Is the world becoming uninsurable?
charleshughsmith.substack.com512 points by spking 6 months ago
512 points by spking 6 months ago
American, living in area prone to natural disasters: "Is the WHOLE WORLD becoming uninsurable?"
The answer is obviously "no" since there are other parts of the world that don't live on a hurricane highway nor build houses made from firewood in an area prone to wildfires.
It’s possible that solve the hurricane problems with proper building regulations and lower the risk of huge wildfires with controlled burning. But the US as always prefers to pretend that there’s nothing to be done when other parts of the world has figured it out.
We have cyclones here similar to the hurricanes in the US and usually it just blows over some trees maybe causes a power outage. The absolute worst I have experienced was 3 days without power. I have never seen a house destroyed by a cyclone here.
As for wildfires, they do unfortunately claim a few houses most years.
Hurricanes are mostly just flood damage in the US, and some wind/debris damage exactly like the blown over trees you mention.
Houses generally aren't destroyed by hurricanes in the sense of "the storm literally ripped them up", they're made uninhabitable by storm surges (flood).
The scary ones are tornados.
And tornados do genuinely fuck shit up. Even in those "enlightened" parts of the world you think have proper building regulations. If you're interested, go look at the recaps of tornado damage where they hit Europe here: https://en.wikipedia.org/wiki/List_of_European_tornadoes_and...
Note the number of homes destroyed and people killed - plenty of both, even in those countries that prefer brick/concrete homes.
Hurricanes throw branches. Tornados throw cars.
Tornadoes are quite a bit less common outside of North America, and especially the US. Some of that comes down to the absence of people in the places where tornadoes occur, so there's no one there to report them.
The Tornado Archive (https://tornadoarchive.com/) has a pretty well executed map to illustrate that. They report that between 2011 and 2021 (just the dates I punched in, so its possible the actual ratio is a bit different from that), the world saw ~20,000 reported tornadoes. North America reported 12,000 of them.
So its not just that Americans maybe don't know how to build tornado resistant structures. Its that the US and Canada's per-capita tornado rate is quite a bit higher than the rest of the world.
Also, the list of tornadoes the GP refers to in Europe are mostly F0-F2 severity. These don't often cause high fatalities and injuries in the US either (on par with what's reported there). The problem is that tornadoes in the US Midwest and Southeast are often in the F3-F5 range, which are much deadlier. An F3 tornado includes winds to 165 mph, which is considered a category 5 in the hurricane scale. They don't last nearly as long, but high intensity tornadoes can cause catastrophic damage in seconds where they hit directly, unless the shelter is literally underground.
The quantity of energy in an F5 tornado is literally on the same scale as a nuclear weapon, albeit delivered more slowly. Given that context, their ability erase towns should not be that surprising. You can't engineer a practical structure capable of withstanding those kinds of forces.
> quantity of energy […] is […] on the same scale as a nuclear weapon
> albeit delivered more slowly.
> those kinds of forces.
Tornados are very powerful, but if you deliver the same amount of energy over a longer time frame, the forces go down accordingly.
On the other hand, tornados do damage on a relatively smaller path. That may mean they’re as destructive as a nuclear bomb, but within a much smaller affected area.
Of course you can. Arcologies! Super practical, compact, safe, efficient! Tornadoes do most of the damage at the bottom, so taller structures gain advantage. If there's a huge mass pushing down on the bottom parts the tornado won't be able to dislodge it.
There's also that, but I didn't go to the effort of investigating the rate of various strengths. I'll bet their data explorer shows that aspect of the phenomenon too.
I suspect that a major factor is that the great plains of North America are at a lower latitude than e.g. the Eurasian steppes, so 1) there are fewer people living there and 2) the confluence of meteorological circumstances needed to generate a lot of tornadoes (and therefore a larger population of very destructive tornadoes) just aren't present anywhere else in the world.
This whole line of reasoning "Americans must be bad at house construction, look at all the destruction wrought by hurricanes/tornadoes/etc" just feels disingenuous to me. Like observing "look at how much better the British are at building volcano/earthquake proof buildings, you never hear about people losing their houses to lave in the UK!".
