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Hello and welcome to another episode of the AdLots podcast. I'm Tracy Alloway.
And I'm Joe Wisenthal. Joe, do you like watching the weather?
I can hear the pain in your voice. I was wondering how you're going to start this one.
I hate rain. I hate rain so much. Other than that, I don't know. It's not a big thing for me.
What about you open Connecticut? Is it a bigger deal up there?
I love weather. I am sort of an armchair meteorologist by which I mean I have several
weather apps. I get very excited about thunderstorms and other types of storms.
My husband however does not. He gets extremely anxious whenever there's a forecast of a
severe thunderstorm because inevitably it ends up dumping like two inches of rain where we are
and our basement starts to flood. I've lived in a house that had flood damage. It is extremely
stressful experience to I mean there's just like the the direct issue of like cleaning up
all of the lost damage and then like compensation and damage to the house is probably one of the
more like sort of like stressful things a homeowner can deal. Well, you know one of the stressful
things happening right now and we're recording this on let's see September 8th. There's a major
hurricane brewing in the Atlantic right now. Hurricane Lee it exploded from a tropical storm.
I think just two days ago into a category four hurricane. Now it's category five and there's a
lot of deliberation about whether or not it's going to sort of run up the Atlantic coast.
Might even get into New England. So an interesting one to watch.
Yes and I guess I guess by the time people listen to this it'll be resolved but I'm glad
you mentioned that but it's also coming in the context of a time when there is a lot of anxiety
about the property market and insurance and this came up on our recent episode that we did with
Howard Hughes holding CEO. We talked about this huge surge in the cost that the company is
paying for insurance and there have been so many stories about natural disaster prone areas
and homeowners are either just getting staggering sticker shock when it comes to the cost of
homeowners insurance and other property insurance or there's no one at all or you know
companies abandoning markets like Florida like California etc. Absolutely and it's not just
hurricanes and floods of course we've seen wildfire risk of becoming a more major thing particularly
in Hawaii and Maui recently there've been a number of headlines as you just mentioned of certain
insurance companies pulling out of markets all together because they're no longer profitable or in
some cases like Florida they haven't actually been profitable for a very very long time yeah
and insurance premiums are going up all over the United States but it's really interesting if you
look at them on a regional basis I think in Miami the average cost of insurance is something like
five thousand dollars versus less than two thousand dollars for the rest of the US so that gives you
some idea of how this risk is starting to get reprised but it opens up all these interesting
questions about what is going to happen to cities to houses to other buildings that are in these
natural disaster prone areas you know the thinking of things like flood insurance which is already
sort of socialized or the public there's publicly funded there doesn't seem to be a lot of appetite
politically to let property owners sort of completely be without insurance in other words right so
it's like if the if the private market leaves an area you don't really see politicians like okay well
I guess we can't like build here anymore there's usually the government steps in in some way maybe
there's like a state insurer a national insurer in the case of flood but of course this creates its
own issues and that it's sort of another one of these financial services that's like sort of post
market kind of like banking and some respects and so there is a lot going on with this market and
you know obviously comes in the time of other financial tightening financial conditions comes
at so much attention played to climate risk and I think we need to understand more of this area
absolutely it's a complex market it seems to be getting more complex by the day so let's dig into
it I am very pleased to say that we really do have the perfect guest we are going to be speaking with
Melanie Gaul she's the co-director of the Center for Emergency Management and Homeland Security
at Arizona State University she also manages the spatial hazard events and losses database for
the United States something known as Sheldos we're gonna dig into exactly what that is in a few
minutes but Melanie thank you so much for coming on all thoughts thank you so much for having
me so maybe just to begin with can you explain what the co-director of the Center for Emergency
Management and Homeland Security at Arizona State actually does what does that entail so I may be
the kind of person that you don't necessarily directly associate with that kind of you know
leadership position because by training I am a geographer I started out making maps digital maps
and I came into the field of emergency management through a stint that I did in Africa I was actually
in Mozambique and I did training on you know how do you collect data in the field with the GPS
this kind of information and it was after a massive flood event and then I realized oh there's
a great connection between what I was doing geographic information system and emergency
management because you need a lot of logistics support you need to know where your stuff is
where you should set up shelters and alike and that was my route into emergency management
and so what I do here now at Arizona State University I teach obviously we have a master's degree
