Money Rehab with Nicole Lapin - The Home Insurance Crisis That Could Crash the Housing Market with Chloe Demrovsky

Episode Date: June 24, 2026

Nicole used to think insurance was a boring subject.... until she lost her home in the Palisades fire. Today, she is teaming up with the ⁠Coalition for an Insurable Future⁠ to tell you about what you need to know about the insurance issue that could become the next great American financial crisis, and how to protect yourself. In this episode, Nicole sits down with Chloe Demrovsky, one of the nation's leading voices on disaster risk and resilience. Nicole and Chloe break down the numbers: homeowners insurance premiums are up 74% since 2008, 40% faster than inflation, and 95% of American homeowners are already feeling it. Then they get tactical: what "uninsurable" actually means, the coverage gaps that catch most people off guard (spoiler: flood is not in your standard homeowners policy), and the exact steps to take before a disaster strikes. Learn more about ⁠the Coalition for an Insurable Future⁠ and ⁠follow⁠ their work.  Learn more about ⁠Chloe Demrovsky⁠ and ⁠follow⁠ her work.

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It's time for some money. I used to find talking about home insurance policies to be so, so boring. Like zero out of 10 did not want to do it. But now I find it to be one of the most important personal finance stories in the country, and most people don't realize it yet. I learned this firsthand when I lost my home in the Palisades Fire. Now, I have been through a lot of trauma in my life, but losing my home was maybe the hardest thing I have ever gone through.

So I sincerely hope that you never have to go through anything like that. But if you do, I want to make sure that you're prepared. So for this episode, I'm teaming up with the Coalition for an insurable future to tell you about what you need to know about. about this looming crisis and how to protect yourself. The Coalition for an Insurable Future is a nonpartisan group of independent experts in economics, insurance, finance, government, and media, all working to raise awareness about what they believe could be the next big financial crisis in America.

And the numbers do not lie. Insurance prices have risen 74% since 2008, far outpacing inflation and wages. To help us understand why we could be staring down the next 2008 and what to do about it. I'm talking with Chloe Demrovsky, one of the nation's leading voices on disaster risk and resilience. She was president and CEO of Disaster Recovery Institute International for seven years, and she served on FEMA's National Advisory Council. So she has literally been in the room after the flood, after the fire, when people discover what their insurance actually covers or what it doesn't. I've already called my friends who are homeowners or those in the market to buy a home

to tell them about Chloe's advice, because now is the time to ask. act. Chloe Demrovsky, welcome to money rehab. I'm so happy to be here. Nicole, thanks for having me. I'm so happy to have you here. This is a topic, as you know, that's very personal to me. And I'm so honored that you're here to have the conversation with me. I gave some of your bona fides in the intro. I could not possibly do your life's work justice, though. So I really want to get to the why. Why are you doing this work? This is such important work. It's so deeply personal for so many families. It It touches households. It touches families. It touches communities. I've been working in disaster recovery for more than a decade. I ran a large disaster management institute. I was on FEMA's

National Advisory Council. Lots of blah, blah, blah, bonafetes, like you said. But what that really translates into is helping people after a disaster, after a wildfire, after a hurricane, after a flood. There's so much that we have to do. There's so much we have to learn about preparing for responding to recovering from these sorts of tragedies. And it's really my life's work to help people build resilience and to help them to recover faster to build a more resilient future for our kids. Amen. And there's so much that I wish I knew when I was going through my own disaster. As you know, this is really personal for me. So perhaps, you know, before I went through all of this, I would have thought, insurance, it's so boring. Like next topic. But I would love to save people for

making the same mistakes I did. Where should somebody start if they're thinking a disaster is never going to happen to me? Yeah. So I so appreciate this because there's that first disaster, there's that first trauma, there's that first horrible experience that people live through. And then they have to relive it all again in this like secondary trauma of the paperwork. And it's not even on your kitchen table often. It's on somebody else's kitchen table if you're lucky to have enough to have relatives to stay with or it's in some like horrible rental that you have to pay for on top of it. It's so expensive. It's so much work. And most American households, the reality is, like, they don't have $1,000 in emergency savings to cover something like that.

So, yeah, insurance is one piece of it, but it's also making sure that you have savings. So I think the first place to start is, like, being aware of what you have and what you don't have. Because, you know, as you said, insurance is kind of boring. There's a lot of fine print. most people are like getting homeowners insurance because they have to have a mortgage. And so in order to qualify for a mortgage, you generally need homeowners insurance because that's the bank protecting their assets, right? They're part of it. Their loan.

And so that's the trigger. So most people are like, okay, let me see what I can get as cheaply as possible. And I've checked that box. I've done that. But that's not really what it's about, right? In the face of a warming planet, we are seeing more extreme weather all over the place. And so it's not just important, like, what that you have insurance. It's important what's in that coverage.