> 2) the confluence of meteorological circumstances needed to generate a lot of tornadoes (and therefore a larger population of very destructive tornadoes) just aren't present anywhere else in the world.
This is in fact a huge part of our tornado risk in the US. The long north-south region of mountainous/high elevation (i.e. the rockies) going into a large low elevation flat region, helps create the 'layering' of different air temperatures that cause tornadoes once the current changes enough for the top/bottom layer to turn into a column.
> Hurricanes are mostly just flood damage in the US, and some wind/debris damage exactly like the blown over trees you mention.
The insurance companies have done research on the topic (including building giant 'labs' with a large number of fans)
* https://fortifiedhome.org/research/
and have developed standards/techniques that home builders/owners can do to fix a bunch of problems, starting with roofing:
* https://fortifiedhome.org/wp-content/uploads/2020-FORTIFIED-...
Tornados might be more intense but only for a short period of time and in a small area. I don't see any of those where the tornado is lasting days, causing sustained damage. There are some where there are multiple tornadoes in a span, but each individual tornado is itself quick and violent but localized within a mile or so at most.
Compare some incidents with, Hurricane Sandy, for example, where it traveled across the span of a thousand miles and lasted a week of damages.
Yes.
Tornadoes seem like a phenomenon for which insurance is actually a pretty good part of the solution. I mean, it is very unlikely for anything in particular to get hit by a tornado, but it is really devastating. It might take an unreasonable amount of work to build everything to the level where it can sustain a direct hit by a tornado. The expected value of tornado damage is quite low overall, we just need to deal with the individual catastrophes that occur.
Hurricanes… I mean, there are different sized hurricanes in different areas. For the ones that hit Florida, part of the solution is probably legitimately that we should have fewer people living there, because there’s going to be a widespread devastation there occasionally. And if you live in a hurricane-prone area, you are going to get hit by one eventually. (So like what’s the bet here? The insurance company knows they’ll probably have to pay out eventually).
Just to put a number to it, 2024 was apparently an unusually busy year for tornadoes, around $6B. That isn’t nothing! But one single hurricane cost $7B in 2024… and there was a $34B one… and a $79B one… who’s insuring the southern coast of the US? Seems rough.
You can build houses which are much less likely to be seriously damaged in a hurricane. Some more ambitious designs are virtually hurricane proof. You never see high rises knocked over by a hurricane, for instance. Because they are (mostly) built correctly. Otherwise downtown areas in the entire Gulf Coast, Mid-Altantic, would simply not have existed for more than a few decades.
The same goes for floods. Most of the problem with floods, is that the house frame and flooring are made of wood. And wood rots. If you live in a flood prone area, the first floor at least, should be brick or stone for just about everything. Yes its expensive. But so is is $800/month flood insurance. Or having the federal government bail you out and passing the cost on to the taxpayer
But building things correctly is more expensive, and Americans love their cheap McMansions.
Also, on an individual level there is less incentive to build correctly, because you will almost certainly not get a discount on insurance. 99% of the population is at the whim of either buying a used house, or whatever the builder's models are for new construction. Its really only possible if you are very wealthy and build your own house on your own plot.
Tokyo and much of Japan have huge expensive drainage systems to prevent their cities from flooding during the storms they have. China is in the same region and doesn’t have that infrastructure yet, so you’ll still see cities like Wuhan flood every few years. It’s a good bet that China will eventually invest in these systems like Japan has, as it matches their development model fairly well.
I’m not sure how Florida or Louisiana would deal with flooding though, they simply have nowhere for the water to go. They would have to basically pump and store it above ground somehow. It might make sense to re-level their cities with an artificial ground level a few stories above sea level.
The most impressive aspect of the Tokyo system is not the size (largest in the world), but the willingness to spend money on it. From start to finish it took less than 15 years. Chicago’s system, just as ambitious in size, is still going despite construction starting in the mid 1970s. Although to be fair, it is “complete” and operating but with reduced holding capacity: they are waiting for a handful of stone quarries away from the city to reach their end-of-life so they can dig the tunnels to them and use them for stormwater holding.
