WEBVTT - Why Home Insurance Markets in California and Florida Imploded 0:00:02.440 --> 0:00:13.360 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.000 --> 0:00:21.920 Hello and welcome to another episode of the Odd Lots Podcast. 0:00:22.000 --> 0:00:24.360 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:24.640 --> 0:00:27.319 Tracy, it's funny that, like in all the coverage of 0:00:27.400 --> 0:00:30.480 finance generally, you know, we talk about banking, we talk 0:00:30.520 --> 0:00:34.199 about brokerage, we talk about deals, there's not a lot 0:00:34.240 --> 0:00:35.320 of talk about insurance. 0:00:35.479 --> 0:00:37.800 I know, it's so weird. I feel like it's kind 0:00:37.800 --> 0:00:40.560 of a blind spot for financial journalism. And I'm sure 0:00:40.600 --> 0:00:43.920 I'm gonna get a lot of tweets and emails from 0:00:44.320 --> 0:00:51.240 dedicated insurance correspond yes, but there should be more of them. Yes, 0:00:51.360 --> 0:00:54.840 that's basically what we're saying. It's a huge pool of capital, 0:00:55.360 --> 0:00:59.160 and also it has real life consequences, right, I think 0:00:59.160 --> 0:01:02.279 those aren't discussed enough. Like there's a sort of feedback 0:01:02.280 --> 0:01:06.680 loop where insurers are often deciding what is economically acceptable 0:01:07.080 --> 0:01:11.040 in terms of risk, and so their decisions have actual 0:01:11.120 --> 0:01:14.120 impact on you know, people's lives and the way we 0:01:14.200 --> 0:01:16.720 behave where we live. Things like that. 0:01:17.200 --> 0:01:22.480 It's interesting to think about, like the similarities between insurance 0:01:22.600 --> 0:01:27.920 and deposit banking, because both industries are basically, I give 0:01:28.000 --> 0:01:31.400 an institution an amount of money, and I expect at 0:01:31.400 --> 0:01:33.920 some point to get it all back, and in the 0:01:33.959 --> 0:01:36.720 meantime that company that I gave it to gets to 0:01:36.840 --> 0:01:39.640 lend it out or invest it or something like that. 0:01:39.920 --> 0:01:41.920 The difference is with banking, you sort of like get 0:01:41.959 --> 0:01:45.000 the money back whenever you want it. With insurance, on 0:01:45.040 --> 0:01:45.479 the other. 0:01:45.360 --> 0:01:47.040 Hand, when something bad happens. 0:01:46.959 --> 0:01:50.160 It'll probably happen at some point in your life. You 0:01:50.280 --> 0:01:53.080 just have no idea when it'll unfortunately almost always be 0:01:53.400 --> 0:01:56.360 when a very bad incident that you want to ensure against. 0:01:56.480 --> 0:01:58.600 But yeah, it really is interesting how there's this huge 0:01:58.640 --> 0:02:01.480 thing and as you say, it touches every aspect of 0:02:01.480 --> 0:02:04.800 life in many cases dictates even what people can and 0:02:04.840 --> 0:02:07.480 can't do. But it's like we know so little about 0:02:07.560 --> 0:02:09.560 like there's so little talk about it. 0:02:09.560 --> 0:02:13.919 It's the lesser known supply shock, let's put it that way. Recently, 0:02:13.960 --> 0:02:17.680 we did that episode on the Fed's Preferred measure of inflation, 0:02:17.919 --> 0:02:21.680 and we were talking in that about the insurance component 0:02:21.880 --> 0:02:24.440 and the impact that's been having on the headline number. 0:02:24.760 --> 0:02:28.720 Right, So this is the one aspect of insurance that 0:02:28.880 --> 0:02:31.440 has gotten a fair amount of coverage over the last 0:02:31.480 --> 0:02:35.040 several years, which is that in certain states, particularly California 0:02:35.240 --> 0:02:37.440 and Florida and maybe some others, there have been these 0:02:37.639 --> 0:02:41.440 huge upward shocks to the cost of covering your home. 0:02:41.680 --> 0:02:44.800 We actually talked about this with the Howard Hughes CEO 0:02:45.200 --> 0:02:48.240 last autumn, where he was talking about their insurance surge. 0:02:48.280 --> 0:02:50.440 But I have to say, like, in my head, like 0:02:50.880 --> 0:02:55.919 I still don't totally understand what's driven these huge spikes 0:02:55.960 --> 0:02:59.480 in premiums, particularly for homeowner's insurance. 