it in a lot of places all over the country. And so, if someone's home is suddenly flooded and they've lost all of the

their possessions on their ground floor. Maybe they have to replace their kitchen, bathroom these things are really, really expensive. And suddenly their insurance coverage is saying, yeah, no, that's not covered. Suddenly, that's an out-of-pocket cost. And especially because we're talking about disasters, that means it's community wide. So suddenly, if your kitchen was

contractors at the same time, that's going to increase those prices for those services. There might

be long wait times. The cost of construction materials has been going up anyway. And then locally, it's going to go up even more because there's just a demand surge because it's community wide. So there's all of these kinds of hidden costs that are not just kind of what you think of like, oh, I haven't insurance. It's going to cover it. I might have to wait a while. I might have to relocate for a while. But all of these things are expensive. It all adds up. And also in California,

insurance doesn't include usually earthquake coverage. So you need a supplemental policy for that. Yeah, there's a lot of these things. And so, you know, and they're increasing, right? So like earthquake is a big one. But it might be smaller things from these smaller storms that people don't really

don't think about like hail. Hail can cause a lot of damage. There might be a hail exclusion in your

“policy. So again, it's really important to understand what there is and to layer on like the most”

likely risks in your area. So California, obviously earthquake, wildfire, and then compare that to your insurance coverage. Maybe use an LLM to do it, right? You don't have to do it yourself. Feed it feed in sort of the risks in your zip code, which you can find from all kinds of tools, who should pay.org is one great example where you can just type in your zip code and see what the most likely disasters are in your area and then compare that to your policy. And that'll at least

give you a starting point for understanding what's really in there. Yeah, at very least put it through cloud, chat GBT, just get a sense of what that is. Even the ALE, which I mentioned before,

additional living expenses, super important to have in place or understand what that coverage is,

because that means who's paying for the Airbnb or the hotel or the, you know, take out or whatever is extra that you would have to pay because you're not in your actual house. Totally. So that's

“one major factor. And then something that feels very unreal to people as well is that you still”

have to make mortgage payments. Even if your house is unlivable, even if your house is a pile of rubble, you still have to make those mortgage payments, which is so painful. It's incredibly painful, right? Why is that? Because you're theoretically going to rebuild so you still owe the loan, like the bank owns the asset, right? Something's got an insult to injury. Yeah, it's really crazy. These are really unfortunate circumstances. We all have kind of a portion of responsibility here.

Some of it is the homeowner, some of it's the bank, some of it's the insurance company, some of it's the government. It's really complicated. And especially when it hits a whole community at the same time, that's crazy. Because, you know, insurance is designed for kind of random possibility of damage, not the certainty of it, and certainly not community-wide all at the same time. That's when it really creates strain on the system. It doesn't work like it's supposed to.

“Let's talk about the systemic level issues. Chloe, some people are calling this a climate insurance”

collapse. That sounds apocalyptic, but is that real? It does. It sounds very apocalyptic, but the truth is that it's very real. Because it starts with like one person and one home and a premium, it starts with the basics of, you know, paying into your insurance within your community. But of course, you have the individual paying for the premium. Then you have the insurance company that suddenly has to pay out losses that are more and more frequent as the planet warms as we see more of this

extreme weather and more of these extreme crises. So then those insurance companies like they also have major losses that create years where they don't have any profit. So they haven't insurance. Those are the re-insurers. That's insurance for insurance companies. They also need insurance. It's something called retro session air. So this is where you get really crazy and up there. This is global markets, right? And then those insurers often are going to sell that into the market.

So they will sell something like a catastrophe bond, cutely named a cat bond. It sounds so adorable. But what it means is that this risk is being spread more broadly into the markets. And so then who's investing in that? We all are through our retirement savings, through different types of investments, through bond savings. And so this is really kind of spread out throughout the market. It's not just one insurance company. It's not just one homeowner. It's not one community.

