Throughout the country, homeowners are assessing how they can afford the rising cost of insurance, especially if they live in areas that are prone to natural disasters like the West Coast, with its increasing frequency of wildfires and mudslides, and the East Coast, with its increasing frequency of hurricanes.
Residents like Kaye Steinsapir, grappling with the loss of their homes and communities, face a daunting insurance process filled with confusing terminology and frustrating delays. At the same time, insurers cite rising costs and limited coverage options, caught between financial pressures and policyholder needs. In this system, can both sides ever find a fair and sustainable solution?
00:00 - Introduction: The Rising Cost of Insurance
01:23 - Factors Driving Up Insurance Premiums
03:57 - How Insurance Companies Are Responding to Increased Risk
05:18 - Understanding Reinsurance: Insurance for Insurers
07:44 - The Human Cost: Navigating Crisis and Insurance Complexities
09:11 - A Personal Wildfire Story: Evacuation and Uncertainty
11:57 - Challenges in the Aftermath: Claims and Coverage Gaps
13:03 - State-Run Fair Plans and the "Standing Home" Inventory Nightmare
16:00 - Protecting Yourself: Understanding Your Policy Before Disaster Strikes
17:06 - Holding Insurers Accountable & The Industry Perspective
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Residents like Kaye Steinsapir, grappling with the loss of their homes and communities, face a daunting insurance process filled with confusing terminology and frustrating delays. At the same time, insurers cite rising costs and limited coverage options, caught between financial pressures and policyholder needs. In this system, can both sides ever find a fair and sustainable solution?
00:00 - Introduction: The Rising Cost of Insurance
01:23 - Factors Driving Up Insurance Premiums
03:57 - How Insurance Companies Are Responding to Increased Risk
05:18 - Understanding Reinsurance: Insurance for Insurers
07:44 - The Human Cost: Navigating Crisis and Insurance Complexities
09:11 - A Personal Wildfire Story: Evacuation and Uncertainty
11:57 - Challenges in the Aftermath: Claims and Coverage Gaps
13:03 - State-Run Fair Plans and the "Standing Home" Inventory Nightmare
16:00 - Protecting Yourself: Understanding Your Policy Before Disaster Strikes
17:06 - Holding Insurers Accountable & The Industry Perspective
Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1
Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:
https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript
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LearningTranscript
00:00So today we're seeing a lot of activity on the street, a lot more than I've seen any of the
00:07other times I've been here since the fire. In the past, I've seen like, you know, one or two other
00:12people out here, a lot of neighbors sifting through their debris. But today we see a lot
00:19of people clearing lots. We do see some people out here. You can see across the street, that's
00:26a neighbor sifting through his debris. Yep, he's looking through. He's got people out there
00:33in hazmat suits with him, and he's looking for anything that might be salvageable in there.
00:39Kay Stein-Zapier is one of the thousands of people in the Pacific Palisades who are still
00:44assessing how much the January wildfires have cost her and her family. While her house is still
00:51standing, it is uninhabitable. And throughout the country, homeowners are assessing how they can
00:57afford the rising cost of insurance, especially if they live in areas that are prone to natural
01:03disasters, like the West Coast, with its increasing frequency of wildfires and mudslides, and the East
01:10Coast, with its increasing frequency of hurricanes. And as you might imagine, these are the parts of
01:16the country that have seen the biggest jumps in insurance premiums recently. But natural disasters
01:24are not the only cause of rising insurance premiums. Economic inflation has increased the cost of the
01:30materials and the labor needed to rebuild a home. And then there's social inflation, which is caused by an
01:38increase in insurance litigation and higher court settlements. And that's driven up the amount of money
01:44that insurers are forced to pay out in claims, which in turn has upped the cost of insurance premiums for
01:50consumers. So between the increasing barrage of catastrophic events and inflation, insurance
01:57companies are feeling the squeeze too. What then is the answer for insurers and homeowners?
02:03The standard insurance market are companies that have their rates approved by the state. So typically,
02:18it's the named companies that everyone knows, Travelers, Hartford, you know, Allstate, State Farm.
02:24They're limited in what they can do. They can ask for rate increases, they can raise deductibles,
02:31they can add to their underwriting guidelines. The other thing that has happened over the years
02:39is they've eliminated certain things. Flood is not covered, you have to buy a separate flood policy.
02:48In California, less than 10% of the homeowners and business owners buy earthquake insurance.
02:56So even if there is an earthquake, the majority of people are not insured for earthquake and earthquake
03:03isn't covered under any of the commercial property or personal property for homeowners or dwelling fire.
03:09In other words, insurance companies hands are tied and they need to calculate if the risk in an area
03:16is worth the investment. Lewis told us that this estimate is called probable maximum loss.
03:22When you have losses like that, insurance companies have multiple insurers that they have to settle
03:30claims for and it brings the claim costs up. I think one of the insurance companies, Travelers,
03:36today in the Wall Street Journal, I believe said that the LA fire is going to cost them at least
03:43$1.3 billion in losses. So that's what catastrophic losses are.