0:02:59.680 --> 0:03:03.000 So I think what's confusing about this whole discussion is 0:03:03.040 --> 0:03:06.359 you see two very different headlines. So on the inflation side, 0:03:06.480 --> 0:03:09.680 you see things like, oh, the cost of insurance is 0:03:09.760 --> 0:03:14.000 surging in Florida and California, it's unaffordable to live in 0:03:14.040 --> 0:03:17.840 those specific places or specific areas within those states. But 0:03:18.240 --> 0:03:22.120 on the other hand, you also see headlines that say 0:03:22.360 --> 0:03:27.160 things like insurers are sixty percent behind in terms of 0:03:27.200 --> 0:03:30.000 pricing from where they need to be, and insurers say 0:03:30.240 --> 0:03:34.080 the market is uneconomic, they can't make the numbers work, 0:03:34.400 --> 0:03:36.840 And so you're left kind of head scratching, Well, is 0:03:36.920 --> 0:03:40.760 this about insurers trying to cover extra costs? Is it 0:03:40.840 --> 0:03:45.560 price gouging? Is it that there's something fundamentally too risky 0:03:46.040 --> 0:03:50.360 about this particular line of business. Is it political posturing? 0:03:50.440 --> 0:03:53.040 This is the other thing that happens here in California 0:03:53.080 --> 0:03:57.800 and Florida. They have very particular regulatory systems around insurance. 0:03:58.080 --> 0:04:01.880 It's really hard to disentangle it's actually going on completely. 0:04:01.920 --> 0:04:05.240 And there's always this question anytime you see an insurer 0:04:05.400 --> 0:04:08.480 like pull out of a state, like I never understand that, Like, 0:04:08.600 --> 0:04:10.960 why not just price it higher where it's like, oh, 0:04:10.960 --> 0:04:14.119 this is uninsurable. Yeah, no, certainly, like there's some risk 0:04:14.240 --> 0:04:17.279 that someone will desire to be compensated for. But yet 0:04:17.320 --> 0:04:20.640 you see this line uninsurable. I do think obviously, in 0:04:20.720 --> 0:04:24.120 the case of Florida and California, we've seen disasters. Of course, 0:04:24.120 --> 0:04:28.400 we've seen various wildfires over the last several years in California, 0:04:29.080 --> 0:04:31.200 Florida hit by a number of hurricanes, so there's a 0:04:31.200 --> 0:04:34.680 climate change element. But in my mind, I do not 0:04:34.800 --> 0:04:38.320 feel like I understand the whole story of why. At 0:04:38.400 --> 0:04:42.680 least in a handful of states, homeowner insurance premiums have 0:04:42.800 --> 0:04:45.120 spiked at levels that like basically it feels like no 0:04:45.120 --> 0:04:46.359 one has seen before in history. 0:04:46.440 --> 0:04:48.560 Yeah, And at the same time, the insurers say they 0:04:48.800 --> 0:04:51.240 can't make any money. I was just looking at a 0:04:51.240 --> 0:04:55.120 little article from credit site saying that the majority of 0:04:55.200 --> 0:04:59.599 the top twenty underwriters of Californian retail, home and auto 0:04:59.680 --> 0:05:03.960 insurance at this point have either entirely withdrawn or significantly 0:05:04.000 --> 0:05:08.919 curtailed their participation in the state given profitability challenges. So 0:05:08.960 --> 0:05:13.120 there's clearly something going on. The pool of available insurers 0:05:13.160 --> 0:05:16.000 seems to be dwindling. But the question is why. 0:05:16.600 --> 0:05:18.960 Yes, I think we really need to dig into this 0:05:19.040 --> 0:05:23.120 further and get a better handle on like how these markets, 0:05:23.160 --> 0:05:26.240 these heavily regulated markets, but at these markets, how they 0:05:26.560 --> 0:05:30.279 actually work, and how insurers think about managing risk, and 0:05:30.320 --> 0:05:34.360 how prices are determined and how capacity ebbs and flows. 0:05:34.400 --> 0:05:36.440 So time to give it the outlaws treatment. 