It's really system wide. And it's not entirely clear where exactly this risk resides in the market because it's been spread out. Well, so can you walk me through this domino chain? Because this is what gets me really nervous, is that the there's systemic risk here. So it's not just my premium went up or the insurers are pulling out of my area. It also is the housing market. It's now in trouble. And so that's a domino effect. It's the economy crashing. Yeah. This feels like a 2008

deja vu. Yeah, it's a little scary that way because that was the mortgage back securities and people didn't really understand it. Here we're seeing little signals of it. So what you see is like

they can't sell their home, right? So there's stuck in place. Maybe they eventually

“forked that home is foreclosed on because they can no longer make those payments. It's no longer”

viable. It's not livable. They foreclosed that go into bankruptcy. They're no longer homeowners. They're no longer part of that American dream. Maybe they go back into renting, right? So that happens over time. You have more and more people declaring bankruptcy. You have more home for closures. You have fewer people in their homes. You have problems with whole communities with homes that are not able to be sold that are sitting on the market that are losing value. You have those

eroding tax bases. You have problems with the housing stock in general. And when we have a lot of foreclosures like that, that becomes a huge issue. And of course in 2008, maybe someone was able to kind of stay in their home for a while. In this case, that home might not be livable. So then people are forced into the rental market. Well, we already know that there's this huge affordability

crisis. That is affecting renters first, right? So they might not be able to find places to live

certainly not in their communities. And that creates massive strain on our systems overall. And yes, Nicole. I'm very worried about it. I'm very worried about it, too. You know, and I want to make sure that our listeners are really feeling this. So if we can paint the picture, somebody gets a non-renewal notice in the mail. One like I got what happens next or what should you do step by step after that? Yeah. So, you know, often it's not even a non-renewal first. Sometimes

it's just your premiums increase, right? That should be a signal. That should be a warning to you

“that something is going on and you should investigate that. That's really important that you”

take advantage of these early signals. Because again, that gives us some time to deal with it. And time is, is your frontier, right? You don't want to be pushed out at the last minute when everybody else in your community is being pushed out, right? That's that we just talked about hold true. It's not a matter of if, but it's a matter of when. So if a majority of people are seeing their premiums increase 40%, it's more likely than not going to happen to you. Yeah, it is, you know,

a 95% of homeowners are seeing their premiums increase. So this is all over the country because that risk is being spread out. So if you have suddenly seen your particular premium shoot up, they might tell you that, you know, it's, it's market conditions. What it might actually mean is that their models have pushed you into a higher risk tier. So that should be a flag that your home is in a riskier area. And so at that point, you want to understand what those risks are. There are some things that

you can do that are in the mitigation category. So that means taking risk into your own hands and hardening your home. So wildfires, tricky. But I'm sure you've been hearing a lot about what you can do around making your house more safer from wildfires, the vegetation around the home, et cetera. Her kids are a little easier. It's often like making sure that your roof, yeah, the, the hurricane windows, that your roof is more secure that's bolted down. Those are a

little bit less expensive to kind of harden the home against the threat. That's all great to do. And in some cases, that might make your home more insurable. Some of the local governments are even working on regulations so that there, you would see some sort of signal in a premium decrease if you've taken some of those steps. That's at least the signal saying that this is the right step to take. But how much? Like some? Not that much. If you put in the windows or do

no, no, it's not going to be enough to, to really save it. But again, insurance is going to cover the home itself, but it's not going to cover the life you built in your home. It's not going to cover the family photos. It's not going to cover the family heirlooms. It's not going to