in an undergrad program in emergency management and Homeland Security and I do numerous research
projects I work with our nonprofit organizations here in Arizona so it's really a broad variety of
things so it's very exciting as a job I have to say you mentioned data collection and of course
you have this database and you know it strikes me that collecting natural disaster data seems
extremely difficult for all kinds of reasons I mean even something as simple as like telling up
the dollar amount spent on recovery strikes difficult and what these trends are and I could
imagine that you could have an increase in dollar amounts for an area and because there's more
disasters or maybe because there's just more building and more people there that could also
cause that and so like disambiguating some of these effects talk to us a little bit about
just the challenge of measurement because if we're going to get into insurance and know like how
much risk is in a given area now that you have to start with like well how much dollar what is the
dollar value of the property in an area so talk to us about the challenges of measuring these types
of things so let me start with telling you a little bit about where we get our data from and then
into the measurement because we are a secondary user of disaster loss information so we get the vast
majority of our data from the National Weather Service or better you know the National Weather Service
feeds the information to the National Centers for Environmental Information NCI and that is where we
get the majority of the data from so it is actually your local forecast office your local meteorologist
that collects that information so it is not an economist or an assessor or anything like this
so it's the local forecast office that collects that information so I came into this arena of
collecting disaster losses way back in the days when I was a PhD student where my professor
had this idea that as a geographer it should be fairly easy to develop profiles for the country you
know how this county A suffer more from hurricane damage than flood damage than county B
and lo and behold there was not really an easily accessible database where you can get this
information and that was the really the starting point for setting up this database so now we
in the business of compiling data that is already assessed from different federal agencies so NCI
is one of our main data sources and then we also use data from the U.S. Geological Survey
especially related to geological hazards earthquake damage volcanic eruption damage tsunamis
because the weather service obviously only collects data related to meteorological and hydrological
events but we are interested in compiling a database that covers all natural hazards so we are
vastly using data and there is only a tiny fraction where we compile our own data and that is
landslide data so landslide data is really not or has not been easily accessible there was a landslide
act passed a few years ago so that now triggered the U.S. Geological Survey to get more serious
about collecting that data and so we decided that we want to include landslide data in our database
and that's where we then started like scouring newspapers a website and we're applying the same
sort of assessment methodology that a weather service is employing because the main users of our data
are local planners hazard mitigation planners and hazard mitigation planners sit in the emergency
management division of your county or of your state and they are actually charged by law they are
not required to compile what is called hazard mitigation plans but they are incentivized to compile
these hazard mitigation plans and in these plans you have to do risk assessments and these risk
assessments need to include a history of past losses and that's then when people tend to come
to us so measuring losses and assessing them goes exactly you know Joe you already mentioned it's
a question of you know how much property do we have in an area and what's the property worth so
there are two types of losses there's what's called direct losses and indirect losses so direct
loss is when you see you know the destruction of a storm or a hurricane like a loss directly tied to
the event that is what we include in our database we only include direct property damage direct crop
damage injuries and fatality so that would be for instance a person you know who got injured or
drowned in a flood or something like that and the indirect losses is for instance when a business
has to shut down for a given time because they can't operate their power is down or something like
that and the indirect losses we do not include in our database so what I'm trying to say is
even what we have in our database is way underestimating really the burden of losses that we have in
the country from natural hazards so I was going to ask what happens when you see I mean you just
gave us a great summary of how tricky it can be to measure some of these costs but what is happening
if you get a wildly different estimate of the cost of a certain disaster and for instance one
thing I read was that I think the ncdc estimates that the damages from hurricane Katrina or something
like 125 billion dollars versus what shell does says at 80 billion what's happening there when
you get a discrepancy like that and does it matter in the real world in terms of contingency planning
so it does to some degree so it matters when you as a community have to justify why you need money
and why you want to invest to reduce the losses so communities have to do cost benefit analysis
to justify why it makes sense to invest maybe you know building a new retention pond or you know
changing their building codes and anything that has a price tag associated with it you know these
communities have to run benefit cost analysis and say what we investing is reducing losses in the