And a lot of people don't really understand their coverage. So I'd say that's really the first step is, like, knowing that you have insurance and then understanding what that actually means for you. Oh, yeah. I never read my insurance policy. So I don't know if I've actually ever said this on the show, but my insurance was canceled the year before the fire. And so we got whatever insurance we possibly could because so many insurers are pulling

out of this area. So to even get coverage was not a problem I thought I would ever have. Yeah. So these plans are, you know, year to year, right? People buy a policy for a year. And so what's happening in so many of these markets is that like the insurance companies, they're businesses, right? They have to build a business model around this. And so they price the insurance year to year to year. So if you're a homeowner and you kind of, you bought that property, you got that mortgage, you took out that insurance policy, and then it's non-renewed or it shoots up, right? A lot of people are seeing their premiums increase. We've seen insurance premiums increase 74%. That's 40% faster than the rate of inflation. And I don't know about you, but inflation's been hitting hard, you know, gas prices,

egg prices, all these things that we like see and touch and feel every day. Wait, say that one more time. Seventy-four percent have seen their insurance premiums increase. and then that is 40% faster than the rate of inflation. So insurance is exponentially more than what we're seeing day to day on everything else that's inflated. Yeah. And it's something that you don't want to think about it. Nobody wants to think about risk.

And certainly nobody wants to think about insurance. So you just sort of like go, oh, gosh, okay, I'm going to pay that. But if you game that out further into the next decade, people are likely going to spend more on their insurance premiums than they're spending on their property. taxes, then they're spending on gas in a lot of markets, then they're spending on groceries. So this is becoming a meaningful part of household budgets. And it's just not something that people can really handle. It makes, it's sort of a creeping affordability crisis. You were saying that people don't usually go through and read what's in the policy. I did not until I had to. And then there were

things that I learned out of necessity. ALE had no idea what that acronym was. And, and sort of what happens and who pays for what after a disaster happens? So what should somebody look for in a policy if they can get one? One is, like, for example, a lot of people, there's a big gap in perception of like, I have homeowners insurance, therefore it's going to cover whatever happens to me. The biggest one where this occurs for people is flood. Most homeowners insurance does not include flood coverage. I'm going to say that again.

Most homeowners insurance coverage does not include flood. Flood is one of the big dangers that happens, right? And it's not just on the coast. We think of this as like a coastal problem. You know, it's storm surge. It's the ocean during a hurricane. But we're seeing extreme rainfall all over. We saw it in North Carolina.

We see it in a lot of places all over the country. And so if someone's home is suddenly flooded and they've lost all of their possessions on their ground floor, maybe they have to replace their kitchen, bathrooms, these things are really, really expensive. And suddenly their insurance. coverage is saying, yeah, no, that's not covered. Suddenly that's an out-of-pocket cost. And especially because we're talking about disasters, that means it's community-wide. So suddenly, if your kitchen was flooded and your neighbor's kitchen was flooded and all of your neighbors and you all want contractors at the same time, that's going to increase those prices for those

services. There might be long wait times. The cost of construction materials has been going up anyway and then locally it's going to go up even more because there's just a demand surge because it's community-wide. So there's all of these kinds of hidden costs that are not just kind of what you think of like, oh, I have insurance, it's going to cover it. I might have to wait a while. I might have to relocate for a while. But all of these things are expensive. It all adds up. And also in California, insurance doesn't include usually earthquake coverage. So you need a supplemental policy for that. Yeah, there's a lot of these things. And so, you know, and they're increasing, right? So like earthquake is a big one and, and, you know, but it might be smaller things from these smaller storms that people don't really don't think about like hail. Hail can cause a lot of damage. There might be a hail exclusion in your policy. So again, it's really important to understand what there is and to to layer on like the most likely risks in your area. So California, obviously earthquake, wildfire. And then compare that to your insurance coverage. Maybe use an LLM to do it, right? You don't have to do it yourself.

feed in sort of the risks in your zip code, which you can find from all kinds of different tools. Who Should Pay.org is one great example where you can just type in your zip code and see what the most likely disasters are in your area and then compare that to your policy. And that'll at least give you a starting point for understanding what's really in there. Yeah, at very least, put it through, Claude, chat, GPT, just get a sense of what that is. even the ALE, which I mentioned before, additional living expenses, super important to have in place or understand what that coverage is because that means who's paying for the Airbnb or the hotel or the, you know, takeout or whatever is extra that you would have to pay because you're not in your actual house. Totally. So that's one major factor.

And then something that feels very unreal to people as well is that you still have to make mortgage payments, even if your house is unlivable. even if your house is a pile of rubble, you still have to make those mortgage payments. Which is so painful. It's incredibly painful, right? Why is that? Because you're theoretically going to rebuild, so you still owe the loan. Like the bank owns the asset, right? Something happens.

It's just like insult to injury. Yeah, it's really crazy. These are really unfortunate circumstances. We all have kind of a portion of responsibility here. Some of it is the homeowner. Some of it's the bank. Some of it's the insurance company. Some of it's the government.

it's really complicated. And especially when it hits a whole community at the same time, that's crazy. Because insurance is designed for kind of random possibility of damage, not the certainty of it, and certainly not community-wide all at the same time. That's when it really creates strain on the system. It just doesn't work like it's supposed to. Let's talk about the systemic level issues. Chloe, some people are calling this a climate insurance collapse. That sounds apocalyptic, but it's a, Is that real? It does.