“cover all of those things. You know, I'm going to make me cry. I know. Really, it's, I think it's”

important to drive at home. You know, early, early in my career after Hurricane Sandy, I was out in the Rockoways. And this in particular really resonated with me. Because I was in the home, it was like one of these little bungalow home supermoda, super small, right near the water, and it had been completely flooded. The whole front of the home had come off. And this is going to make me cry too. There's all of these dirty stuffed animals and like a waterlog copy of

good night moon. It was just like their whole lives were just there. And we were just helping to like clean up the debris and move it to the road so that it could be removed so that you could have rebuilding. The worst part about that is that's where like the middle class of New York

live. So that was a neighborhood where it's all the first responders. It's all the firefighters

and the policemen and all of the people who are actually out responding to the larger community wide disaster, keeping New Yorkers safe in kind of the center city and the more expensive areas. As those middle class families get pushed out into kind of less of the city center, those are often riskier areas. They often get pushed closer to the water. They get pushed higher into the hills

the ones who are kind of on the front line of the disasters. And that's a that's a huge hit to our

“middle class and the engine of mobility and prosperity, the American dream. So it's just it's really”

a human story even though it just sounds like insurance paperwork. It's a story of the waterlog good night moon that you've seen too many times that I saw myself. You know, when you say 95% of Americans are seeing their premiums go up, how do you talk to somebody who's outside of Florida or California or New York at in Ohio or in Minnesota and remind them that this is also a problem in those areas as well that might not be prone to earthquakes or hurricanes. Yeah, totally. We're

seeing this all over the country. We saw those extreme Texas floods. We saw the hurricanes that dropped water inland in North Carolina after hurricanes, Halene and Milton. There was a wildfire in Florida this year, which is totally weird. I would tell them about my sister who lives in inland Massachusetts. New England is not a place where you would expect fires. A little over a year ago, there was a wildfire that was really really close to the house of her and her family. So this is happening

“everywhere. You know, I would say to someone in Minnesota or Ohio, like if there can be wildfires”

in Central Canada, you know, these threats are coming all over the country. It's so let California or Florida be sort of the canary in the coal mine that is warning all the rest of us that we all have a stake in our own preparedness, educating ourselves about these issues and figuring out how we can best plan for and prepare for it because if you are prepared, you're much more likely to recover and bounce back. If you know what's in your plan, if you know what's in your home, if you understand

your risk and you've taken that little ounce of preparedness is going to go a long way once

something really does happen. So if I get a notice that my premium went out 40 percent and insurance

is giving me some whatever answer. What's the real story and what kind of actually do to move that in my favor? Is there anything? Can I negotiate? Usually you can't, unfortunately, you can shop around a little bit but the reality of it is that often when you shop around, you're going to find that other policies are going to be even more expensive. This is what often pushes people onto those state plans and those state plans don't have a lot of money in them

and there's not a lot of political appetite for adding more money to them because it means that taxpayers are footing the bill. So this is where it becomes really important to do your research before you buy a home for one. That's the best time to understand this but it's not like anybody has a desire to make it really easy to find out because also it's the person in the home who's trying to sell, they want to sell that price for like a high market value because they're

own their own life savings is probably in that house. So they have a vested interest in not telling you that maybe that house had been flooded or maybe it was in a wild fire zone. So as

“the buyer you have to do your own research you can do that through like you know the FEMA maps”

often those are outdated so it's important to be aware of that and do some reading to make sure that you you make those kind of smart decisions and then if you're already in place I think it's you know I don't have to tell you to understand the value of diversification it's really important to not have all of your life savings in one asset whether that's your home or whether that's the stock market you want to diversify as much as possible because again these issues are happening

all over the place this is something that is very real and it's going to get worse in the coming decades. So you broke that down into two categories of people people that are in the market for homes and now it's more important than ever even if you look at the zest of it you know back in the day like the insurance line item would be small like manageable. Now I've I've noticed it go up and up and up to account for all of this that's going on if you can get insurance at all in some areas

insurers are pulling out all together. I don't know if they're allowed all allowed to do that in certain areas. Yep. In some areas they can right if the market has just failed in there and they're pulling out that's again where the the local government is going to have to step in if they're going to have insurability at all and in some areas they're just pulling out entirely I mean I have a friend

who's a policeman here in LA he has a home you know a second home fortunately for him that's out