But the problem, now that these giant things exist, is that they aren’t the panacea they were thought to be. Large storms of today’s era are dumping too much water in too short an amount of time. You just can’t build big enough.
tornadoes and hail are actually a big driver of property insurance rates. they typically aren’t catastrophic but the frequency is increasing quickly and they do cause an aggregation of claims.
If you have to be inside one, pick a hurricane. But tornadoes are so much smaller. This list is like... 10-20 per year with an average of less than 1 casualty and a dozen houses damaged? That's basically zero as far as insurance and habitability go. I found a study titled "Tornadoes in Europe An Underestimated Threat" and it has an estimate of 10-50 million euros per year in total damage. That's not even 1 euro per house in Europe.
Let's not be silly here. European tornadoes are not taking apart houses to the foundations. Ripping off roofs or flipping over cars or even when trees are falling on a tourist tent and killing them in process has nothing to do with how houses are built in USA and nowadays even in UK and elsewhere.
I think the implication is that this is due to differing building codes. Europe builds houses with brick and concrete, that aren't so easily torn apart. That the difference is in housing quality, not in the weather.
Frankly, I think it's about half to both factors.
The real problem is that we're politically/socially unwilling to transfer the risk to the people who are responsible for creating it: Wealthy coastal landowners believe that the cost of home insurance should be about $2000/year. If their properties actually cost $200,000 per year to insure, then that's what they should have to pay! If they don't like it, they should either build something cheaper (that's the other half of the product) or move to somewhere with less risk.
Tornados are almost the perfect example of an insurable hazard: Very low probability, very high damage, very widely distributed across the affected areas:
https://mrcc.purdue.edu/gismaps/cntytorn#
Click around that neat interactive map, you'll see that the tornado is typically a few miles long and a few hundred yards wide, there are a few thousand severe tornadoes scattered all over the Midwest and somewhat fewer on the east coast in the past 70 years. It's not feasible to build houses everywhere that will stand up to an F5 tornado throwing cars. But they only cause a total loss of a tiny fraction of all houses in the country, and there are relatively few choices anyone east of Texas can make that would meaningfully impact their risk.
You could price insurance premiums at the risk of a tornado times the cost of the insured assets, plus a 10% administrative fee/profit margin, and those rates would be affordable. Maybe a handful of people would choose to live in Colorado instead of a few hundred miles east in Kansas because the cost of this 'tornado insurance' was higher in Kansas, but even in Tornado Alley it wouldn't be unaffordable.
Conversely, if you look at the hurricane incidence and storm surge risk map:
https://coast.noaa.gov/hurricanes/#map=4/32/-80
https://experience.arcgis.com/experience/203f772571cb48b1b8b...
and population density along the gulf coast:
https://luminocity3d.org/WorldPopDen/#7/28.541/-88.011
It's clear that people are choosing to build houses in the narrow strip of low-lying land that's right along the coast and vulnerable to high-probability storm surges! If insurance was priced at cost of assets + administration times risk of loss, it would be really, really expensive.
> If their properties actually cost $200,000 per year to insure, then that's what they should have to pay! If they don't like it, they should either build something cheaper (that's the other half of the product) or move to somewhere with less risk.
Or build something adapted to the risk it faces. In my home town there are houses that were built on flood plains that have recently been flooding every 5 years or so. Luckily they are brick and in order to get these covered you now need to install flood barriers over the doors, and your ground floor has to be adapted to flood without sustaining damage (tile floors, special plaster etc.)
Now when we have a severe flood warning people will move their valuables upstairs if they're house floods they just have to clean out the mud. There are also a couple new houses right next to the river that float and rise and fall on stilts when the banks burst.
I think most people would go for adapting their designs, but insurance companies would have to make that offer first since they ultimately decide which designs are insurable for which amounts.
> we're politically/socially unwilling to transfer the risk to the people who are responsible for creating it
This is important. Insurance was invented 2000+ years ago but aggressively deploying technology that worsens floods, weather, and fires is only around ~100.
The real issue is global warming causing an exponential rise in tail risk events. It's exponential because even a linear shift in temperature causes an exponential rise at the tails (look at how a normal distribution works).
Insurance is based on statistics. The math they use assumes stationary distributions. Insurance companies can't deal with shifting distributions well so they take the losses and then exit markets.