It sounds very apocalyptic. But the truth is that it's very real because it starts with like one person and one home and a premium. It starts with the basics of, you know, paying into your insurance within your community. But of course, you have the individual paying for the premium. Then you have the insurance company that suddenly has to pay out losses that are more and more frequent as the planet warms as we see more of this extreme weather and more of these. extreme crises. So then those insurance companies, like, they also have major losses that create years where they don't have any profit. So they have insurance. Those are the reinsurers. That's insurance for insurance companies. They also need insurance. It's something called retrocessionaire.

So this is where you get really crazy and up there. This is global markets, right? And then those insurers often are going to sell that into the market. So they will sell something like a catastrophe bond, cutely named a cat bond. It sounds so adorable. But what it means is that this risk is being spread more broadly into the markets. And so then who's investing in that? We all are through our retirement savings, through different types of investments, through bond savings. And so this is really kind of spread out throughout the market. It's not just one insurance company. It's not just one homeowner. It's not one community. It's really system-wide. And it's not entirely clear where exactly this risk resides in the market because it's been spread out. Well, so can you walk me through this domino chain?

Because this is what gets me really nervous is that there's systemic risk here. So it's not just my premium one up or the insurers are pulling out of my area. It also is the housing market is now in trouble. And so that's a domino effect. Is the economy crashing? This feels like a 2008 deja vu. Yeah, it's a little scary that way because that was the mortgage-backed securities and people didn't really understand it. Here, we're seeing little signals of it. So, what you see is like if people are not able to afford insurance or that's affecting the value of their home and they can't sell their home, right? So they're stuck in place. Maybe they eventually that home is foreclosed on because they can no longer make those payments. It's no longer

viable. It's not livable. They foreclose. They go into bankruptcy. They're no longer homeowners. They're no longer part of that American dream. Maybe they go back into renting, right? So that happens over time. You have more and more people declaring bankruptcy. You have more home foreclosures. You have fewer people in their homes. You have problems with whole communities, with homes that are not able to be sold that are sitting on the market that are losing value. You have those eroding tax bases. You have problems with the housing stock in general. And, you know, when we have a lot of foreclosures like that, that becomes a huge issue. And of course, in 2008, maybe someone was able to kind of stay in their home for a while. In this case, that home might not be livable. So then people are forced

into the rental market, well, we already know that there's this huge affordability crisis that is affecting renters first, right? So they might not be able to find places to live, certainly not in their communities. And that creates massive strain on our systems overall. And yes, Nicole, I'm very worried about it. I am very worried about it too. You know, and I want to make sure that our listeners are really feeling this. So if we can paint the picture, somebody gets a non-renewal notice in the mail, one like I got. What? happens next or what should you do step by step after that? Yeah. So, you know, often it's not even a non-renewal first. Sometimes it's just your premiums increase, right? That should be a signal.

That should be a warning to you that something is going on and you should investigate that. That's really important that you take advantage of these early signals because, again, that gives us some time to deal with it. And time is your friend here, right? You don't want to be pushed out at the last minute when everybody else in your community is being pushed out. The stats that we just talked about hold true, it's not a matter of if, but it's a matter of when. So if a majority of people are seeing their premiums increase 40%, it's more likely than not going to happen to you.

Yeah, it is. You know, 95% of homeowners are seeing their premiums increase. So this is all over the country because that risk is being spread out. So if you have suddenly seen your particular premium shoot up, they might tell you that, you know, it's market conditions. what it might actually mean is that their models have pushed you into a higher risk tier. So that should be a flag that your home is in a riskier area. And so at that point, you want to understand what those risks are.

There are some things that you can do that are in the mitigation category. So that means taking risk into your own hands and hardening your home. So wildfire is tricky, but I'm sure you've been hearing a lot about what you can do around making your house more safer from wildfires, the vegetation around the home, etc. Hurricanes are a little easier. It's often like making sure that your roof, yeah, the hurricane windows, that your roof is more secure that's bolted down.

Those are a little bit less expensive to kind of harden the home against the threat. That's all great to do. And in some cases, that might make your home more insurable. Some of the local governments are even working on regulations so that you would see some sort of signal in a premium decrease if you've taken some of those steps. That's at least a signal saying that this is the. right step to take. But how much? Like some? Not that much. What do you mean? If you put in the windows or do the things. No, no, it's not going to be enough to really save it. But again, insurance is going to

cover the home itself, but it's not going to cover the life you built in your home. It's not going to cover the family photos. It's not going to cover the family heirlooms. It's not going to cover all of those things. You know, like, really, it's, I think it's important to drive at home, you know, early in my career after Hurricane Sandy. I was out in the Rockaways. And this in particular really resonated with me because I was in the home. It was like one of these little bungalow homes, super modest, super small, right near the water. And it had been completely flooded.