a little bit further inland in California and and he just can't get insurance on it so he's doing what's called self-insuring which is a nice way to say that if something happens he's totally on the hook for it there's just no way to ensure that home. What does that even mean he just puts his money in like an escrow account of his own that he you're just pounding on your savings at that point to be able to rebuild. You can harden as much as possible so that that home stays safer but

you're accepting the risk. If you're in the market how do you find out if you can get insurance

out and get a quote on the house see if you can do that it's not always clear you can press the

realtor you can press the current owners to see if you can understand a little bit whether that property has maybe had something happened in the past and then you can do research generally about the zip code I mentioned who should pay.org is a great way to look at that you can kind of look at the zip code and you can also put in some information about the house and that'll project it out and again it's an estimate it's not the real thing it's like the estimate that you said you know

Zillow used to include some first street foundation data about the climate risk of properties that's no longer listed there because again homeowners don't necessarily want that listed the seller doesn't have an interest in listing that information so as the buyer caveat them door

“buyer beware you have to do your own research it's really is such an important purchase moment”

for people it's a proud moment you put so much of your life savings into that house and it just a

little bit of research is going to go a long way to protect you. Is it wise to even contact a broker before you put in a bid for a house? Yeah even just see what the realistic premiums are going to be to see how that fits into the overall payment that you have every month? Yeah that's really important but again it's important to also be aware of the fact that these insurance policies are written for one year so you're not going to lock in a rate for 10 years so you're going to have to assume

that these are going to go up probably faster than the rate of inflation all across the country so insurance is going to have to be a meaningful part of your budget and if that means buying a slightly smaller home or being a little bit more conservative in your choices it's important to factor it in because again the price of gas is something that you know we we think about a lot these days the price of groceries you know homeowners insurance unfortunately is in that category

it's still a great decision financially to try to be a homeowner to buy a home rather than to be a renter you just want to make sure to do a lot of research about what that decision is that you're making and whether it's a personally responsible decision and there's no way to know if insurers are going to pull out of your area in advance so if that contract is just for one year we're going to assume that it's going to go up over time but we don't know if insurers are going

to leave that area altogether and that's going to jump exponentially yeah if you can get it right so that's one one consideration and so that's where the kind of the market signals are really

“important to pay attention to that's the headlines that's understanding what the different”

hazards are in that market and then making a decision about where we're to live I keep hearing the word uninsurable so what is uninsurable actually mean and how many people are uninsurable yeah so uninsurable means that the home is just too risky right so an insurance company they're not looking at you know they're not looking at the individual human they're looking at overall to set rates they have models that they build and they have to in order to run a

viable business they have to offer you insurance at a premium at a rate that actually is going to cover the losses so generally what happens is like overall if you think about where insurance comes from it's like individual homes burning down individual car accidents those things are not related disasters are all of the homes burning at the same time and so if that would typically happen you know once in a great while it would eat up profits for that year and there would be kind

of what they would call a non-repeatable loss and then they would make up for for a few years of profit a few quieter years we're not seeing so many quiet years anymore that's where the insurance companies are looking at and going we're going to go out of business we can't pay all these premiums and the individual homeowners certainly are not going to be willing to pay premiums that are

“high enough to actually make a business model work that's why the insurance companies are pulling”

out I mean a lot of kind of the name brand home owners and insurance companies haven't been in Florida for a long time right so then you have kind of smaller players who might come in there might be less trustworthy and then everyone's going to say well I don't trust the industry as a whole and that creates a big problem so the whole thing just doesn't work when there's no trust in this system when there's no viable business model and then we are kind of looking to government to

kind of make up for that shortfall and ultimately falls on the taxpayer so let's talk about the

people who are already in their homes the second bucket as you mentioned it's important to diversify cosine could not agree more on that one Chloe if somebody though has a big amount of savings tied up in their home a big percentage of their net worth their life savings tied up in their home what should they do differently with everything happening in the insurance world right now yeah most of us do right if you are lucky enough to own a home it's usually your biggest asset

that's where it starts with the information there is a lot you can do to understand what your

ways to mitigate the risks that you can I mean you know I live in a multi unit condo in the

middle of New York City and so flooding does happen even though I'm at the highest point in Brooklyn because you know resilience expert I plan that but still you have extreme waterfall it clogs you know the the infrastructure right the drains and so the street floods and so that becomes a problem

