Latest news with #Gelles
Yahoo
21-05-2025
- Business
- Yahoo
How To Fix California's Self-Inflicted Homeowner's Insurance Crisis
According to a recent news story, California's raging home insurance woes are a result of climate change. That's certainly true if the climate we're talking about is the state's regulatory climate. Like many of California's problems, the insurance crisis is a self-inflicted wound—in this case, one suffered when residents and regulators turned a once-competitive market for insurance into a command economy in which insurers are increasingly unwilling to operate. Fortunately, the market for home insurance can be improved if Californians are willing to address their (regulatory) climate problems. "Just months after fires devastated parts of Los Angeles, one of the leading home insurers in California, State Farm, is temporarily raising rates 17 percent," The New York Times' David Gelles wrote May 15. He cited this rate hike, which follows on an even larger one last year, as "just the latest example of the indirect but increasingly costly ways that climate change is affecting the American economy." But the "insurance crisis" that Gelles points to in California and sees "spreading across the country" isn't just the result of temperature fluctuations or shifts in humidity. It's a foreseeable outcome of state residents voting themselves discounts at the expense of insurance companies, and of politicians catering to the public's desire to pay what they want rather than market rates. "This insurance market crisis is downstream of California's cumbersome, voter-approved insurance regulations that limit the ability of insurers to raise rates to cope with increased wildfire risks," Reason's Christian Britschgi noted in February after the Los Angeles wildfires made a bad situation even worse. In 1988, Californians passed Proposition 103 which, according to the state's summary of the measure, "required that every insurer reduce its rates to at least 20% less than the rates that were in effect on November 8, 1987 unless such rollback would lead to a company's insolvency." The California Supreme Court modified this to allow for what state officials considered "a fair rate of return," but there are more voters paying premiums than working for insurance companies, with predictable results. According to a 2023 paper from the International Center for Law and Economics, as of 2020, despite sky-high property values and well-known wildfire risks, Californians "paid an annual average of $1,285 in homeowners insurance premiums across all policy types—less than the national average of $1,319." When insurers need to raise rates to reflect risks and costs, they can only do so after extended hearings and a government review process designed to please voters, not to reflect economic reality. Unsurprisingly, well before the Los Angeles fires, insurers were limiting coverage and leaving the state. Even Insurance Commissioner Ricardo Lara admits insurers "don't have to be here, and when we try to overregulate, we'll see what happened after the Northridge earthquake, when the legislature came in and tried to overregulate, and they no longer write earthquake insurance in California." To avoid further destroying the market for insurance, California needs regulatory reform. To get reform, more state officials and residents will have to admit that they created the problem. "The root cause of California's current crisis lies in a combination of increasingly destructive wildfires and a regulatory framework that is both inefficient and inadequate in addressing the growing risks," comments the Independent Institute's Kristian Fors in a recent policy report proposing reforms for California's homeowners' insurance market. Kors points out that a functioning insurance market hedges against low probability but expensive events by spreading the costs across a pool of people paying premiums. The market works best when people are sorted by "risk classes" that more or less reflect different likelihoods that they'll ever collect on that bet over a low-probability event. All else being equal, homeowners living on a well-cleared island in the middle of a lake should probably pay lower premiums than those living amid dry brush. As mentioned above, California interferes in the market in crowd-pleasing ways, lowering costs for the insured and reducing the chance that insurers will make a profit or even break even if they participate in the market. As Kors notes, "prohibitions on using forward-looking 'catastrophe models' for assessing wildfire risks have further compounded the exposure faced by insurance companies." The state finally backed off that prohibition in December 2024. Allowing catastrophe modeling is a step in the right direction, according to Kors, "but the prior-approval process still hinders the efficient pricing mechanisms of free markets to operate." That is, California needs to get out of the business of regulating insurance rates and allow the market to operate. "Insurance companies should be able to raise and lower their prices freely, in accordance with changing market conditions, and they should also be free to incorporate any variables associated with risk in their actuarial assessments." To do that, Proposition 103 will have to be repealed. The growing severity of wildfires also needs to be addressed through better land management. "One of the most critical errors made by Cal Fire and other agencies was to focus on fire suppression rather than prevention," Kors notes. That will require forest thinning and prescribed burns to reduce the risk of uncontrollable fires. As it is, California committed in 2020 to treating 500,000 acres of forest land per