The whole front of the home had come off. And this is going to make me cry too. There's all of these dirty stuffed animals and like a waterlog copy of Good Night Moon. It was just like their whole lives were just there. and we were just helping to like clean up the debris and move it to the road so that it could be removed so that you could have rebuilding. The worst part about that is that's where like the middle class of New York lives. So that was a neighborhood where it's all the first responders. It's all the firefighters and the policemen and all of the people who are actually out responding to the larger

community-wide disaster, keeping New Yorkers safe in kind of the center city in the more expensive areas. As those middle class families get pushed out into kind of less of the city center, those are often riskier areas. They often get pushed closer to the water. They get pushed higher into the hills where they're more likely to be in sort of like a fire prone area out here. And so they end up being the ones who are kind of on the front line of the disasters. And that's a that's a huge hit to our middle class and the engine of mobility and prosperity, the American dream. So it's just, it's really a human story. even though it just sounds like insurance paperwork.

It's a story of the waterlogue Goodnight Moon that you've seen too many times that I saw myself. You know, when you say 95% of Americans are seeing their premiums go up, how do you talk to somebody who's outside of Florida or California or New York in Ohio or in Minnesota and remind them that this is also a problem in those areas as well that might not be prone to earthquakes or hurricanes? Yeah, totally. We're seeing this all over the country.

We saw those extreme Texas floods. We saw the hurricanes that dropped water inland in North Carolina after hurricanes Helene and Milton. There was a wildfire in Florida this year, which is totally weird. I would tell them about my sister who lives in inland, Massachusetts. New England is not a place where you would expect fires. A little over a year ago, there was a wildfire that was really, really close to the house of her and her family.

So this is happening everywhere. You know, I would say to someone in Minnesota or Ohio, like if there can be wildfires in central Canada, you know, these threats are coming all over the country. It's so let California or Florida be sort of the canary in the coal mine that is warning all the rest of us that we all have a stake in our own preparedness, educating ourselves about these issues and figuring out how we can best plan for and prepare for it. Because if you are prepared, you're much more likely to recover and bounce back. if you know what's in your plan, if you know what's in your home, if you understand your risk and you've taken that little ounce of preparedness is going to go a long way when something really does happen. So if I get a notice that my premium went up 40% and insurance is giving me some

whatever answer, what's the real story and what can I actually do to move that in my favor? Is there anything? Can I negotiate? Usually you can't, unfortunately. You can shop around a little bit, But the reality of it is that often when you shop around, you're going to find that other policies are going to be even more expensive. This is what often pushes people onto those state plans. And those state plans don't have a lot of money in them. And there's not a lot of political appetite for, you know, adding more money to them because it means that taxpayers are footing the bill. So this is where it becomes really important to do your research before you buy a home, for one, right? Like that's the best time to understand this.

But it's not like anybody has a desire to make it really easy to find out, right? Because also it's the person in the home who's trying to sell. They want to sell that price for like a high market value because their own, you know, their own life savings is probably in that house. So they want, they have a vested interest in not telling you that maybe that house had been flooded or maybe it was in a wildfire zone. So as the buyer, you have to do your own research. you can do that through like, you know, the FEMA maps. Often those are outdated.

So it's important to be aware of that, do some reading, to make sure that you make those kind of smart decisions. And then if you're already in place, I think it's, you know, I don't have to tell you to understand the value of diversification. It's really important to not have all of your life savings in one asset, whether that's your home or whether that's the stock market. You want to diversify as much as possible because, again, these issues are happening all over the place. This is something that is very real and it's going to get worse in the coming

decades. So you broke that down into two categories of people, people that are in the market for homes. And now it's more important than Everley. Even if you look at the Zestimate, you know, back in the day, like the insurance line item would be small, like manageable. Now I've noticed it go up and up and up to account for all of this that's going on. If you can get insurance at all. In some areas, insurance. are pulling out altogether. I don't know if they're all allowed to do that in certain areas. Yeah. In some areas, they can, right? If the market has just failed in there and they're pulling out, that's, again, where the local government is going to have to step in if they're going to have

insurability at all. And in some areas, they're just pulling out entirely. I mean, I have a friend who's a policeman here in L.A. He has a home, you know, a second home, fortunately for him that's out a little bit further inland in California. And he just can't get insurance on it. So he's doing what's called self-insuring, which is a nice way to say that if something happens, he's totally on the hook for it. There's just no way to insure that home. What does that even mean? He just puts his money in like an escrow account of his own that he has. You're just counting on your savings at that point to be able to rebuild. You can harden as much as possible so that that home stays safer, but you're accepting the risk. So if you're in the market, how do you find out if you can get insurance

or what those quotes are before you even put a bid on that house? Yeah. So it is a important to try to go out and get a quote on the house, see if you can do that. It's not always clear. You can press the realtor. You can press the current owners to see if you can understand a little bit whether that property has maybe had something happen in the past. And then you can do research generally about the zip code. I mentioned who should pay.org is a great way to look at that. You can kind of look at the zip code. You can also put in some information about the house, and that'll project it out. And again, it's an estimate. It's not the real thing. It's like this estimate that you said. You know, Zillow used to include some first street foundation data about the

climate risk of properties, that's no longer listed there because, again, homeowners don't necessarily want that listed. The seller doesn't have an interest in listing that information. So as the buyer, caveat emptor, buyer beware, you have to do your own research. It's really, it's such an important purchase moment for people. It's such a proud moment. You put so much of your life savings into that house. And just a little bit of research is going to go a long way to protecting you. Is it wise to even contact a broker before you? put in a bid for a house? Yeah. Even just see what the realistic premiums are going to be to see how that fits into the overall payment that you have every month? Yeah, that's really important.