long run and that's where it matters what you can document in terms of past hazards so the discrepancy
in estimates that you just mentioned is really that's our standard business because it is so tricky
to estimate these losses there's the direct there's the indirect losses there's also insured and
uninsured losses so it's always a question of sort of what slice of the pie and how much of the pie
people looking at when they estimate losses and that's also where you see you've probably seen it
many times know what the national oceanagan atmospheric administration they have what is called
billion dollar events they get cited all over and their estimates are always vastly higher than what
we have in our database because they rely heavily on insured data and so insured data is again
different from direct losses what we document and this is where all these discrepancies come from
so in my line of business when it comes to direct losses we tend to be conservative so if we have
competing estimates we use the lower estimate just to be on the safe side of not overestimating losses
but that really just you know might aggravate the problem because we already have an underestimation
problem and then we are conservative but that is the approach we've taken at the start of you
know developing this database well I want to get into you know obviously we want to get into what's
happening right now and what we're seeing in insurance markets but I think just to like before we
get to that are the cost of natural disasters going up and maybe that's a naive question but I
always have these things well oh is it just that we're getting more attention to natural disasters
in the media and is it just a sort of like is it just a narrative that there are more that there
are more wildfires etc or is it like what do we actually see big picture in the data are things
are we you know is it getting worse it is getting worse so our risk is going up we have more severe
events we have more events the question is why do we see higher losses so higher losses could be a
function of simply having you know more events more extreme events and or it could also be a
function of what you mentioned earlier Joe more people living in high risk areas more property or
simply more value being accumulated in high risk areas it could also be that maybe as a society we
don't do enough to mitigate these losses so that we get outpaced by the risk that we experiencing
or it could also be that we have not as resilient of a society or resilient infrastructure
resilient you know residential homes and or it could also be an increase in what we call
social vulnerability meaning you have more people that lack the capacity to prepare for respond
to a recover from an event on public.com you may earn a 5.5% yield with U.S. Treasury bills
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let's pivot to insurance and talk about what's going on there and maybe just to begin with could
you sort of walk us through the landscape of this type of insurance as it exists now so let's say
you know a hurricane happens in florida what's the sort of process by which a home owner would
expect to get reimbursed because my understanding is there's different layers of private insurance
and then there's sort of federal support potentially as well and of course there are also the
re-insurers who are sort of backing the the upfront insurers can you walk us through how all that
would work in a typical case yes so you know just let me state again I'm a Geographer in training
I'm not an insurance of course no economist expert but I can tell you that a it's very complex
because it varies like you said from state to state and I think what a lot of people don't realize
is you might have to purchase different insurance policies to be covered so I think most people
assume all this is covered in my homeowner's insurance and it is not and it depends on where you
live like for instance landslide risk not covered in any policy in any state in the US so landslide
risk is something that you cannot file an insurance claim on because you kind get insurance for it
so let's go to Florida so if you live in Florida so you would let's say ideal scenario as a homeowner
you have homeowners insurance you also have flood insurance from the federal government also many
people don't realize that that's a federal program because it's administered by your local insurance
agent so you buy your flood insurance policy from your local agent but actually you know the
company that ensures you is the federal government and then depending on what state you in and exactly
how you know the policy works you also have to buy wind insurance and states have different sort
of thresholds you know when is a storm actually a hurricane does it have to reach a certain wind
speed then for the wind insurance to pay out over the homeowners insurance so for you as an individual
a you have to navigate what do I want to insure what do I what can I afford to ensure what kind of
different policies do I need to buy and then when you actually have damage from an event and we've
seen this for instance after Hurricane Katrina you very often might face a situation where you then
have to argue with the insurance company if the damage that you have was caused by wind or caused by
flooding amazing and we've seen as crepancies where you know one neighbor their wind insurance paid
out because their insurance company said yes we recognize this is wind damage and the other
neighbor didn't get anything from their policy because they're the insurer said oh this is flood
damage that you have so having insurance does not necessarily mean that policy is also going to
kick in because they might be disputes with regard to what type of date but what type hazard