Global warming is going to mess up insurance as we know it for that reason. Not sure property insurance, but all kinds of insurance.
This is mostly a probability nitpick:
Most disasters follow power laws and other fat tail which don't have the same effects in the tail as a Gaussian. If you shift 1/x^a by c, you "only" get a polynomial increase.
But also, if you shift the mean of a Gaussian, the increase isn't exponential, it's super exponential (e^(x^2) to be specific).
> Insurance is based on statistics. The math they use assumes stationary distributions. Insurance companies can't deal with shifting distributions well so they take the losses and then exit markets.
Sure they can, that's why they hire statisticians. They routinely deal with insurance of much rarer events where we have much worse models than climate change. They're just banned from charging the actual rates, because it's politically unacceptable.
They exit markets due to regulations banning them from charging the true cost of risk. Large insurance companies don’t just go broke. They have re-insurance that caps their losses. It’s becoming far more difficult to get reinsurance and the premium caps make reinsurance unaffordable for the insurance company so they leave. The business model is managing the money - they don’t much care about the claim losses over the long term and taking 1 percent of rising premiums to be a manager is a solid business model.
> The real problem is that we're politically/socially unwilling to transfer the risk to the people who are responsible for creating it
A lot of the responsibility falls upon governments who are lobbied by developers to zone areas for development that should never have been zoned for development in the first place.
And a lot of the responsibility falls upon the developers that lobby the government for ~. They're not little children begging an adult for something bad for them, where it's the adult that should have known better. They're adults actively seeking out a deal that profits them at expense of people.
I talked to somebody who owned a beach house in South Carolina about 5 years ago and if he wanted flood insurance it would cost $5,000 / month.
How much was the house worth?
It was a 50 year old house. Land probably worth more than the house itself.
The 2024 hurricane season damage totaled $128.072 billion.
I couldn't find data for tornadoes in aggregate, only individual storms.
> Economically, tornadoes cause about a tenth as much damage per year, on average, as hurricanes. Hurricanes tend to cause much more overall destruction than tornadoes because of their much larger size, longer duration and their greater variety of ways to damage property. The destructive core in hurricanes can be tens of miles across, last many hours and damage structures through storm surge and rainfall-caused flooding, as well as from wind. Tornadoes, in contrast, tend to be a few hundred yards in diameter, last for minutes and primarily cause damage from their extreme winds
https://www.americangeosciences.org/critical-issues/faq/how-...
Tornados are indeed scary. I have seen a house cut in half like a knife by one. You could see the doors ripped off the medicine cabinet on the second floor and meds still on the shelf.
But tornados are also significantly smaller. A hurricane will damage a thousand square miles while a hurricane will mess up 50. It’s not quite right but the proportions are in that ballpark.
the US would avoid flood damage if they just built apartment buildings. Asian apartments towers are immune to flooding because they allocate the ground floor to parking. Can't blow the roof off a square concrete building either.
Ofc, a sufficiently strong Tornado is destroying everything in its wake. But, they're rare in comparison.
>the US would avoid flood damage if they just built apartment buildings.
What do you mean by this?
You missed the next sentence.
> [...] immune to flooding because they allocate the ground floor to parking.
Hurricanes cause tornadoes.
My family lives in Vero Beach and their house and entire street got hit by a tornado.
Vero was hit by 6 during the last hurricane.
As the governments in the US get increasingly incompetent, insurance prices are going to have to rise. Government services are largely there to protect you during black swan events, so if those services get less and less effective, you're going to need more insurance for those events.
This was the whole issue. California made it illegal for insurance companies to raise rates, so the insurance companies stop renewals. Leaving everybody uninsured. Homeowners couldn't buy insurance at any price.
Public insurance. For housing, healthcare, maybe even cars (since the coprorate political complex insists that we HAVE to drive everywhere). At some point, we have to accept that the middlemen are siphoning value, not providing any. Vanguard it and let elected admins set the codes.
> Public insurance. For housing
This is California’s FAIR plan [1]. It’s a wealth transfer from non-homeowners to homeowners, homeowners in low-risk areas to high-risk homeowners, and from low-value homeowners to rich ones.