But again, it's important to also be aware of the fact that these insurance policies are written for one year. So you're not going to lock in a rate for 10 years. So you're going to have to assume that these are going to go up probably faster than the rate of inflation all across the country. So insurance is going to have to be a meaningful part of your budget. And if that means buying a slightly smaller home or being a little bit more conservative in your choices, it's important to factor it in because, again, the price of gas is something that, you know, we think about a lot these days, the price of groceries, you know, homeowners insurance, unfortunately is in that category. It's still a great decision financially to try to be a

homeowner, to buy a home rather than to be a renter. You just want to make sure to do a lot of research about what that decision is that you're making and whether it's a personally responsible decision. And there's no way to know if insurers are going to pull out of your area in advance. So if that contract is just for one year, we're going to assume that it's going to go up over time. But we don't know if insurers are going to leave that area altogether. And that's going to jump exponentially. Yeah. If you can get it, right? So that's one one consideration. And so that's where the kind of the market signals are really important to pay attention to. That's the headlines. That's understanding what the different hazards are in that market and then making a

decision about where to live. I keep hearing the word uninsurable. So what does uninsurable actually mean and how many people are uninsurable? Yeah. So uninsurable means that the home is just too risky, right? So an insurance company, they're not looking at, you know, they're not looking at the individual human. They're looking at overall to set rates. They have models that they build. And they have to, in order to run a viable business, they have to offer you insurance at a premium, at a rate that actually is going to cover the losses. So generally what happens is like overall, if you think about where insurance comes from, it's like individual homes burning down, individual car accidents, those things are not related. Disasters are all of the homes burning

at the same time. And so if that would typically happen, you know, once in a great while, It would eat up profits for that year and there would be kind of what they would call a non-repeatable loss. And then they would make up for a few years of profit, a few quieter years. We're not seeing so many quiet years anymore. That's where the insurance companies are looking at and going, we're going to go out of business. We can't pay all these premiums. And the individual homeowners certainly are not going to be willing to pay premiums that are high enough to actually make a business model work. That's why the insurance companies are pulling out.

I mean, a lot of kind of the name brand homeowners insurance companies haven't been in Florida for a long time, right? So then you have kind of smaller players who might come in there, might be less trustworthy. And then everyone's going to say, well, I don't trust the industry as a whole. And that creates a big problem. So the whole thing just doesn't work when there's no trust in the system, when there's no viable business model. And then we are kind of looking to government to kind of make up for that shortfall and ultimately falls on the taxpayer. So let's talk about the people who are already in their homes, the second bucket. As you mentioned, it's important to diversify.

Cosign could not agree more on that one, Chloe. If somebody, though, has a big amount of savings tied up in their home, a big percentage of their net worth, their life savings tied up in their home. What should they do differently with everything happening in the insurance world right now? Yeah. Most of us do, right? If you are lucky enough to own a home, it's usually your biggest asset. That's where it starts with the information. There is a lot you can do to understand what your insurance does and does not cover. So start there. And then figure out how you can kind of figure out ways to mitigate the risks that you can. I mean, you know, I live in a multi-unit condo in the middle of New York City. And so flooding does happen, even though I'm at the highest point in Brooklyn because, you know, resilience expert, I plan that. But still, you have extreme waterfall. It clogs, you know, the infrastructure, right? The drains.

And so the street floods. And so that becomes a problem of infrastructure. So that's why this is a community-wide problem. It's not a lot you can do about the storm drain, although people in Brooklyn do actually go out and like unclogged the drains in real time, which is crazy. But that's where we are. But it's a matter of that. Like if it's a matter of like unclogging the storm drain next to your house so that your basement doesn't flood, well, maybe you want to do that. it's a matter of having a generator if you understand that the power is going to go out not as big of an issue here in california but in flooded areas

sometimes it's the flood water that creates major major damage but often it's mold afterward so if you understand that and you can have some of this industrial fans handy or you just dry it out as quickly as possible that's going to save you a lot of money in the long run so just understanding what the risks are and the things that you can do to kind of take it into your own hands unfortunately, that's a big part of it, ensuring away some part of it, that's risk transfer. And then, you know, long term, thinking about, you know, saving in other ways, diversifying as much as possible so that you're not reliant on one asset. Well, you explain. You're at the tallest point in Brooklyn? Yeah, close to it. So you can protect yourself from floods?

Yeah. Yeah. I mean, I looked at a home that was, you know, really close to the water when we were looking for our condo. and I asked them how it went out, it fair during Hurricane Sandy. And they were like, oh, we were high and dry. We were just four blocks away from the floodwaters.

And I was like, four blocks is not far enough for me. So no, I don't feel good about that. And they don't have to tell you the truth. No, no, no, they don't have to. It's a homeowner, right? So they're going to tell you what they know. How do you really decide what they know or didn't know? And so it's not necessarily totally clear what has happened.