“of infrastructure so that's why this is a community wide problem it's not a lot you can do”

about the storm drain although people in Brooklyn do actually go out and like unclog the drains in real time which is crazy but that's where we are but it's a matter of that like if it's a matter of like unclogging the storm drain next year also that your basement doesn't flood well maybe you

want to do that it's a matter of you know having a generator if you understand that the power is going

to go out not as big of an issue here in California but in flooded areas sometimes it's the floodwater that creates major major damage but often it's mold afterward so if you understand that and you can have some of this industrial fans handy or you just dry it out as quickly as possible that's going to save you a lot of money in the long run so just understanding what the risks are and the things that you can do to kind of take it into your own hands unfortunately that's a big

“part of it ensuring away some part of it that's risk transfer and then you know long term thinking”

about you know saving in other ways diversifying as much as possible so that you're not reliant on one asset we explain you're at the tallest point in Brooklyn yeah close to it so you can protect yourself from floods yeah yeah I mean I looked at a home that was you know really close to the water when we were looking for a condo and I asked them how how how fair during say hurricane sandy and they were like oh we were high and dry we were just four blocks away from the flood waters and I was like

four blocks is not far enough for me so no I don't feel good about that and they don't have to tell you the truth or no it's a homeowner right so they're going to tell you what they know how do you really decide what they know or didn't know and so there it's not necessarily totally clear what has happened it's very very murky and hard to look up individual property histories yes it is what is one thing that has happened in quietly right now that nobody's talking about that

yeah the coming big deal in five years yeah so one of the things is that we are starting to see this kind of kind of impact the actual pricing of houses in the market so on the one hand you have sort of the home price that is assuming that it's in durable there's also the home price maybe kind of the home values reducing slowly because it's likely that that home may have insurance now it might be uninsurable in the future it's not totally clear and so that's going to soften home values overall

so as those communities start to have difficulty moving whole blocks of homes that's where you start to see whole communities have eroding tax bases maybe you have some blocks that are just not habitable anymore you have sort of like what they call nuisance flooding in some neighborhoods where you know it might be a sunny day but they're suddenly like water on the block where they're

never used to be and so over time that makes that street yes is affected but the whole community is

affected because those homes are sitting empty and that's reducing you know the the community tax bases that we all rely on for like good schools for example so that affects a whole community which affects a whole state which affects the whole country what worries you what's that not enough I mean if you really like spell it out what do you think is the worst case scenario I think the worst case scenario well there's a lot of worst case scenarios but I worry about

that we're not taking the time that we have to look at these problems and deal with them in sort of a sensible and organized way the good news about this is that we are seeing signals that give us warnings that should say maybe we shouldn't totally build in these areas or we should build more responsibly maybe we should expand the housing stock and slightly safer zones slightly safer areas of the country build in different ways because once you build it's harder to

“kind of harden then it's easier to build it back better that's why that rebuilding phase is so”

important so I worry that we're just kind of kind of dig our heels in and continue with the same old same old until it's too late and at that point it's you know you're making decisions during a time of evacuation or a time of crisis and so you know you can do things fast cheaper quality you can get two out of three but you can't really get all three at the same time so if you

getting to improve overall and to take steps to make our future safer because the worst case scenario if premiums keep going up people are priced out of homes or they're forced to sell their homes because they're not able to put it can't sell it because it's not insurable and people can't get a mortgage to buy it and most people buy with a mortgage like 92% of people use a mortgage