year, but it has only met about a fifth of that goal (the federal government also lags in its land-management obligations). Kors adds that "a well-functioning insurance market would also minimize wildfire risk by properly incentivizing home hardening and fire mitigation practices." It would also discourage building in high-risk areas without taking steps to reduce fire danger. While a big part of the reason so many homes are built in high-risk wildland-urban interface (WUI) areas is regulatory restriction on market rates that would reflect risk, Kors adds that the state's expensive restrictions and delays on constructing new homes in desirable areas push settlement into higher-risk areas: "Eliminating the restrictions that prevent housing development would alleviate the pressure that people from all socioeconomic backgrounds, but especially those of lower incomes, experience that push them into fire-prone WUIs." That will require reform not just of insurance rules, but of zoning laws, permitting, urban growth boundaries, and other red tape that obstructs housing construction. Climate may change and risks can rise and fall, but insurance markets are capable of adjusting—if they're allowed to do so. If Californians want insurance to deal with their wildfire problems, they're going to have to undo a lot of bad policy choices. The post How To Fix California's Self-Inflicted Homeowner's Insurance Crisis appeared first on
Yahoo
28-02-2025
- Business
- Yahoo
Gen Z uses BNPL more than credit cards, survey shows
This story was originally published on Payments Dive. To receive daily news and insights, subscribe to our free daily Payments Dive newsletter. A J.D. Power consumer survey found that members of Gen Z were more apt to use buy now, pay later than credit cards in what that firm said was a first-time poll result. The analytics firm surveyed roughly 4,300 U.S. consumers, including roughly 1,000 Gen Z members, about their spending habits for all of 2024, and specifically for the 2024 holiday shopping season. For the holidays, 54% of Gen Z said they used BNPL during that time period, and 50% said they used credit cards. It was the first J.D. Power survey to show that BNPL overtook credit card use among that demographic, a Thursday news release said. The result was not completely unexpected, said Sean Gelles, senior director of payments intelligence for J.D. Power. "These products are meeting a need that is not being met by the existing products in the marketplace," he said. For the full year, 44% of Gen Z said they used buy now, pay later in 2024, compared to 50% who said they used credit cards. Among all consumers surveyed, 32% said they used buy now, pay later in 2024, a 4 percentage points increase compared to 2023, while credit card use among all survey respondents dropped 6 percentage points to 61% in 2024, compared to 2023. It isn't time for traditional financial institutions to start panicking, at least not yet, Gelles said, noting that banks and credit card networks have started to get in on the BNPL game. "You can't really generalize and say Gen Z are using buy now, pay later, more than credit cards," he said. "But you can say that during the holiday shopping season, when you have this big spike in spending, a higher percentage of Gen Zers say they use buy now, pay later at the point of sale than their actual physical credit card." Buy now, pay later companies enjoy high satisfaction rates among consumers, but legacy banks and credit card networks still have generally higher marks, he said. American Express and JPMorgan Chase --- which offer card-based buy now, pay later products --- received the highest marks from consumers surveyed by J.D. Power, Gelles noted. Klarna's BNPL product was the highest rated among buy now, pay later companies, placing it fourth behind Citi Flex Pay, that bank's BNPL offering. "They need to make sure they continue to deliver the best customer experiences," Gelles said of banks and credit card companies Recommended Reading How does Gen Z feel about credit cards? It's complicated. Sign in to access your portfolio
New York Times
14-02-2025
- Business
- New York Times
Will There Be Enough Power to Remove Carbon From the Sky?
(Editors note: This is the second edition of The Climate Fix, a twice-a-month look at some of the biggest and most promising solutions to climate change. Read the last version here . Got comments? Email us at Climateforward@ .) Thanks in large part to booming data center construction and the surge in artificial intelligence, electricity demand in the U.S. is rising for the first time in decades. But the timing of this rise in demand, as far as the race to fight global warming goes, is awkward. To help fight climate change, the nascent direct air capture industry is racing to develop technology to remove carbon dioxide directly from the sky. But in some areas of the country, the DAC industry is facing a shortage of available renewable energy to run its operations, particularly wind and solar power. As David Gelles reported last year, there's been a gold rush of investment over the last several years into companies that aim to pull carbon from the atmosphere, many of which then bury that carbon underground. One chief executive told Gelles that carbon dioxide removal was 'the single greatest opportunity I've seen in 20 years of doing venture capital.' Still, DAC companies, which are working to prove they can scale up their technology, have been vying for limited resources in an increasingly competitive U.S. power market. Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times. Thank you for your patience while we verify access. Already a subscriber? Log in. Want all of The Times? Subscribe.