It's very, very murky. and hard to look up individual property histories. Yes, it is. What is one thing that is happening quietly right now that nobody is talking about that will become a big deal in five years? Yeah, so one of the things is that we are starting to see this kind of impact the actual pricing of houses in the market. So on the one hand, you have sort of the home price

that is assuming that it's insurable. there's also the home price, maybe kind of the home values reducing slowly because it's likely that that home may have insurance now. It might be uninsurable in the future. It's not totally clear. And so that's going to soften home values overall. So as those communities start to have difficulty moving whole blocks of homes, that's where you start to see whole communities have eroding tax bases. Maybe you have some blocks that are just not habitable anymore. You have sort of like what they call nuisance flooding in some neighborhoods where, you know, it might be a sunny day, but there's suddenly like water on the block where they're never used to be. And so over time, that makes that street, yes, is affected, but the whole community is affected because those homes are sitting empty. And that's reducing, you know, the community tax bases that we all rely on for.

for like good schools, for example. So that affects a whole community, which affects a whole state, which affects the whole country. What worries you? Was that one not enough? I mean, if you really like spell it out, what do you think is the worst case scenario? I think the worst case scenario, well, there's a lot of worst case scenarios, but I worry about that we're not taking the time that we have to look at these problems. and deal with them in sort of a sensible and organized way.

The good news about this is that we are seeing signals that give us warnings that should say maybe we shouldn't totally build in these areas or we should build more responsibly. Maybe we should expand the housing stock in slightly safer zones, slightly safer areas of the country, build in different ways. Because once you build, it's harder to kind of harden then. It's easier to build it back better. That's why that rebuilding phases,

so important. So I worry that we're just going to kind of dig our heels in and continue with the same old, same old until it's too late. And at that point, it's, you know, you're making decisions during a time of evacuation or a time of crisis. And so, you know, you can do things fast, cheaper quality. You can get two out of three, but you can't really get all three at the same time. So if you want to have good results, let's take the time that we have with these market signals that we're getting to improve overall and to take steps to make our future. safer. Because the worst case scenario, if premiums keep going up, people are priced out of homes or they're forced to sell their homes because they're not able to pay. They can't sell it because it's not

insurable and people can't get a mortgage to buy it. And most people buy with a mortgage like 92% of people use a mortgage for their first time home purchase. So if you can't get insurance, you can't get a mortgage. Then you're looking for cash buyers. There aren't very many of those. so then how's it sit empty? And that can lead people to foreclosure and bankruptcy. And that is just a terrible position for lots and lots of people. And I don't want that for people's future. I don't want that either.

And there's only so much we can control of our own situation, right? It's hard to control the extrapolated macroeconomic theaters and apocalyptic. Yeah. You can only control your own micro economy. You can't control what's happening in the macro. economy in the insurance industry writ large. So what can I do to protect myself moving forward, knowing everything that you laid out? You talked about a generator. You know, after the fires, my husband put together like this doomsday kit of sorts. But you said it. He did it after the

fire, right? So there's a lot of research on risk psychology of like, we're really optimistic generally. It's what gets us out of bed in the morning. We are living with quite a bit of risk every day. So during blue sky days, we don't want to think about the gray sky. What you can do is understand that that is who we are and spend a little of the time on the kind of boring stuff of understanding where you are and what you have and what you can do during the blue sky time so that you're prepared for the storm. So for one, we talked about reading the insurance policy, but also you should have a copy of it, not just the paper copy that they sent you that's somewhere in your home that is vulnerable to fire and flood. You want to have it

digitally backed up. You can also have all of these important papers, you know, in Ziploc bags, in a plastic bin kind of thing, but you also want them backed up somewhere in the cloud on a thumb drive, right? This is super key. Yeah, like your marriage license, like your driver's license, all this stuff that I didn't have. I left with. the clothes on my back. I didn't take my wallet. I didn't take a license. I didn't take any of these documents, any of the lease for our office that I needed to then do all of this stuff. And I had no idea how important each of those documents would be to get the other document. Getting a passport without a license is something I don't wish on. Really hard. Yeah. So you want to have all of those

documents backed up, like I said, in the cloud. You also want to make sure that copies of prescriptions are in the cloud because a lot of people don't really understand what their prescriptions are, often life-saving medications, particularly if they're elderly, no idea what they're actually taking. So you want to have a copy of that because your pharmacy might have burned down too, right? So that's really important, something that people overlook. And again, it has to be somewhere backed up that it's not going to be just in your home if you're leaving. You can have something in your trunk, but also make sure you take proper cybersecurity considerations because if you're backing up all of this important sensitive data somewhere,

you want to make sure that it is protected as well. So take some of those, keep some of those basics in mind. Do you have a recommendation for that? There are different ways, right? Like you can use a password protector, do not use the same password for everything, right? Make sure that it's in some sort of like cloud, whether that's an iCloud or a Dropbox or something like that one drive. It doesn't really matter what it is.