cost that damage well why are insurance rates up so much I mean I know this is like the whole
question it's big but if someone asked you that me why like in Florida you know I saw there's a
stat 42% higher for home on home insurance premium I mean I get that like okay generally speaking
maybe natural disasters they're trending higher but that is like a staggering amount and you know
I'll add to that you see when you see companies desert estate why I mean why don't they just charge
more and what's happened in the last couple of years that's so different than in the past
so let's maybe start with the statements that these insurance companies released why they are
going out of the markets especially like in Florida so they cited a higher risk in California
was higher while fire risk which yes check we see higher risk of that they had higher building costs
so yeah you know spending paying for the cost of somebody rebuilding a home that has gone up as
well and then they also cited an increase in their own insurance policies meaning insurance
companies ensuring with what is called a re insurance company that raid has also gone up for them
so they had to make a decision you know are we gonna or can we pass on these higher costs that we have
and create an insurance product that is competitive in the market so can they then offer
a insurance premium that people would be willing to pay and obviously they made the decision
that they're gonna pause writing policies and I think you know calling this a pause is important
because this is not the first time that we that we've seen this happen insurance companies have
retreated for a certain time period and then have come back into the market so we've seen this for
instance in the state of Louisiana when this happened before same happened in Florida you could
also what you didn't see in the statement you could also interpret this this is what I personally
interpret this approach as well is sort of a signal to a state government saying maybe we need to
rethink our partnership or maybe we need to engage in a partnership and maybe there needs to be
legislation that incentivizes us to come back because as you mentioned earlier
we do not want people to be without insurance because we know research shows that people recover
much much slower from a disaster if they do not have insurance and it's obvious because you don't
have the financial resources unless you have massive savings then maybe you don't need insurance
but if you're a person like me who doesn't have massive savings I need insurance if I need
to recover and rebuild my home and so we want people to be in short so the fewer people we have
that have insurance we have really foregoing what we know is a key factor to disaster recovery.
Tracy Melanie said something there's a lot there but one thing that I just want to sort of pull out
is that point about higher construction cost because we talk about this all the time with inflation
and labor cost and materials etc. I mean if it's like significantly more expensive in 2023
to rebuild a home than in 2019 then just not everything else aside like mathematically to expect
yeah of course like insurers got to be you know compensated for that. Absolutely. Melanie I want to go
back to something you just said about well maybe the insurers are sort of angling for legislative
assistance and no one wants people to go uninsured. I mean another way of looking at it is
maybe we should be incentivizing people to move out of these risk prone areas by not providing
them insurance and saying like hey if you want to live here you're on your own and if something
happens that's on you. I mean is that a legitimate thought to have about this and is there any
evidence that people not having insurance actually does encourage them to move elsewhere?
So what really encourages people to have insurance is having gone through a disaster. Like we know
a key driving force for people to become proactive for instance with regard to maybe thinking
about elevating their home purchasing insurance maybe even moving. Sort of really bracing for a
future event and preparing to have less impacts in the future the key driver for that is having
gone through a disaster before. So experience is a key factor. So no now change their behavior
until they've actually been flooded out of their house. Very much for a lot of people yes that's
the case because you see it all the time like you turn on the you know turn on the TV you will see
people say all the time oh I've never thought this is going to happen and this I never thought is
going to happen factors into the decision to not buy insurance because you know if you think it's
likely to happen and it's a good investment for you to make like you know you only have a limited
amount of resources so you have to make trade-off decisions do I spend what I have on buying insurance?
You will do this if you think it's likely to happen so that you have a backstop when the event
actually unfolds but if you in your mind think oh this is so unlikely I'm not going to do it then
there's a high chance unless you force you're not going to buy insurance. I mean think about it's
very similar to our thinking with health insurance investing in retirement we humans have a real problem
thinking about the future and not discounting the future. So this is why we have you know sort of
carrot and stick approaches tool being in short regarding any health issues and retirement because
we are not very good with this long-term thinking and buying insurance also factors into that
long-term thinking so it's really really hard. Now to your point about moving so I have to say
I get this question quite a lot should people not just move? I always you know sort of just ask
where would you move and how likely would you be to move? How far away would you move?