0:05:36.560 --> 0:05:38.440 Yeah, this is an episode we've been meaning to do 0:05:38.560 --> 0:05:41.640 for a while, and to compensate for not doing it 0:05:41.680 --> 0:05:44.440 for months, we actually have two guests, two perfect guests 0:05:44.440 --> 0:05:44.640 for you. 0:05:44.880 --> 0:05:47.560 So we are going to be speaking with first someone 0:05:47.600 --> 0:05:51.240 who is on the business side of insurance, someone who's 0:05:51.279 --> 0:05:54.760 actually involved in regular operations and can talk about how 0:05:54.760 --> 0:05:57.760 prices are determined and how supply is determined. And then 0:05:57.800 --> 0:05:59.800 we're going to be speaking with someone who has a 0:05:59.839 --> 0:06:03.040 been a deeper understanding of the regulatory side. So we're 0:06:03.080 --> 0:06:05.920 going to first be speaking with Amias Garrity. He is 0:06:05.960 --> 0:06:09.000 a partner at QED Investors. It does a lot of 0:06:09.040 --> 0:06:11.560 fintech investing, and he is on the board of Kin, 0:06:11.720 --> 0:06:15.400 which is a direct household insurance company. So, Amias, thank 0:06:15.440 --> 0:06:16.440 you so much for coming on. 0:06:16.440 --> 0:06:17.760 Odd lots my pleasure. 0:06:18.320 --> 0:06:20.920 Why do you tell us first, like, what do you do, 0:06:21.040 --> 0:06:24.520 what's your background, and what do you do in this 0:06:24.640 --> 0:06:26.400 space of home insurance. 0:06:26.800 --> 0:06:29.360 So I'm on the board of a direct consumer home 0:06:29.400 --> 0:06:33.799 insurance company called Kin, and Kin really focuses on exactly 0:06:33.839 --> 0:06:37.880 this problem of what do we do in catastrophe affected areas? 0:06:37.920 --> 0:06:41.160 What do we do with the incredible change that we're 0:06:41.200 --> 0:06:44.719 dealing with in terms of hurricane and windstorms and ultimately fire. 0:06:45.200 --> 0:06:48.720 What's a direct to consumer insurer? How does that differ 0:06:48.760 --> 0:06:50.480 from a normal insurance model. 0:06:50.839 --> 0:06:53.920 So one of the really important elements of the structure 0:06:53.960 --> 0:06:56.520 of the insurance market is that almost everybody gets their 0:06:56.520 --> 0:07:00.800 insurance through an agent, and it actually really impacts the 0:07:00.880 --> 0:07:06.480 economics of the industry because agents are typically paid commissions 0:07:06.480 --> 0:07:10.560 around fifteen percent, and also because of that, all of 0:07:10.560 --> 0:07:15.280 the insurance company's access to information actually comes through agents. 0:07:15.800 --> 0:07:18.200 So with the Kin model, one of the reasons why 0:07:18.240 --> 0:07:21.360 we think this direct to consumer makes more sense is one, 0:07:21.400 --> 0:07:24.480 you get actually more economics to play with, so you 0:07:24.520 --> 0:07:27.400 can spend that money on data science, you can spend 0:07:27.440 --> 0:07:31.040 that money on aerial photography. And then also because the 0:07:31.200 --> 0:07:35.080 environment is changing so quickly and knowing what's going on 0:07:35.160 --> 0:07:38.920 in a house is so much more knowable now that 0:07:39.040 --> 0:07:42.239 you actually would prefer to get your information through data 0:07:42.240 --> 0:07:45.320 science than through an independent agent, like looking at a 0:07:45.360 --> 0:07:47.440 roof and saying, I don't know, roof looks pretty good. 0:07:47.920 --> 0:07:51.960 So big picture, we've all seen these stories, but oh, 0:07:51.960 --> 0:07:55.400 it's so hard to get insurance in a state like Florida, 0:07:55.560 --> 0:07:59.080 or people seeing their premiums jump thirty five or fifty 0:07:59.160 --> 0:08:02.200 or sixty percent. Just let's start a big picture, like 0:08:02.440 --> 0:08:06.400 how would you describe the problem or just the market 0:08:06.480 --> 0:08:07.880 environment of the last few years. 0:08:08.000 --> 0:08:13.520 Yeah, so the problem is pretty straightforward, which is insurance 0:08:13.600 --> 0:08:16.440 is there to protect people from losses that are gonna 0:08:16.440 --> 0:08:20.560 happen pretty infrequently. But if you just think about the math, right, 0:08:20.920 --> 0:08:24.520 so Hurricane Ian two years ago, right about twenty billion 0:08:24.560 --> 0:08:28.240 dollars of losses, So twenty five thousand claims ish, and 0:08:28.640 --> 0:08:31.600 you know, if that's gonna happen every twenty years, you're 0:08:31.640 --> 0:08:35.560 gonna need to pay just for that one storm probability 0:08:35.760 --> 0:08:36.560 twelve hundred. 