Just make sure that you're not using the same password for everything. That's the basics. And two-factor authentication. Yeah, it doesn't have to get fancy, but people have come for me when I said, get a digital go back and they're like, yeah, but identity fraud, which is a very real thing in the aftermath of these kinds of crises. So that is important. And then we just like there's a special place in hell for people who pray on. There is, but there are a lot of them because it's an opportunity. There are a lot of them. So, you know, then when you have all of that information, the other thing you really should do is take like a digital inventory. of the basic things of your home

or the most valuable assets that you have in your house because again, it might be that you have coverage for that and if you do, you're going to have to give them an inventory of what was in your home. And for many people,

that's very traumatic. Understandably, that's the second trauma of going through and recording it all. You can do that in advance at least with some of the basics, jewelry books, you know, that kind of stuff.

For me, it's books, obviously. But appliances, all of these other things that you're going to look for payouts. So it's important to have that. That is such a no-brainer. Just walk through your house. I so wish I had a video of everything, every drawer, just open it up.

You know, you will be so happy. Yeah. So protect yourself with those things. Think about where you would go, talk to your family about that. Because especially with something like a wildfire or an earthquake, it doesn't give you a warning like a hurricane does. So you want to know, like talk to your kids and your spouse about like if we don't have internet, if we don't have cell service, like where would we meet? Where would we go? Who would we stay with? Who would we talk to? Like, these are, these are the kind of basic things that don't cost a lot of money.

They do take a little bit of time. But it's going to make a very meaningful difference in the aftermath of that disaster. Jared, my husband put together like some Starlink thing. Oh, yeah. Good. Some extra Wi-Fi just in case. We've gone like way extra. Change of clothes, you know, some real basic toiletries. Like that's, you're lucky. here in California, you have cars, you have the trunk of your car, you can just keep a little bag in there. But people, people don't. You know, I give this talk all the time. And sometimes the emergency managers are like doctors and they don't even have it for themselves, right? So

it's important for all of us to really take a little bit of time to do those small things that will just make the reality of when something like this happens a little bit more comfortable. I know. It's never fun to think about the gray skies, but they happen. They do. I'm living proof. So let's double click again on the question that might be uncomfortable, but we are money rehab. So we want to know who's going to pay for this. A combination, right? Like we think about insurance companies as the ones that are paying it out. But they didn't create this problem.

Insurance is one tool for managing the problem. We often have, we expect government to come in here. But there's all kinds of issues around like moral hazard, right? Like our electives want to create funds. and they have incentives to do so to create these sort of like state-sponsored insurance plans of last resort. So you mentioned like if an insurance company says, I'm not covering anymore, I'm pulling out of a market. Often that drives people to kind of bare bones state-sponsored plans. Like that means the taxpayer in California. Yeah, the fair plan. A lot of states have versions of

this. Florida is a very strained market on the East Coast, obviously pretty legendary with hurricanes, that sort of thing. So those plans are designed to like bring your house back up to like bear bones livable. It's not covering ALE. It's not covering like anything that was in your home, all of that kind of stuff, right? Those are additional costs. It's just kind of to protect the housing stock. That protects property values and it protects tax bases. And so that's what kind of feeds into the whole system to make communities viable places. And that's why this is kind of a ticking time bomb of like everyone sort of has to pay in a piece of it. And then it creates systemic level issues. Obviously, it's affecting homeowners. New homeowners, existing homeowners. You're going to have to pay out

something, right? Like there's going to be a very real cost when something happens. So that's where having the emergency fund really matters. Then you want to make sure that you have meaningful insurance so that insurance comes through. And it often does, as long as you've purchased the kind of policy that you think you're purchasing. That's where reading the fine print comes in handy or using an LLM to at least get started for you, but check those hallucinations. So make sure that you have meaningful insurance. That means what you think it means. That will make a big, big difference for you because these markets are reasonably viable and there are lots of kinds of new innovations to try to make them more viable ways to make these payouts a little

easier on everybody so that the markets stay there. We need these robust private sector markets because otherwise it ends up on governments. And so those government plans are really important, but those are meant to be a last resort. They're not going to cover kind of your whole life. They're really just the minimum that we need to keep people in their homes to keep the housing stock viable in that community. So everyone has like a little piece of this. And then you have like the insurance companies for the insurers. And then ultimately those end up in the markets.

So a little bit of that debt ends up in the market. Be on the hook. I mean, isn't this literally their job? They are on the hook for some of it. But if they go out of business, then there's no insurance company. And that becomes a major problem. So then there's the argument that the companies whose pollution created this mess should be on the hook for it. What do you think about that?

It sounds good, right? It sounds like a great answer. But in legal practice, it's really complicated. And then there's also like, yes, there's the companies that created the pollution. or I guess extracted the fossil fuels, but then those were used by other companies that were ultimately used by consumers. So this is a collective action problem. This is an us problem. So yeah, some of those things are maybe being discussed or we'll have those conversations and we need to have those conversations. That's really on what they call it climate mitigation side of things.