That was one (corrupt) option. Another would have been to draw funds by taxing homeowners, specifically, and limiting payouts by fire risk, capping at a mean replacement cost, not per-house. That that's not what happened is an issue with the implementation, not the base concept.
> draw funds by taxing homeowners, specifically, and limiting payouts by fire risk, capping at a mean replacement cost, not per-house
This almost seems designed to maximise fury. You're still taxing low-risk homeowners to pay for high-risk damages. And when a catastrophe hits, you aren't paying enough to rebuild (or avoid bankruptcy, in which case you're just routing taxpayer funds to creditors). Add to that you've branded it a tax increase it's almost something the GOP would run as a false flag against a Democrat.
Also seems very likely to cause a financial crisis that the rest of America will end up paying for anyway. If you don't pay out enough to rebuild that particular lot, then the likely outcome will be an empty lot with a burned out husk on it. In most cases, this is worth considerably less than the remaining value of the mortgage. The homeowner then walks away from the mortgage, leaving the bank holding the bag. The bank has socialized this risk by selling the mortgage as an MBS that is sitting in somebody's money-market account. Cue 2008.
Isn't this thing going to be subsidized by taxpayers in the end anyway?
California already a dumb communal insurance thing, the "California FAIR Plan" for people who can't get insurance due to high risk. They force insurance companies who operate in the state to fund it. So basically everyone has to subsidize the high-risk people... but then the insurance companies leave.
https://www.cbsnews.com/sanfrancisco/news/california-fair-pl...
As someone who's home insurer pulled out of California and so I had to scramble to find another carrier, I looked at the FAIR plan and it is completely untenable for most people. My insurance was already high, ~$2000/year for coverage that would rebuild our house, and under FAIR it would have gone up to $12000/year.
I mostly agree with the article that insurance is grounded in statistical measures of risk and there's no point railing against it. Norms are going to have to adapt to increased risk and how we build homes and infrastructure needs to shift away from short-term, low-cost thinking to longer-term solutions with a higher-upfront cost and lower TCO given the new constraints. Things like burying power lines, aggressively managing fire danger, and homes that are built to be more sound to natural disasters have to become the status quo.
Most of these things are already possible today. In my neighborhood, PG&E did an assessment and it would cost every homeowner on the street ~$25,000 to have the power lines buried. I would have opened my wallet immediately to reduce the fire risk, but it got caught up in politics and policy. When we had some renovation on our house, my wife and I insisted on some of the work being done in ways that would make the house safer and easier to maintain over the long work. The contractor balked at first saying it would cost us an extra couple of thousand dollars. I had to point out that an extra $3000 to make sure things lasted an extra 5 - 10 years and was easier to maintain and upgrade meant nothing. But people have to insist on doing better because right now the norm is to cut corners on everything to save in many cases a negligible amount of money over the life of the work or against the cost if there is a disaster.
The building codes will need to reflect the new normal. Defensible perimeters, metal roofs and masonry or cementitious exteriors are a must for many areas going forward. Log cabins amongst the pines just aren't tenable in the West any more.
You say that... but a well built log cabin, with a Class A fire resistant roof, is rather likely to survive a wildfire unbothered if the ground a couple feet around it is kept cleared.
They're simple (not a lot of corners for burning things to wedge in), they tend very well sealed with smaller windows (so less chance of a window breaking and allowing embers in), and the amount of thermal energy it takes to light a full log on fire is quite high. Radiant heat from a forest fire isn't going to bother a log cabin. It might darken the wood somewhat, but it won't light smooth logs on fire. Even random firebrands and such lack the energy to bother wood.
The only concern would be a shake roof - that would catch fire easily and burn the place down. But a well built and "tight" roof (no massive eaves with vents into an attic, just minimal overhangs) of Class A fire resistance would work just fine.
Metal roofing is not inherently fire resistant, either - it depends on the materials, and what's below it. Some metal roofing can transfer enough heat to the wood below to light that on fire, even without direct flame spread. And, non-intuitively, a lot of asphalt shingles are Class A fire resistant when properly installed.
What doesn't work well, obviously, are the sort of expensive homes with "all the architectural features," lots of inside corners that trap debris, and an incredibly complex roofline.