Like what holds you you know or ties you to this place that you're in right now? Is it your job
opportunities? Is it your family? Is it maybe the amenities of where you live? And most of the time
you know it's sort of a combination of all of these things or it could be you know your family lived
in this place for a long time maybe you inherited the land that you live on and for a lot of people
moving is not necessarily a thing they want to do or they can do especially maybe if you live and
maybe more rural area or so there's not maybe a lot of money you can get for selling your property
and then moving somewhere else and starting over. So the question of you know willingness to move
is one thing and then you know for which type of hazards sort of where would we start making people move?
Like is it hurricanes? Is it earthquakes? Because if you think about earthquakes I mean there
is not many people that should be living in California. Right all of California needs to move
immediately. Exactly so there is really if you like break it down say okay everybody has to move
out of high risk areas. There is not a lot of you know land that will be left for that because
the Midwest has hurricanes. Not hurricanes. No good thing they don't have they have tornadoes.
You know you also have winter storms they have massive hail events sometimes. So there is really
no place to hide in the country I would say or hardly any. So how would you make that decision?
I think that is I mean I think ethically and politically a topic you've people really don't want
to get into and I think what's happening is we have sort of implicit migration out of high risk
events when something happens you know because when something happens people have to make a decision
am I staying here am I rebuilding here or am I moving? And the research shows that people who decide
to move after they've after they've been impacted by a disaster they actually don't tend to move
very far. So they still tend to stay within their state they may be move you know within the county
maybe to the neighboring county but people don't tend to pack up and leave and move from let's say
from Louisiana to New Jersey or something like that. I want to ask you about you know you mentioned
that companies leave states but then they might come back and part of it is an implicit
negotiation with state regulators and state governments to change some policies. What do we think?
I mean like what do you think like when you see a company leave California or Florida or some
of these other markets are there one of the policy levers that these states could pull in order to
or are pulling in order to bring more competition and carriers back into the state or like what is
historically what types of changes prompt and ensure to come back into a given market.
So the market in the state of Louisiana is actually often referred to as an example of what could be
good policy choices or offerings to the insurance market. So meaning the state would decide or
decides to protect insurance companies you know only up to a certain level is when they have to
step in with payments and then the state you know jumps in above that level and it's
Louisiana also has they have a what's called an insurer of last resort. So if you know you as a
homeowner you can find a policy from a private insurer then you can insure with citizens. So it
has the same name as the program in Florida but they're distinctly different because in Louisiana
citizens is required that they do offer the premium at a slightly higher price than the private market.
Okay so they do not offer let's just call it reduced or kind of sort of cheaper insurance premium.
So there's not a lot of savings because when it comes to insurance what's really really tricky
in setting these premiums if you don't want to set them to high because then people for go
insurance but you also don't want to set it too low and that's something that we've struggled with
all along with now the National Flood Insurance Program because when you set insurance premiums
too low then the decision to live and stay in a high risk area you don't really have to pay for
that risk you don't have to pay the adequate price for that risk. So let's say the risk is fairly high
but your premium is not very high so the decision to stay where you are is easy because your premium
is not high and it doesn't cost you a lot of money. So you actually start incentivizing
staying in high risk areas if you set the premium too low. So back to Tracy's point about thinking
about migrating and shouldn't people move. So also when you have insurance premium being really high
you as a homeowner or as a renter you can make the decision okay and my purchase insurance to stay
here sort of being able to sleep at night not freaking out about the risk and facing or possibly
also move you know that's kind of a signal that really the risk is really high in this location
and it's not easy to get insurance on public.com you may earn a 5.5% yield with US treasury bills
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Just in terms of things like governments could do again going back to this idea of insurers maybe
wanting something from either state or federal government like what would be the risk sharing
arrangements here? Would it be something on the level of the flood insurance that exists now?
