As the 2020 wildfire season again exceeds historical norms, insurers and policymakers must turn their attention from the literal fires to the figurative one: the threat—and increasing likelihood—that this escalating wildfire risk will result in a homeowners insurance crisis in the state of California.
For homeowners, insurance is often the last line of defense against losing everything to wildfire. However, for many, this crucial financial backstop is rapidly becoming harder to obtain as insurers reduce their portfolios due to billions in losses and regulatory restrictions on reflecting the true cost of risk in the premiums charged. This withdrawal is creating an untenable situation for many Californians and efforts to address it are becoming an urgent priority for policy makers.
In this article, Milliman professionals explain in more detail the state of home insurance in California and the regulatory efforts to address the issues thus far.
When a 6.4 moment magnitude (Mw) earthquake struck Ridgecrest, California, in early July, followed closely by a 7.1 Mw event, many in the state worried it was the “Big One.” But while it was the most powerful California earthquake since 1999, and only the fourth exceeding 7 Mw in the past 40 years in California, Ridgecrest occurred in sparsely populated Kern County and won’t rival the state’s most destructive earthquakes.
As Milliman actuaries David Evans, Eric Xu, and Cody Webb write in their recent article, while not the “Big One,” the Ridgecrest event may prompt Californians to consider their exposure to this peril. Coverage for earthquakes isn’t provided by homeowners policies in California and insurance participation across the state is low, especially in some of the state’s riskiest areas—as this infographic depicts.
When it comes to purchasing a home, not everyone is financially able to do so through a mortgage with 20% down. And not every mortgage is structured the same way. One of the biggest decisions potential homeowners face is if and when to jump into the pool of mortgage debt, and which way to do so.
In this article, Milliman’s Madeline Johnson considers three defined dwelling paths for borrowers: renting, buying a property with a traditional low down payment mortgage, and buying a property using a shared-equity (also known as shared appreciation) mortgage. The article and infographic below examine how these three paths (rent vs. buy vs. shared equity) compare in a real-life scenario. Using historical data, we can evaluate how the risk of home price decline in a shared-equity arrangement compares to using a traditional mortgage program, or renting, and how the rent versus buy decision can help prospective borrowers understand the potential impact of buying a home on their long-term finances.