for their first time home purchase so if you can't get insurance you can't get a mortgage then

you're looking for cash buyers there aren't there are many of those so then how's the sit empty and that can lead people to foreclosure and bankruptcy and that is just a terrible position for lots and lots of people and I don't want I don't want that for people's future I don't want that either and there's only so much we can control of our own situation right it's it's hard to control the extrapolated macro economic dealers and apocalyptic yeah you can only control your own

micro economy you can't control what's happening in the macro economy in the insurance industry writ large so what can I do to protect myself moving forward knowing everything that you laid out you you talked about a generator you know after the fires my husband put together like

this doomsday kit of course but you said it he did it after the fire right so there's a lot of

research on risk psychology of like we're really optimistic generally it's what gets us had a bed in the morning we are living with quite a bit of risk every day so during blue sky days we don't want to think about the gray sky what you can do is understand that that is who we are and spend a little of the time on the kind of boring stuff of understanding where you are and what you have and what you can do during the blue sky time so that you're prepared for the storm so for one we talked about

“reading the insurance policy but also you should have a copy of it not just the paper copy that”

they sent you that's somewhere in your home that is vulnerable to fire and flood you want to have it digitally backed up you can also have all of these important papers you know in ziplock bags in a plastic bin kind of thing but you also want them backed up somewhere in the cloud on a thumb drive right this is super key yeah like your marriage license like your driver's license all just that I didn't have I left with the clothes on my back I didn't take my wallet I didn't take

a license I didn't take any of these documents any of the the least for our office that I needed to then do all of this stuff and I had no idea how important each of those documents would be to get the other document yeah getting a passport without a license is something I don't wish really hard yeah so you want to have all of those documents backed up like I said in the cloud you also want to make sure that copies of prescriptions are in the cloud because a lot of people

don't really understand what their prescriptions are often lifesaving medications particularly if they're elderly no idea what they're actually taking so you want to have a copy of that

“because your pharmacy might have burned down too right so that's really important something”

that people overlook and again it has to be somewhere backed up that it's not going to be just in your home if you're leaving you can have something in your trunk but also make sure you take proper cybersecurity considerations because if you're backing up all of this important sensitive data somewhere you want to make sure that it is protected as well so take some of those keep some of those basics in mind do you have a recommendation for that uh there are different ways

right like you can use a password protector do not use the same password for everything right make sure that it's in some sort of like cloud whether that's an eye cloud or a dropbox or something like that one drive doesn't really matter what it is just make sure that you're not using the same password for everything that's the basics and two factor authentication yeah it doesn't have to get fancy but people have come for me when I said get a digital go back and they're like yeah but

but identity fraud which is a very real thing in the aftermath of these kinds of crises so that is

“important and then we just like there's a special place in hell for people who there is there is”

but there are a lot of them because it's an opportunity there are a lot of them so you know then when you have all of that information the other thing you really should do is take like a digital inventory of the basic things of your home or the most valuable assets that you have in your house because again it might be that you have covered for that and if you do you're going to have to give them an inventory if what was in your home and for many people that's very traumatic

and understandably that's the second trauma of going through and recording it all but you can

do that in advance at least with some of the basics uh jewelry books you know that kind of stuff for me it's books obviously but appliances all of these other things that you're going to look for for payouts so it's important to you that that is such a no brainer just walk through your house

yeah so protect yourself with those things think about where you would go talk to your family about

that because especially with something like a wildfire or an earthquake it doesn't give you a warning like a hurricane does so you want to know like talk to your your kids and your spouse about like if we don't have internet if we don't have cell service like where would we meet where would we go uh who would stay with who would we talk to like these are these are not a basic things that don't cost a lot of money they do take a little bit of time but it's going to make a very meaningful

difference in the aftermath of disaster Jared my husband put together like some starlink thing oh yeah why fine just in case we've gone like yeah way extra change of clothes you know some real basic toiletries like that's you're lucky here in California you have cars you have the trunk of your car you can just keep a little bag in there but people people don't you know I give this talk all the time and sometimes the emergency managers are like doctors and they

