Cl Climate-exposed coastal real estate Loading... : Investor Sentiment and Bull/Bear Views

Property in climate-sensitive zones on the California and Florida coasts is still priced as if the chance of a total loss were one in a thousand years, while catastrophe models now imply something closer to one in twenty. State insurance commissioners cap what carriers may charge, so instead of repricing, carriers exit: State Farm cancelled 1,600 Palisades fire policies months before the fire, and carriers have been pulling out of California, Tahoe and wine country. The state's own FAIR plan has roughly $120 million of capital plus about $5 billion of reinsurance against roughly $6 billion of exposure in Pacific Palisades alone, so it is effectively bankrupt. Suppressed insurance costs have artificially propped up real-estate values; the cost of the higher loss probability must ultimately be eaten by homeowners through write-downs, by insurers, or by taxpayers via a state or federal bailout, and he expects taxpayer backlash and legislative change once the bill comes due.