So when you think about managing risk, the question is for governments, insurance companies,
any private sector company, you as an individual, how much are you willing to pay to reduce your
risk? So it's really a decision about how much or how low you want the risk for people to be
and so there's different when you look around the globe, there's different approaches like in
in the Netherlands. People don't have flood insurance. Why do they not have flood insurance? Because
the government is committed to reducing flood risk so that people don't have to purchase flood
insurance. It's not an option for us. And here in the US, our flood insurance program,
there is no requirement, nobody is forced to buy flood insurance unless you purchase a mortgage
from a federally backed mortgage company. So then the government says, okay, if you live in a
100-year floodplain, plus you hold a mortgage from us, you have to buy flood insurance. But if you
live in a 100-year floodplain and you maybe hold your house free and clear, nobody is forcing you
to purchase flood insurance. So it's really still up to people to buy insurance for the vast
majority. It's a free decision to purchase insurance. And so the question is, the government could
step in. There are always discussions about, you know, should we have national disaster insurance?
You see this sort of the topic rises and falls very much depending on the crises of disasters we
face. That could be a potential. But think about, you know, what kind of risk the government would be
taking on in terms of financial costs if the government were to offer this. And then the government
also has to decide, you know, then what is the premium for these policies? It's really, there's
no easy answer to this. I mean, I would also say, you know, when you think about purchasing insurance,
what is often forgotten, an insurance company or insurance is a highly, highly, highly data driven
process and product and setting those premiums. Does the government, if let's say the federal
government were to offer an insurance product, does the government even have the data and the
information to really price a product like that adequately? We are already struggling, you know,
trying to understand how many people should have flood insurance versus how many people actually
have flood insurance. So I think data would be really, really important if the government were to
get into this business. And then also insurance companies can, you know, you get a letter every year
if you want to renew your homeowner's insurance or not. You as a person are not deciding every
year, are you moving or not? So the insurance market is so much more volatile in terms of being able
to offer it or retreat. And you as a homeowner, you know, you are in your property, you stay in your
property, you might be able to switch, but you don't have this annual choice of what you want to do.
Sure. So I was going to say this thought to the end, but I just keep getting flashbacks to like,
it's like the bank conversation all over again, because we think of this as a private market deposit
taking. But why don't we all have direct insurance? But this is like the degree to which it's
really a public utility. It's like so many of the same like sort of philosophical economic moral
questions come up and like deposit insurance and things like that as insurance insurance.
I want to go back to something you mentioned that the Louisiana approach in the Florida approach
are different. There's two sort of like state level public insurers. They both happen to be
named citizens. Can you compare and contrast what Florida is doing versus what Louisiana has done
in the past? So in Florida, you do not have this requirement that citizen has to offer a fairly high
premium for a product. So they're the amount of property, properties that are now insured
by the state that number has exploded. Plus it is truly a state-backed insurance program.
So the state holds the risk. Plus Florida's also apparently a highly litigious state. So a lot of
the insurance companies have to deal with homeowners filing lawsuits, which is completely different
from any other state here in the US. And this is for Florida, that's really the big issue,
this sort of litigation against insurance companies and for how long you can file a lawsuit
in Florida. So that's what makes Florida very different. But the fact that you truly have insurance
program that's backed by the state and you hold that much risk, I find very concerning in terms
of you know financial soundness of a state budget. So that's very very different and it's very
unique in terms of insurance solution. So one thing I wanted to mention. So there's a researcher
Howard Conruser and he unfortunately just recently passed away. He has long proposed this idea
of maybe having the policy not with you as a person but with the home. Because that would incentivize
that maybe people invest more in building or reconstructing disaster resistant homes.
Because what happens right now and maybe this is going to change quicker than we think about
right now the risk is not priced into a home. Like you know you go on a website like Zellor or
Redfin you see okay what's your square footage and how many bedrooms and do we have granted
in the kitchen. This now when you look at those websites it just happened over the recent years
you get a little bit of information on what the you know slave climate risks are and then it will
say oh your risk for heat is going up and maybe you have limited flood risk. But the information
I personally think is not really translated in actionable information. You know what are you
going to do as a potential home buyer with 15 different hazard types. How does that factor into
your decision making if the risk goes up or not. The factors into your decision making when it
affects the home price and for a lot of people there is now something starting where people decide
or potential buyers decide they have there's a contingency to buy the home or not if they are able
to buy insurance purchase insurance for that home. And I feel like you know these struggles that
we see in the insurance market the ability to buy insurance might be really the starting point
the impetus for possibly risk being priced into home values and that hasn't happened yet.
