“Real Estate Industry is SHAKING”- California Approves State Farm Homeowners Insurance Rate Increase
Episode Stats
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Summary
In this episode, we talk about the devastating fires that have ravaged California, and the massive rate hike that was approved by the California Department of Insurance. We also talk about why State Farm is in financial trouble, and why they should have been able to recover their losses before the fires.
Transcript
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California's obviously a place that I lived in for 24 years.
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Guy Manex me saying, what problem do we have with California?
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Don't you realize that this is the most incredible climate in the world
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But your policies suck, and they're pushing a lot of good people out,
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California approved 17% increase, rate increase, for State Farm.
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So this 17% rate increase for homeowners insurance,
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effective June 1st, after the insurer requested a 22% hike,
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we are in a statewide insurance crisis affecting millions of California
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Consumer watchdogs, Carmen Balber criticizes the decision,
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saying it adds insult to injury for homeowners facing delayed or lowball claims.
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State Farm financial distress was acknowledged by an administrative judge
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who found a company that is experiencing extraordinary financial stress,
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coupled with surplus depletion that threatens ongoing business operations.
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Laura noted State Farm must justify its financial conditions and detail its recovery plan at a fall hearing.
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I'm going to let Tom give you guys what the renter's insurance increased by.
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but they gave State Farm permission to raise it 38% for renter's insurance.
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From somebody, my renter's insurance, I was paying two grand a year.
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And what's very interesting to me is I dug into this,
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and the administrative law judge, Carl Frederick Seligman,
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he said, well, this is because of weather events.
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Another devastating extreme weather event would nearly eliminate State Farm surplus.
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An insurance surplus is the money they have to set aside
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or, you know, you're going to have a fire in your kitchen,
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no one gets hurt, but you've got to rebuild part of your house.
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And so State Farm, when they sell X number of policies,
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they have to keep putting money in a savings account to cover all this stuff.
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They had $2.6 billion in it until Palisades burned down.
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And all the fires in California led by the Palisade,
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there was also other ones that were just horrifying.
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So they put $1.6 billion, whoosh, out into people's hands.
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Now, those people deserve it because they paid for a policy with State Farm,
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Well, now the judge says, hey, they're down to $620 million,
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and if there's another weather-related event, boy, that would eliminate their surplus.
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He's not looking at the empty reservoirs, the fire department equipment that wasn't in working order,
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hydrants that weren't working, and also decisions that they made about not asking PG&E to clear brush and things.
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So it basically is taking the bureaucrats, you know, Richard, Laura, and them, out of it
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and not putting it on people that says, wait a minute.
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Okay, so we got this situation, and you're right.
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With only $620 billion, these people, excuse me, a million dollars,
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these people could be in deep water, State Farm.
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But no one's looking at what was going on, PBD, before all the public policies
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and the mismanagement of things that led it to be such a devastating era.
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And when all the neglect was there, what happened when the wind and fire came to Palisades?
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And the fire department was unarmed to do anything about it.
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All that stuff we're talking about, that's not State Farm's problem.
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With good market share, doing a good job, a lot of customers.
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When you look at State Farm, State Farm, he says, right now, this is part of the story,
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the administrative judge, independent administrative judge, non-binding order,
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which found State Farm is in serious financial stress
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and recommended a $400 million cash infusion from its parent company.
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Their parent company is, I think, State Farm Automobile and Insurance Company,
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38% for renters in a house, which in California, in many cases,
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That's an increase on top of what it already is.
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And the tweet that Vinny just sent, Rob, if you can pull this one up,
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this is a tweet that Vinny just sent from Mario in the fall.
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This is what it takes to afford to buy a house today in America.
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For a three-bedroom house, this is what you need to make to be able to afford
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There's only one state that's higher than that, and it's Massachusetts, 216.
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Just by moving from California to Texas, you save 55%.
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Do you think there's a reason why people from New York are moving to Florida?
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If you don't allow State Farm to make money in your state, they will say goodbye, and your
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real estate industry, the realtors are sitting there shivering because they saw data that came
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out last year, the fact that 7% of mortgages and sales weren't closing because the people
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that were buying the house were not qualifying for the homeowner's insurance, and they're
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like, man, I can't afford to pay this homeowner's insurance.
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Well, if you live in California, the number one thing that comes to mind to me is the math
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So, you know, we talked about this, I don't know, maybe six months ago about everyone's
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I don't know, Robert, if you can pull that up real quick, but I think the living wage,
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you know, they're fighting for like 20 bucks an hour in California, whatever they're talking
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But the living wage to be able to live in California, just live, is $28 per hour, which would
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math it out for me, what, $56,000 a year, the median income.
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So here's what I'm seeing in terms of where people are moving.
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You know, now there's sort of like a regress of people moving out of Florida because, and
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even moving out of Texas, sort of the reversion to the mean.
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But here's the challenge that I think people, companies, states are going to have.
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Five years ago, 10 years ago, you know, remote work, work from home, work from anywhere
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really wasn't a thing, especially before COVID.
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So you don't have to live in the place where you can make the most income.
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So a lot of people are basically looking at it saying, all right, it costs how much to
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I could just go move to Tennessee or Texas, but get a job in California, get a job in New
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The number one thing that I would say to people is this, as much as you can, keep your flexibility
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If you can keep your overhead very low and stay flexible, especially these days, if you're
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able to work from anywhere, you could survive this massive increase in the cost of living
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I mean, this is scary for what's going on with California.
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I mean, when you're looking at wanting to live there, people have to answer that basic
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Would I rather take that money and paying taxes to California thinking it's going to get
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Or would I rather move to a Nevada, which is 70K less, that's a 33% savings or Arizona,
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33% savings or Texas, 50% savings and use that additional money to give to my kids for college,
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for future investment, for future business, for my own retirement.
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Is your decision you're making today allowing you to take care of the older version of you
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Is a 70-year-old version of you happy with the decisions you're making on the way you're
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The cost of living as a man, does it increase or decrease as you get older?
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So I see all these people on my neck that ask me questions.
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And I ask them, do you think that life is going to get cheaper or more expensive as
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So if you don't figure this out now in your 20s and 30s, by the time you're 40 and 50,
00:10:18.500
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00:10:25.200
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00:10:55.440
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