0:08:36.360 --> 0:08:40.440 Bucks, okay. And this is twelve hundred bucks a year. 0:08:40.480 --> 0:08:42.120 Twelve hundred bucks a year, okay, Right. 0:08:42.360 --> 0:08:45.800 And so what we're dealing with is a pretty and 0:08:45.840 --> 0:08:48.319 we all know that climate change is real. So if 0:08:48.360 --> 0:08:51.480 you go back in history, typically our last forty years 0:08:51.559 --> 0:08:55.960 or so, they were about eight billion dollar events per year. 0:08:56.320 --> 0:08:59.800 So where the insurance industry deals with a billion dollars 0:09:00.160 --> 0:09:03.080 loss from one event, in the last five years the 0:09:03.080 --> 0:09:06.679 average was sixteen. So the change is real, and the 0:09:06.679 --> 0:09:09.480 cost of insurance is real. But at the same time, 0:09:10.040 --> 0:09:13.000 you know, if you look across you know these markets, 0:09:13.559 --> 0:09:16.720 the costs are going up, but we also have house 0:09:16.760 --> 0:09:19.400 prices going up, we have inflation. So over the last 0:09:19.800 --> 0:09:22.400 ten years, you know, the national data actually only goes 0:09:22.400 --> 0:09:25.960 through twenty one, but the price increase has been a 0:09:26.000 --> 0:09:28.400 little bit higher than inflation, but not a lot higher 0:09:28.440 --> 0:09:31.079 than inflation. And I think this is partly what we're 0:09:31.120 --> 0:09:33.720 all dealing with, is we're coming to grips with a 0:09:33.800 --> 0:09:37.320 bunch of different forces coming and hitting homeowners in exactly 0:09:37.400 --> 0:09:38.600 the same time in the same way. 0:09:39.320 --> 0:09:43.360 Joe, did you know the most expensive hurricane of all 0:09:43.400 --> 0:09:46.040 time was nineteen thirty eight in New England. I can't 0:09:46.080 --> 0:09:49.280 remember if that's inflation adjusted or not. It must be, yeah, 0:09:49.400 --> 0:09:51.559 it must be, and I always that's a good fact 0:09:51.559 --> 0:09:54.200 for Yes, you're welcome. There's a really good book about 0:09:54.240 --> 0:09:57.360 it called Sudden Sea, The Great Hurricane of nineteen thirty eight. 0:09:57.640 --> 0:10:00.360 But okay, wait a second. So whenever we have these 0:10:00.400 --> 0:10:04.640 conversations about insurers, a lot of the numbers here kind 0:10:04.640 --> 0:10:08.120 of blow my mind, because, as Joe just mentioned, we 0:10:08.160 --> 0:10:13.520 talk about insurance premiums going up by sometimes insane amounts. 0:10:13.640 --> 0:10:16.679 I was reading a Bloomberg article that came out recently, 0:10:16.720 --> 0:10:18.400 and it was the owner of a business I think 0:10:18.400 --> 0:10:21.800 in Colorado who was paying forty thousand dollars and his 0:10:21.880 --> 0:10:26.120 insurance premium jumped to four hundred thousand dollars a year, 0:10:26.240 --> 0:10:29.360 and he thought it was a typo initially, and then 0:10:29.400 --> 0:10:34.160 I read analysis from people like the strategists over at 0:10:34.160 --> 0:10:37.079 credit sites, and they say that they think insurers maybe 0:10:37.280 --> 0:10:42.120 sixty percent behind in terms of pricing where they actually 0:10:42.679 --> 0:10:46.479 need to be. And then I look at the numbers 0:10:46.679 --> 0:10:50.480 behind the amount of capital that's actually flowing into the 0:10:50.559 --> 0:10:54.000 insurance industry, where you know, it's not just people paying premiums, 0:10:54.040 --> 0:10:57.559 it's also stock, it's also bonds that are being issued. 0:10:57.720 --> 0:11:01.559 These just seem like insane numbers don't seem to match 0:11:01.679 --> 0:11:03.320 up what is happening here. 0:11:03.679 --> 0:11:08.200 So two things. One is that always the question is 0:11:08.720 --> 0:11:11.520 how do we get this price right? And so a 0:11:11.520 --> 0:11:16.480 lot of times what people feel is I can't get insured, 0:11:17.040 --> 0:11:20.440 But what's actually going economically is I can't get insured. 