So it's not very common right now that people are aware of the risk there's also no disclosure
of risk so there's also different policies across the country for instance in Louisiana now there are
some risks that have to be disclosed to you as a home buyer but very often you know you buy a home
do you get a car fax on your home. Do you know how many times this property has been flooded before
or damaged you know by a windstorm. We don't have that information it's if you think that's kind
of crazy you know because it's a pretty substantial investment when you buy a home and you don't
have that history of a property because there is no requirement in many states that that gets
disclosed and we only look at sort of the superficial things in a home square footage,
number of bedrooms but do people know you know if they actually have the appropriately rated
shingles on top of their roof or if their roof is connected adequately to the rest of the structure
in the house to you know withstand hurricane forced winds. We just somehow assume because
we got a building permit from our local community that this is a safe place and then when a home
inspector comes you know for you to decide if you want to buy this house you also don't get much
information all that. So we are really I think at a point right now where there is maybe also more
demand from potential home buyers to want to have information about the risks that they are
taking on when you are purchasing a property because you're also purchasing the risk that comes
with that property. Melanie that was a fantastic overview of this very complicated issue. We're
going to leave it there but thank you so much for coming on all thoughts that was great. Thank you
so much for having me. I know it's a slightly depressing topic.
Joe that was a great overview of that topic. I feel like we hit a lot of the major points.
The one thing that Melanie brought up that was really interesting to me was that idea of tying
the insurance policy to the house itself as a way of incentivizing you know better construction
methods or more resiliency to disaster risk. There are so many things that were interesting. So
the one thing I knew is that a typical homeowner's insurance policy doesn't have floods right you
like a flood insurance. So I was aware that I didn't realize that wind insurance was often in
many cases a separate thing. I didn't realize that there is no insurance policy whatsoever that
can protect against landslides which I have to imagine in places like California. And then the
big thing that really drove me home is just like the sheer complexity and right if you can't really
calculate it well like you're not going to get any price and so it sort of makes sense to see like
okay we're going to companies going to leave for a while like if there's just so much complexity
with the rising number of natural disasters or the rising cost like maybe the market just doesn't
work. Well also the point about well why don't we all just have federal insurance you know to
some extent maybe that makes sense but then how does the federal government with no expertise in
this pretty very little expertise very little data actually start to price those products and
that risk that seems really interesting. Well and furthermore even if you did have like say like
a public option for national home owners insurance it would inevitably be subject also to political
fights like should the government you know it's like you'd have some people in some places like no
why are you like not why are you pricing it in Texas and Florida and California this way is
this because it's a red state or like there's just it would you could do it and then it would
introduce a whole new set of complications that wouldn't exist in a private market. Absolutely
and kind of just say I live in fear of bureaucratic paperwork and the idea of having to like
talk to you if your house is destroyed by a hurricane and then having to file paperwork about
whether or not the damage was caused by wind or flooding that's just my nightmare on many.
I was going to say this but like you I completely agree so it's like your house is damaged and
you're trying to get through to an insurance agent and talk to them and prove and have the paperwork
and then it's like yeah I kind of want maybe the Florida system where you could just sue your
insurer and then it's right and then it's like and have put some fear of God in them because
and then the insurance company leaves the state because you have this highly litigious state like
well I think also one of the issues in Florida is that a lot of those lawsuits are fraudulent in
one way or another. Sure. There's all these roofing scams that are in and of themselves quite
interesting and would make an interesting episode. No there's just there's a lot there and no easy
answers but I feel like that helped me understand like why this space is such a mess right now. Yeah
well we're definitely going to be doing some more insurance episodes in the future I feel but for
now shall we leave it there? Let's leave it there. All right this has been another episode of the
All Thoughts podcast. I'm Tracy Alley. You can follow me at Tracy Alley. And I'm Joe Waisenthal. You
can follow me at the stalwart. Follow our producers Carmen Rodriguez at Carmen Armin and Dash
will Bennett at Dashbot and check out all of our podcasts under the handle at podcasts. And for
more AdLots content go to Bloomberg.com slash AdLots where we have a blog we post transcripts
we have a weekly newsletter and I'm sure there's going to be a lot of talk about this one discord.gg
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