“don't even have it for themselves right so it's important for all of us to really take a little”

bit of time to to do those the small things that will just make the the the the reality of

when something like this happens a little bit more comfortable right now it's never fun to

think about the gray skies but they happen they do I'm living proof uh so let's double click again on the question that might be uncomfortable but we are money rehab so we want to know who's gonna pay for this a combination right like we think about insurance companies as the ones that are paying it out but they didn't create this problem insurance is one tool for managing the problem we often have we expect government to come in here but there's all kinds of issues around like

moral hazard right like our electives want to pay you know create funds and they have incentive to do so to create these sort of like state sponsored insurance plans of last resort so you mention like if an insurance company says I'm not covering anymore I'm pulling out of a market often that drives people to kind of bear bones state sponsored plans like fair tax payers and they go or yeah yeah the fair plan a lot of states have versions of this uh Florida is a very

strange market on the east coast obviously pretty legendary with hurricanes that sort of thing so those plans are designed to like bring your house back up to like bear bones livable it's not covering ale it's not covering like anything that was in your home all of that kind of stuff right those are additional costs it's just kind of to protect the housing stock that protects

“property values and it protects tax bases and so that's what kind of feeds into the whole system”

to to make communities viable places and that's why this is kind of a ticking time bomb of like everyone sort of has to pay in a piece of it and then it creates systemic level issues obviously it's affecting homeowners new homeowners existing homeowners you're gonna have to pay out something right like there there's gonna be a very real cost when something happens so that's where having the emergency fund really matters then you want to make sure that you have meaningful insurance so

that insurance comes through and it often does as long as you've purchased the kind of policy that you think you're purchasing that's where reading the fine print comes in handy or using an LLM to at least get started for you but check those hallucinations so make sure that you have meaningful insurance that means what you think it means that will make a big big difference for you because these markets are reasonably viable and there are lots of kinds of new innovations to

try to make them more viable ways to make these these payouts a little easier on everybody so that the market stay there we need these robust private sector markets because otherwise it ends up on

“governments and so those government plans are really important but those are meant to be a last resort”

they're not gonna cover kind of your whole life they're really just the minimum that we need to keep people in their homes to keep the housing stock viable in that community so everyone has like a

little piece of this and then you have like the insurance companies for the insurers and then ultimately

those end up in the markets so all the better that ends up in the market be on the hook I mean isn't this what if they go out of business they are on the hook for some of it but if they go out of business then there's no insurance company and that becomes a major problem so then there's the argument that the companies whose pollution created this mess should be on the hook for it what do you think about that it sounds good right it sounds like a great answer but in legal practice it's really complicated

and then there's also like yes there's the companies that created the pollution or I guess extracted the fossil fuels but then those were used by other companies that were ultimately used by consumers so this is a collective action problem this is an us problem so yeah some of those things are maybe being discussed or we'll have those conversations and we need to have those

about the climate adaptation side which is like well we didn't do it we didn't make a transition

“happen the planet is warming we do have to adapt because for a long time people were only talking”

about like reducing fossil fuels preventing the warming from happening we saw how well that conversation went so people didn't want to talk about adaptation because that would assume that it was going to happen well it's here so we need to talk about the adaptation that's protecting ourselves that's taking back some level of control for making sure that we have a viable future and that we are in a decent financial shape because like you said there's these systemic level things that we

can't really control what we can control is our preparation for these risks and our reaction to them and we can't go back you know we can't we can't go back we can only go forward yep

even though the forward feels uncomfortable at best we talked about worst case scenario for the next

5 to 10 years perhaps we should talk about best case scenario or realistic scenario you know prices are going to go up this is everybody's problem we get that so what is the most likely outcome