03:52Insurers have the option to turn away new applicants in a state, as State Farm did in 2023 in California,
03:59or they can pull out of the state entirely, which is what Trans-Pacific Insurance did in 2024, also in California.
04:06If we look at insurance, insurance is the transfer of risk. And for an insurance company,
04:15with what's been happening with today's pressures, they're going to be a lot more selective.
04:21And they're going to take a closer look at who they take on as insureds. So there are individuals
04:29that are living in this catastrophe-prone areas, and let's say they still have wood roofs on their homes
04:35or combustible products that are around the property, like they don't clear the dead leaves,
04:40their surrounding brush. An individual like that will be less insurable, less desirable for the
04:48insurance carer to have, as opposed to an individual living in a wildfire-prone area,
04:54who has updated their roof, has replaced the property with non-combustible materials like
05:00stone or concrete, and taking more proactive measures to protect the home. So that's just
05:07one of the many factors that goes into saying, is this person more insurable than another?
05:18So you may be wondering, what happened to all the money you already paid to your insurance company
05:23over the years? Well, inflation increases the cost of your home, the supplies to repair things in
05:29your home, and the labor that would go into fixing it. In addition, insurance companies don't just pay
05:35to repair and replace property, they also pay for temporary housing while assessments and those
05:41repairs are made. And of course, they pay for items like food and clothing. It's important to understand
05:47that the cost of making your home whole again is not the same as what you initially paid for it.
05:53Typically, the house has appreciated in value. To help cover the rising claim costs that insurers need
05:59to pay, insurance companies get what's called reinsurance, which is basically insurance for
06:04insurance companies. Yes, they need coverage too. It's like a safety net that protects insurers from
06:12massive payouts after a huge disaster.
06:15Reinsurers work with the insurance companies to go over what their risk exposures are. They'll look at a
06:26map of where an insurance company's risks are and help them work to get their risk profile so that it's
06:39it's at a point where, in a catastrophic situation, the impact of that catastrophic loss is minimized for the company.
06:49Based on what's happening, of course, the reinsurance companies have gotten stricter and have offered less
06:59capacity to the insurance carriers to protect them. And when the insurance companies prices go up
07:05to pay the reinsurance companies, it's really important that they don't go bankrupt at times of these catastrophic events.
07:13Reinsurance allows an insurer to seed a portion of its risk to another company.
07:22This is often done on a quota basis, meaning the reinsurer takes a predetermined percentage of each
07:28dollar lost.
07:30And this arrangement provides the seeding insurance company with additional capacity to underwrite business.
07:37So while consumers are struggling to get the money they need to rebuild, insurance companies are trying to stay afloat.
07:45As it is with disaster, it's like all of a sudden you have to become an expert in something, right?
07:51So I had to become an expert in breast cancer immediately while I'm going through the trauma of just having been
07:56diagnosed. I had to become an expert in traumatic brain injuries while I'm looking at my 12 year old
08:01child unconscious in a hospital. And now I've had to become an expert in fire hardening and insurance
08:09issues while my community has been burned to the ground. And while I have to find a new school for my
08:15son and a new place to live and everything is upended, I need to also learn all of these things. And that's
08:23very hard for people to do.
08:27We need government leaders who will fight for us and who will hold these insurers accountable because they're not going to do it
08:33voluntarily.
08:45This struggle between insurers and individuals isn't just about finances.
08:50It's also about people trying to pick up the pieces of a shattered life.
08:55And when people have just lost their homes, when they're in shock and grieving,
09:00they don't want to hear about why their insurance policy doesn't cover their needs.
09:06Kay Stein-Sapir's story is a visceral illustration of this struggle.
09:10So the day of the fires was an unusual morning for us. I had taken my younger son to school,
09:19which has now burnt down. But it was unusual in that I had taken my older son to a school interview
09:26in another part of town. So we were driving back and we saw the smoke. I was thinking,
09:32this is a brush fire in the Highlands, which is not uncommon for us. And that, you know, not because
09:41it was an emergency, but because the air quality might be poor, that it might make sense to pick
09:46him up early. So I did. I went to the school and there were like two other parents and they're picking
09:52up as well, including my neighbor across the street. We went home and my neighbor, who also picked
10:01her kids up, she said, we're going to leave. And I said, yeah, that makes sense. You know, we should
10:05probably go as well. And so we packed an overnight bag, just basics like thinking we were going to be
10:13away for one night. And as we were leaving, we could see more of our neighbors were also
10:22packing up and heading out. And just to get from our house down the street to where the elementary
10:28school is, which is about a five minute walk, if that, took like 45 minutes to get down the hill,
10:34because everyone was starting to leave and starting to get very nervous. From there, Kay and her family
10:41got to safety while they learned through social media and group texts that their neighborhood was
10:47burning down. So what they thought was going to be a one or two night stay in a hotel turned into an
10:54extended saga of transience and paperwork as they moved from one temporary housing situation to another.