0:11:20.120 --> 0:11:22.400 At that price right, the price you want right. 0:11:22.280 --> 0:11:24.720 The price that you want. I think there's also some 0:11:24.920 --> 0:11:30.240 dynamics where fire is scarier in a lot of ways 0:11:30.520 --> 0:11:34.400 compared to hurricane and wind. Partly this is a dynamic, 0:11:34.440 --> 0:11:38.000 which is the hurricane increase has been quite extreme but 0:11:38.160 --> 0:11:42.079 also relatively linear, right, so there are more storms, they 0:11:42.160 --> 0:11:44.600 tend to be a little bit more severe, but fire 0:11:44.679 --> 0:11:46.360 has been a little bit more of a tipping point. 0:11:46.400 --> 0:11:49.679 So if you were living in Colorado, you probably didn't 0:11:49.800 --> 0:11:53.400 think about fire risk as like a really important part 0:11:53.480 --> 0:11:56.760 of your home insurance until only last ten or fifteen years. 0:11:57.200 --> 0:11:59.679 So there is a more of a tipping point dynamic 0:11:59.720 --> 0:12:02.800 with fire as compared to hurricane where it's just culturally 0:12:03.120 --> 0:12:05.400 understood that if you live in Florida, you're going to 0:12:05.440 --> 0:12:07.240 deal with hurricanes. If you live in the Carolinas, you're 0:12:07.240 --> 0:12:08.240 going to deal with hurricanes. 0:12:08.960 --> 0:12:12.160 So, just on the pricing point, one thing I wonder 0:12:12.200 --> 0:12:15.079 about all the time is what do the pricing models 0:12:15.200 --> 0:12:18.600 actually look like? And again, that sixty percent estimate that 0:12:18.679 --> 0:12:22.640 I mentioned is based on the actuarial models of insurers, 0:12:22.640 --> 0:12:25.400 like this is what their model says they should be 0:12:25.520 --> 0:12:29.840 charging currently based on I assume forward projections of what 0:12:29.880 --> 0:12:32.360 the weather is going to be. But of course the 0:12:32.440 --> 0:12:35.800 question always is if you're having forward projections, if you're 0:12:35.840 --> 0:12:40.560 forecasting something, I mean insures our for profit enterprises, why 0:12:40.600 --> 0:12:43.920 not say that the risk of catastrophic events is much 0:12:44.000 --> 0:12:47.280 higher and therefore we need to charge this particular amount. 0:12:47.320 --> 0:12:50.360 You're trying to discern the future. It's not like anyone 0:12:50.400 --> 0:12:52.600 is going to be able to say, no, you're wrong. 0:12:53.280 --> 0:12:55.400 Well, first of all, a lot of the price comes 0:12:55.440 --> 0:12:59.760 from the reinsurers, and the reinsurance prices have been increasing, 0:12:59.840 --> 0:13:02.880 but it's been a roller coaster ride. So if you 0:13:03.000 --> 0:13:06.720 look at like a history of reinsurance prices since ninety four, 0:13:06.760 --> 0:13:09.200 so think about Hurricane Andrew as kind of you know, 0:13:09.320 --> 0:13:11.440 for those of us who are gen xers, like this 0:13:11.520 --> 0:13:13.319 is the time in which we started to really think 0:13:13.320 --> 0:13:15.880 about hurricane So you know, early teenage years for me, 0:13:16.920 --> 0:13:22.080 the price shot up post Andrew, then it came down steadily, 0:13:22.679 --> 0:13:26.480 shot up again in Katrina, came down steadily, and then 0:13:26.559 --> 0:13:28.600 in the last five years is shot up again. So 0:13:29.080 --> 0:13:32.680 even though the trend is up, it's very boom and 0:13:32.760 --> 0:13:36.000 bust in terms of reinsurance prices. And that also you 0:13:36.040 --> 0:13:38.960 see the same dynamic with home insurers. And this goes 0:13:39.000 --> 0:13:42.720 back to your earlier question about having an independent agent. 0:13:43.040 --> 0:13:46.560 So if you are an insurance carrier and you think 0:13:46.640 --> 0:13:49.520 you need to raise prices, but one percent of your 0:13:49.559 --> 0:13:55.040 clients are intermediated through an agent, if you're the first 0:13:55.120 --> 0:13:59.920 carrier to raise prices, all of your customers will move. 0:14:00.600 --> 0:14:01.600 Oh, there's a first mover. 