We're talking about the climate adaptation side, which is like, well, we didn't do it. we didn't make a transition happen. The planet is warming. We do have to adapt because for a long time, people were only talking about like reducing fossil fuels, preventing the warming from happening. We saw how well that conversation went. So people didn't want to talk about adaptation because that would assume that it was going to happen. Well, it's here. So we need to talk about the adaptation. That's protecting ourselves. That's taking back some level of control for making sure that we have a viable future and that we are in a decent financial shape. Because like you said, said, there's these systemic level things that we can't really control.

What we can control is our preparation for these risks and our reaction to them. And we can't go back. No, we can't. We can't go back. We can only go forward. Yep. Even though the forward feels uncomfortable at best, we talked about worst-case scenario for the next five to ten years. Perhaps we should talk about best-case scenario or realistic scenario.

you know, prices are going to go up. This is everybody's problem. We get that. So what is the most likely outcome with what we're seeing right now in the overall insurance industry? Yeah, I think we're going to see some changes. Obviously, there's a place for regulators. The cool thing about the United States in some ways is that every state regulates their own insurance market. What that means is you have 50 different experiments.

happening at the same time for better or worse, every state can kind of take on their own way of doing this and hopefully then they can share some best practices. So there's a lot of stuff that's happening kind of in the market itself. There's things like parametric insurance. So that sounds really fancy, but basically what it means is a way to get the money to people faster. So parametric means that there's some predetermined weather event that happens that triggers a payout. No need for those adjusters, no need to quibble over what happened or did not happen to your property. You just get a check faster. That sounds really great.

And we actually saw this happen with Jamaica recently where they had a parametric trigger for a cat bond for the whole country. And they got money faster. That worked out really well. Super exciting. On the individual level, what that might mean is that some people have a house that was burned to the ground and they get a payout faster and that helps them rebuild great. What it also might mean is that the house next door that had zero. damage also gets the same check. And so that may or may not actually lead to more trust in the system. So I think it's important to be aware that there's going to need to be a lot of kind of

consumer education about what that means and why that's happening, especially in our era of misinformation and disinformation and people learning all kinds of, you know, hearing all kinds of stories. It's important to build trust around these things as well in order to make changes. But what we definitely know is that we need some of these changes to come through so that we have viable markets so that we can get money into families' pockets faster after something happens. So wait, when you say the trust needs to be there for somebody whose home might not have burned down, let's say, or flooded or something, and they had the damage and they would get the same amount as somebody next door who was a total loss, essentially. And so where is the breakdown of trust there? So that might, you know, like if you are, if you have the, that sort of system, which we don't really have. We've seen small examples of experiments and, like I said, country level.

But I can picture some influencer saying so-and-so got a check. So they didn't need it. This is fraud, right? That kind of thing. So we would need to understand like this is just kind of getting money to everyone in the community. It's kind of like what happened with checks during COVID, but then we also saw that that can also lead to inflation. So there's a lot of concern there, too, of just kind of pumping money at the problem, leading to more inflation. So you want to be very sensitive in some of these experiments so that we're not just completely, you know, tipping our systems in ways that we can't totally control.

Are there insurance influencers? I feel like there should be. Spencer Pratt, maybe. It's hard. It's hard. Yeah, maybe. He's working hard on it, right? He didn't have insurance, though.

And that's part of this. This is part of what we've seen so much anger out there because either insurance policies were simply too expensive or they were canceled altogether. And you've been in the rooms where this has happened. What is it like if somebody is left uninsured for a variety of reasons after disaster? They're totally left on their own. They're left on their own savings. They're left on their own resources. So they have to leave that home and anything that we're.

went into it. It's gone. It's foreclosure. It's bankruptcy. It's living with relatives. If you've got them, it's moving to a different community. We saw this after some of the fires. If someone finds temporary housing, that's maybe like a two hour each way commute from their job, if they still have a job. You know, it really impacts people's lives. And so if you don't have any emergency savings, that's a huge problem. Some people have some savings, right? But then they kind of cash out a 401k or to pay for some of these repairs, maybe that builds back their house, but then they don't have any retirement savings,

and they're not going to benefit from that compound interest over time. So, you know, they might have a house to live in, but they no longer have a healthy, diversified portfolio. So very real challenges. And no easy story. It's a lot of individual stories that all kind of come together. You know, I think about whether it's fire or hurricane. And I've seen so often like young couples, they've saved up for years.

They buy a house. They're so excited. They finally qualified for that mortgage. They've written that big check, usually the biggest check that people are going to write in their lives. And, you know, they start the family and then have the baby shower, right? And then all of that's gone. All of that stuff is gone. They have to pay for it.

They're suddenly maybe back with family or in some sort of crappy rental for a long time. And it just sets people back. And we're seeing people be set back by all kinds of. forces right now. So I hope this isn't one of them. That's another pressure on families. Okay. So let's move forward, not go back. Chloe, we end all of our episodes by asking all of our guests for a tip that listeners can take straight to the bank. You've given us a lot of specific actionable advice that we can take right now around the insurance conundrum. Can you give us just one more that homeowners can keep in mind to protect themselves today?

raid your policy, shop around, understand what your community is doing, what proposals are happening in your community for how this is going to affect you over the next decade. Know what your risks are and have that go bag.