11:00But Kay is more familiar with the ins and outs of insurance than most people. As a seasoned attorney,
11:08she not only has years of professional experience dealing with companies and arduous paperwork,
11:12she also has years of personal experience dealing with insurers and hardship as a cancer survivor and as a
11:20mother of a daughter who died tragically young in a bicycling accident several years ago.
11:25It is a process that wears you down when you're already in trauma and in grief and in pain and
11:40you are kind of hanging on by a thread and all of a sudden you're thrust into this world where
11:48you have to speak a new language, you have to understand their terminology, they speak to you as if
11:54you should know what their acronyms mean or what they're talking about.
11:58According to Kay, a number of her neighbors were not covered by insurance when the fire happened,
12:03primarily because a few insurance companies had already pulled out of the state
12:08and these neighbors had not yet found replacement insurance before the wildfire started.
12:13So my experience with my insurance company, I think, has been better than most of my friends and
12:20neighbors. And even with a better experience, it's still an extremely challenging experience. I have had,
12:27I think, four or five different adjusters since the beginning of the process. So every time you change
12:33adjusters, you have to explain everything to them and you get different, you know, answers and information.
12:40So it still hasn't been easy by any means. In terms of, you know, kind of the broader groups,
12:48it's standing homes versus not standing. You know, I think about 75% are in the not standing category.
12:55So we're kind of divided that way. And then we're also divided by insurance companies
12:59and, you know, whether we had insurance or not. Unfortunately, the situation is becoming
13:06increasingly common in disaster-prone areas. So in cases where insurers have pulled out of the state,
13:13some states have set up FAIR plans, which stands for Fair Access to Insurance Requirements.
13:20These state-run plans offer limited coverage, but they serve as a last resort insurance option
13:25for homeowners who've been denied coverage from private companies. Fair plans are financed by a
13:31group of private insurance companies so that no one company assumes all the risk.
13:37In January, the California Fair Plan stated that approximately 22% of the structures
13:43in the Pacific Palisades were covered by the plan, which translated to a potential exposure of more
13:50than $4 billion. If we just take a picture of this house here, it looks okay if we just focus here.
13:59If we go into a wider shot of what is around it, like this house right next door or across the street,
14:08all of this burn, then you come to understand that the person who has that house cannot live there
14:16either. Their house has definitely sustained a lot of smoke damage. They probably don't have water and
14:24power still. And as this whole area is leveled and then rebuilt, it's going to be very difficult
14:34for the person in this house to live through all of that.
14:48The people with the standing homes have the challenges of having to inventory all of their
14:55contents. So if your house burned down, they are going to pay you out 80% or potentially 100%
15:03of your contents portion of your policy. In my case, and in the case of anyone else with a standing
15:09home, you have to inventory everything in your house, every article of clothing, every item,
15:15that every possession you have in order to be reimbursed. And when you are reimbursed, it is,
15:22you know, a process of negotiation with them.
15:27According to Kay, the adjusters usually come in with low estimates for your belongings and adjust
15:35for depreciation, which makes the potential payout smaller. So even if someone had just purchased
15:41their home, the payout for its contents wouldn't equal their original value.
15:46And when you think about all the things that you have, and some things are incalculable,
15:53you know, you can't assign a value to them, but you have to try. So it's very daunting for people.
16:01So how can you protect yourself?
16:04We must be vigilant in reviewing those insurance policies, making sure we understand them.
16:10If you need help, go to the Department of Insurance. They're quite helpful. I took my policy to them.
16:16You think about your insurance as something to check off a box to
16:19get approval from your lender or your mortgage, right? But when you actually have disaster,
16:25you see how it works or how it doesn't work.
16:30I'm just as guilty of this. And I know that I can't be. It's every year when that renewal comes out,
16:37it's taking the time to sit with your insurance advisor or if you're working directly with an
16:42insurance company and think about how your life has changed from year to year. And how should my
16:47insurance program be evolving with me? As opposed to, I don't want to tell them that Johnny's driving
16:53now because I don't want the insurance to go up. But if something happens, you won't have coverage.
16:58And I just wish all of us could think less about price, more about what is it doing for the problems
17:04I specifically have.
17:05So don't wait to start doing that when an accident or disaster has happened. There are a lot of things
17:13you can do that don't cost a ton of money to keep your house safer.
17:26You've got people who have a total loss, who have a policy that's just not being paid out because their
17:32insurance companies decided that they're going to hold on to a big chunk of their money or they're
17:37requiring them to itemize every item in a burnt out property, even though that's against the law.
17:43Major insurers are doing that to people. This is why people distrust and dislike the insurance industry.
17:51They're not doing what they say in those ads.
17:54Everyone that I've known in the business is trying to do the best job they can possibly do.
18:03They're trying to settle the claims in accordance with the policy that someone bought and keep it
18:11within the framework of the coverages that are there. So a lot of times, you know, the claims
18:17professionals say, well, this isn't covered and they they explain why it's not covered and show them the section of the policy.
18:26You know, people don't want to hear that, you know, so it they get a bad a bad rap
18:33because the perception is we've all paid a lot of money to insurance companies and they don't pay claims.
18:39Well, travelers is going to pay 1.3 billion just in California for claims.