0:14:02.000 --> 0:14:06.000 There's a first mover disadvantage. So everybody needs to reprice, 0:14:06.480 --> 0:14:09.720 but they're very afraid of repricing because of the insurance agents. 0:14:09.760 --> 0:14:11.760 And then the last thing, and this is what you 0:14:11.840 --> 0:14:15.040 see happening in the debate in California right now, is 0:14:15.080 --> 0:14:18.320 that in California, until very recently, it was literally not 0:14:18.440 --> 0:14:23.200 allowed to take into account future casts, and so there 0:14:23.240 --> 0:14:26.800 are a bunch of different things going on that make 0:14:26.880 --> 0:14:44.800 that repricing very messy. 0:14:44.920 --> 0:14:47.720 You said, there's not really so much a shortage of 0:14:47.760 --> 0:14:50.560 insurance so much as a shortage of insurance at the 0:14:50.560 --> 0:14:52.880 price that people think they should pay. But we do 0:14:52.920 --> 0:14:55.480 get these stories right of insurancing. We're just out of 0:14:55.520 --> 0:14:58.040 this market, right, And I think we've seen it a 0:14:58.080 --> 0:15:00.840 lot in California. I think Florida is. 0:15:00.960 --> 0:15:02.120 You've seen it in Florida as well. 0:15:02.160 --> 0:15:04.800 So what it goes into that decision where an insurers like, 0:15:04.840 --> 0:15:07.240 we just we're not in this market. Yeah, so because 0:15:07.240 --> 0:15:08.040 that is a real thing. 0:15:08.000 --> 0:15:13.160 Right absolutely, And that too is kind of the fractal 0:15:13.200 --> 0:15:15.600 geometry of the thing. Right. So, at the level of 0:15:15.640 --> 0:15:18.520 your house, you're saying, like, I think this price is crazy. 0:15:18.560 --> 0:15:20.200 I can't get anyone to ensure my house at a 0:15:20.240 --> 0:15:22.240 price that makes sense. And then at the level of 0:15:22.280 --> 0:15:26.480 the state, the insurers are going to the regulators and saying, well, 0:15:26.520 --> 0:15:28.960 if you don't let me raise my prices by x, 0:15:29.240 --> 0:15:31.840 I'm going to pull out entirely. And so what you 0:15:31.920 --> 0:15:35.320 see in these kind of big crackups with large insurers 0:15:35.360 --> 0:15:39.360 pulling out is usually a dialogue or you know, a 0:15:39.440 --> 0:15:42.960 disagreement about the regulatory framework and how quickly they can 0:15:43.040 --> 0:15:43.680 raise prices. 0:15:43.920 --> 0:15:46.120 Oh yeah, there's always a discussion about whether or not 0:15:46.200 --> 0:15:49.640 this is political posturing because they want the actual regulation 0:15:49.840 --> 0:15:55.000 to be changed. But what happens when an area this 0:15:55.080 --> 0:15:58.560 is an extreme statement, but if an area becomes unensurable, 0:15:58.680 --> 0:16:02.320 So if the bulk of insurers decide to move out 0:16:02.360 --> 0:16:07.080 of particular counties in California, things like that, what happens 0:16:07.240 --> 0:16:11.840 to home owners, business owners, car owners totally. 0:16:12.120 --> 0:16:15.320 So in both Florida and California, which are sort of 0:16:15.400 --> 0:16:18.960 the furthest along vanguard states for this kind of catastrophe risk, 0:16:19.440 --> 0:16:22.840 both of those states have public insurers of last resort 0:16:23.160 --> 0:16:27.240 and so they will give you insurance at a price 0:16:27.280 --> 0:16:30.760 that is underwritten by the state. Now, there's complicated rules 0:16:30.800 --> 0:16:33.080 about what the state has to charge, but those get 0:16:33.160 --> 0:16:37.440 very political. And in Florida, for example, this has followed 0:16:37.480 --> 0:16:39.440 a little bit of that same boom and bus cycle 0:16:39.480 --> 0:16:43.640 that we've seen with reinsurance rates. So currently citizens in 0:16:43.680 --> 0:16:46.520 Florida has about one point two million policies. This is 0:16:46.800 --> 0:16:49.920 the this is the state insurer, So the state sponsored 0:16:49.960 --> 0:16:53.280 insurer today has one point two million policies in Florida. 0:16:53.360 --> 0:16:56.320 That's about twenty five percent or more of the state. 