“with what we're seeing right now and the overall insurance industry yeah I think we're going to see”

some changes obviously there's a place for regulators the cool thing about the United States in some ways is that every state regulates their own insurance market what that means is you have 50 different experiments happening at the same time for better or worse every state can kind of take on their own way of doing this and hopefully then they can share some best practices so there's a lot of stuff that's happening kind of in the market itself there's things like parametric

insurance so that sounds really fancy but basically what it means is a way to get the money to

people faster so parametric means that there's some predetermined weather event that happens that triggers a payout no need for those adjusters no need to quibble over what happened or did not happen to your property you just get a check faster that sounds really great and we actually saw this happen with Jamaica recently where they had a parametric trigger for a cap bond for the whole country and they got money faster that worked out really well super exciting on the individual level

but that might mean is that some people have a house that was burned to the ground and they get a payout faster and that helps them rebuild great what it also might mean is that the house next door that had zero damage also gets the same check and so that might may or may not actually

“lead to more trust in the system so I think it's important to be aware that there's going to”

need to be a lot of kind of consumer education about what that means and why that's happening especially in our era of lots of misinformation and disinformation and people learning all kinds of you know hearing all kinds of stories it's important to build trust around these things as well in order to make changes but what we definitely know is that we need some of these changes to come through so that we have viable markets so that we get money into families pockets faster after

something happens so when you say the trust needs to be there for somebody who's home might not have burned down let's say or flooded or something and they had the damage and they would get the same amount of somebody next door yeah who was the total loss essentially and so where's where's the breakdown of trust there so that might you know like if you are if you have the that sort of system which we don't really have we've seen small examples of it experiments and like I said

country level but I can picture some influencer saying so and so got a check so and so did they didn't need it this is fraud right that kind of thing so we would need to understand like this is just kind of getting money to everyone in the community it's kind of like what happened with checks during COVID but then we also saw that that could can also lead to inflation so there's a lot of concern there too of just kind of pumping money at the problem leading to more

inflation so you want to be very sensitive in some of these experiments so that we're not just completely you know tipping our systems in ways that we can't totally control other insurance influencers I feel like there should be Spencer Pratt baby it's hard it's hard yeah maybe he's he's working hard on it right he didn't have insurance and that's part of this this is part of what we've seen so much anger out there because either insurance policies were simply too expensive or they were canceled

altogether and you've been in the rooms where this has happened what is it like if somebody is left uninsured for a variety of reasons after disaster they're totally left on their own they're left on their own savings they're left on their own resources so they have to leave that home and anything that went into it it's gone it's foreclosure it's bankruptcy it's living with relatives if you've got them it's moving to a different community we saw this after some of the fires

job if they still have a job you know it really impacts people's lives and so if you don't have

“any emergency savings that's a huge problem some some people have some savings right but then”

they kind of cash out a 401k early to pay for some of these repairs maybe that builds back their house

but then they don't have any retirement savings and they're not going to benefit from that compound

interest over time so you know they might have a house to live in they no longer have a healthy diversified portfolio so very real challenges and no easy story it's a lot of individual stories

“that all kind of come together you know I think about whether it's fire or hurricane have”

seen so often like young couples they've saved up for years they buy a house they're so excited

they finally qualified for that mortgage they've written that big check usually the biggest check

the people are going to write in their lives and you know they start the family and then

“have the baby shower right and then all of it's gone all of that stuff is gone they have to”

pay for it there suddenly maybe back with family or in some sort of crappy rental for a long time and it just sets people back and we're seeing people be set back by all kinds of forces right now so I hope this isn't one of them that's another pressure on families okay so let's move forward not go back Chloe we end all of our episodes by asking all of our guests for a tip that listeners can take straight to the bank you've given us a lot of specific actionable advice that we can take

right now around the insurance can undrum can you give us just one more that homeowners can keep in mind to protect themselves today raise your policy shop around understand what your community is doing what what proposals are being our happening in your community for how this is going to affect you over the next decade know what your risks are and have that go back