0:16:57.200 --> 0:17:01.280 That's actually significantly up from five years ago, almost three 0:17:01.480 --> 0:17:04.479 x up, but it's down from when it's last peaked 0:17:04.560 --> 0:17:08.320 in twenty eleven. So there is this dynamic of waxing 0:17:08.359 --> 0:17:12.560 and waning. What we're seeing in California is just a 0:17:12.600 --> 0:17:15.800 straight upward tick. Now there it's only about three percent 0:17:15.800 --> 0:17:20.040 of the state, but in the counties that are worst off, 0:17:20.200 --> 0:17:21.240 it's about twenty percent. 0:17:21.880 --> 0:17:25.560 In Florida, didn't they start cracking down on the roof 0:17:25.800 --> 0:17:28.920 scandals as well? Wasn't that part of it where these 0:17:29.040 --> 0:17:32.520 roofing frauds were so prevalent that they were actually boosting 0:17:32.560 --> 0:17:34.359 premiums for everyone in the state. 0:17:34.840 --> 0:17:37.280 Yeah, that was a really significant issue. So this issue 0:17:37.320 --> 0:17:41.679 Tracy is called assignment of benefits. Where you could come 0:17:42.000 --> 0:17:45.000 as a roofer. You could come to Tracy's house post 0:17:45.080 --> 0:17:49.080 hurricane and say, hey, I'll take care of this, and 0:17:49.119 --> 0:17:52.680 then you assign your benefit to me, and now I'll 0:17:52.720 --> 0:17:56.240 go deal with the insurance company on your behalf. Now, 0:17:56.280 --> 0:17:59.040 the challenge of this is that there's a bunch of 0:17:59.040 --> 0:18:01.399 different things going on, but one of things had to 0:18:01.440 --> 0:18:04.000 do with what were the terms under which you could litigate, 0:18:04.280 --> 0:18:06.520 what were the terms under which the insurance company had 0:18:06.520 --> 0:18:09.440 to pay the lawyer's fees, and whether assignment of benefits 0:18:09.520 --> 0:18:11.800 was possible. And Florida has done a series of reforms 0:18:11.840 --> 0:18:13.960 to try and pull that in, you know, the other 0:18:14.040 --> 0:18:16.840 piece going back to the direct consumer element here, this 0:18:17.000 --> 0:18:20.479 is also a place where from where we sit, we 0:18:20.520 --> 0:18:23.320 do think there's a ton of opportunity for technology and 0:18:23.359 --> 0:18:26.240 for companies to do better because the reason why there 0:18:26.240 --> 0:18:30.119 was assignment of benefits is because homeowners were frustrated. And 0:18:30.200 --> 0:18:33.399 so like again, after a storm, every single policy holder 0:18:33.440 --> 0:18:35.840 gets a text message and within a couple of days 0:18:35.840 --> 0:18:38.720 we'll do aerial imagery and say, hey, look you might 0:18:38.720 --> 0:18:41.520 have had to evacuate, but here's an aerial image of 0:18:41.560 --> 0:18:44.000 your house. Would you like to start your claim. So 0:18:44.119 --> 0:18:45.679 there's a bunch of things that you can do to 0:18:45.720 --> 0:18:48.160 make the system better. But yeah, there was a pretty 0:18:48.160 --> 0:18:49.359 significant reform effort. 0:18:49.359 --> 0:18:51.359 And so what was the basics of the scam? 0:18:51.400 --> 0:18:54.119 Okay, so the basics of the scam are your house 0:18:54.160 --> 0:18:58.760 is damaged, I'm a roofer instead of you contracting with 0:18:58.880 --> 0:19:02.159 me and then you following up with the insurance company. 0:19:03.040 --> 0:19:06.480 You assign your benefits to me, I do the work. 0:19:06.920 --> 0:19:09.520 You know, maybe the price is the right price, maybe 0:19:09.520 --> 0:19:12.520 it's a much higher price, and then I, with your 0:19:12.640 --> 0:19:17.680 legal rights, sue the insurance company. And in that context, right, 0:19:17.720 --> 0:19:20.520 you've got big players on both sides. There was a 0:19:20.560 --> 0:19:23.439 litigation finance dynamic here. There were hedge funds getting into 0:19:23.480 --> 0:19:28.240 the market to finance lawyers because there were dynamics in 0:19:28.280 --> 0:19:32.440 the Florida market where if there was any settlement at all, 0:19:32.960 --> 0:19:36.520 the insurer had to pay the legal fees. Oh yeah, 0:19:36.600 --> 0:19:38.879 So there was a bunch of incentives built into the 0:19:38.960 --> 0:19:43.720 system that made it very advantageous to sue even if 0:19:44.040 --> 0:19:47.080 you weren't being you know, truthful about the amount of 0:19:47.119 --> 0:19:49.480 cost that it actually took to fix the house. 0:19:49.720 --> 0:19:52.480 My impression was also that in addition to all these 0:19:52.720 --> 0:19:57.560 legal peculiarities that you just described, it was just really common. 0:19:57.720 --> 0:19:59.639 Like you would get a knock on your door and 0:19:59.680 --> 0:20:01.800 it would your roof for going like, hey, do you 0:20:01.840 --> 0:20:04.480 want a new roof? No worries, I'll take care of 0:20:04.520 --> 0:20:06.280 it for you. All you have to do is sign 0:20:06.320 --> 0:20:09.240 away you know the right to file a claim and 0:20:09.280 --> 0:20:10.400 then suit your insurer. 0:20:11.040 --> 0:20:13.840 Yeah, and this goes back to this idea of are 0:20:13.880 --> 0:20:16.080 we using the best in modern technology or not? 0:20:16.320 --> 0:20:16.480 Right. 0:20:16.680 --> 0:20:19.200 If I have an aerial image of your house two 0:20:19.200 --> 0:20:23.119 weeks before the storm and two days after, my ability 0:20:23.160 --> 0:20:25.840 to know whether that's a roofing scam or a proper 0:20:25.880 --> 0:20:28.960 claim goes way way up. If you know, the last 0:20:28.960 --> 0:20:31.119 time I saw your house was an independent insurance agent 0:20:31.200 --> 0:20:33.560 coming to sell you the policy five years ago, it's 0:20:33.600 --> 0:20:36.959 a lot harder to defend against the exact same facts. 0:20:37.359 --> 0:20:40.040 And so there's a lot of room in the insurance 0:20:40.080 --> 0:20:42.720 market for things to get better, in addition to the 0:20:42.760 --> 0:20:45.000 fact that we've got to find ways to get the 0:20:45.119 --> 0:20:47.760 regulations right and ultimately model the climate correctly. 0:20:48.000 --> 0:20:51.040 So something I'm interested in is, you know, Florida in 0:20:51.560 --> 0:20:53.959 many parts of California, I mean actually the whole country, 0:20:54.000 --> 0:20:57.480 but there's two states that have just seen these incredible 0:20:57.600 --> 0:21:00.400 like real estate booms, and Florida's always in a real 0:21:00.480 --> 0:21:03.720 estate boom, but the incredible price, especially over the last 0:21:03.760 --> 0:21:06.640 five years in the post COVID environment. And so you're 0:21:06.680 --> 0:21:10.000 in a situation which maybe like so someone you know 0:21:10.040 --> 0:21:12.359 bought their house in nineteen ninety five, or I don't know, 0:21:12.359 --> 0:21:15.240 two hundred thousand dollars and now it's worth two million 0:21:15.320 --> 0:21:18.320 dollars or something like that. And so the homeowner is 0:21:18.600 --> 0:21:21.760 paying insurance on a two million dollar house even if 0:21:21.880 --> 0:21:24.600 that's right, if it's much bigger, Yeah, that's exactly right. 0:21:24.640 --> 0:21:27.000 And if you think about how much Florida home insurance 0:21:27.000 --> 0:21:29.640 has gone up, yeah, right, if you're a homeowner, what 0:21:29.680 --> 0:21:32.520 you feel is, oh my gosh, Florida home insurance over 0:21:32.520 --> 0:21:34.480 the last three years has gone up nine percent a year. 0:21:35.280 --> 0:21:38.040 But what you don't recognize because you're the homeowner is 0:21:38.200 --> 0:21:40.760 Tampa real estate has gone up ten percent a year. 0:21:41.440 --> 0:21:44.600 Just on this sort of similar point, particularly in the 0:21:44.680 --> 0:21:48.439 sort of inflation that we've seen. I mean, I imagine just 0:21:48.720 --> 0:21:53.320 the cost of repairs, even on a given structure, given 0:21:53.400 --> 0:21:57.000 we know labor shortages and cost shortages, et cetera. Just 0:21:57.080 --> 0:22:00.000 the actual process of putting a roof back on whatever 0:22:00.119 --> 0:22:01.720 must be much more expensive than it used to be. 0:22:01.960 --> 0:22:05.119 Yeah, that's right, and this is part of what disrupts 0:22:05.200 --> 0:22:09.200 the industry. But that should come out in the WAH. Right, 0:22:09.240 --> 0:22:11.560 we see that in the inflation data. We see the 0:22:11.600 --> 0:22:14.840