Posted by Suzanne on February 04, 2002 at 16:49:49:
What if you could create terms where the owner and buyer would split the insurance costs until the house is sold to the buyer or until the insurance rates go down? The owner may go for it if the insurance rates were that high.
Once the house is paid off, the new owner would be able to pay the rest of the insurance from the house payments they were making. If the insurance goes higher than the acutal house payments, I will be highly surpised.
I do not really see insurance rates going that high. I agree with some others who posted that either you would have to buy a seperate deductibale for what is making the insurance sky rocket or the insurance company would put it in the exclusion list.
The end of insurance? (read!) - Posted by Bryan in Cali
Posted by Bryan in Cali on February 03, 2002 at 19:42:12:
I emailed the following reply to “dave” who asked:
>Dated : February 03, 2002 at 16:06:40
>Subject: Warren Buffett prediction?
>
>Hello Bryan,
>I am just curious, do you know where you read the Warren Buffett statement. If you can tell me what magazine or newspaper, I can search for the article online.
>Thanks in advance,
>
>dave
>
It’s in the Newsweek dated January 14, page 50. The basic thrust of the article is that since insurers are having to pay $50 billion in claims for a risk (terrorists flying jumbo jets into skyscrapers) that nobody could have foreseen, and that insurance losses from future terrorist attacks could be catastrophic (like my example of Al Qaeda detonating a nuke in Manhattan) the insurance industry will be forced to charge unaffordable premiums or just go out of business altogether, either because nobody will pay the premiums or they can’t quantify risk any longer. Warren Buffett said-direct quote-that since nobody will be able to get real estate insurance anymore, “This could slowly but surely lead to the de-urbanization of America and the closing of any iconic buildings.” Think about this: if there’s no real estate insurance (and by extension no insurance at all, because the whole industry has gone casters up) will you be able to buy an apartment building? Even a SFH? Or a car? Or anything? If there’s no insurance, will people be able to afford to live in close proximity to each other? If not, how will the hills and plains support millions of people? Should we just turn over the keys to Al Qaeda and grow beards, wear Muslim dress, and learn Arabic? (And give up TV and music and dancing and keeping pets and…?) Moving to Sparks, Nevada doesn’t look so bad after all. How do you say “Reno” in Arabic? I know that I tend to exaggerate (manic depression does that to you) but I think I may be too close to reality here…
Posted by Tom (GA) on February 04, 2002 at 13:45:26:
There will not be an end to real estate insurance because of the recent terrorist activity. The worst that will happen is that it will be excluded from covered events. In fact, you could make the argument that it already is because acts of war are not normally covered by insurance. The same with floods.
Thinking that the financial world as we know it is ending, at least recognize that Warren Buffet, this countries 2nd wealthiest man, is using the press to negotiate his position. Berkshire Hathaway, Warren Buffet’s investment company, is heavily invested in insurance, banking (mortgages) and related industries. Whenever Warren speaks, many in the media and financial world (and Congress) listen, and that is exactly what he is hoping for.
Buffet has a plan, as outlined in the article that you referenced, and it is not being taken serioulsy, so he is using the media as his method of garnering attention, for his own self interest. He may be blowing the trumphet, signifying the end of the world as we knew it, a little too hard, for the sake of insulating Warren’s riches from inordinant risk. He has done so many times before, very successfully.
Remember the old ads about “when E.F. Hutton speaks, evrybody listens”… well old E.F. has been replaced by Warren Buffet… when his lips start moving, you can hear a pin drop.
Don’t run for the exits quite yet. Yes, this will create some short-term uncertainty, and possible difficulty in our abilities to secure adequate insurance, but this too shall pass.
Posted by DC (IL) on February 03, 2002 at 20:31:44:
But I wonder how far the insurance industry can actually go with this? What about the banks’ stipulations on the mortgage note that the property be insured? Won’t there be a clash between the banking and insurance industries? Think of the ramifications this could have for our already weak economy! I mean really, who would be able to afford ANY type of housing if the insurance portion of you mortgage payment were to skyrocket? The ripple effect of such a problem could spell trouble for our economy. I guess everyone will have to start getting J.O.B.s if it’s no longer feasible to own rental property.
I’m hoping that this is just a scare and will soon pass. My guess is that it’s not much to worry about (at least for the moment).
Re: The end of insurance? (read!) - Posted by Rob FL
Posted by Rob FL on February 03, 2002 at 20:11:20:
Back in 1992, Hurricane Andrew went through South Dade County and was literally as damaging as a small nuclear blast. Alot of insurance companies went running for their lives.
I had an Allstate policy on my home in Orlando at the time (over 300 miles from Dade County and 60 miles inland). Sure enough Allstate sent me a letter saying they had too many policies in Florida and were canceling my policy. No big deal, I found another company.
The Florida legislature acutally created a joint-underwriter backed by multiple companies to handle this fallout of insurance companies.
Move forward 10 years, Allstate is back big time into Florida. I easily picked up 2 more Allstate hazard insurance policies during the last few years and a pile more from other insurance companies. The joint-underwriter created by the legislature has sold off all but a small percentage of their insurance policies. Things are basically business as usual except that now all insurance policies have a separate deductible for “windstorm damage.”
I seriously doubt that the insurance industry will be disappearing any time soon. Those guys are probably the second biggest industry in the world next to banking.
Due to the insurer saying they have too many policies in Texas, our premiums are paid up, and it came as a shock… here in Texas there is a big black mold scare going on…
So they said (our ins. broker) that they can put us with someone else but, of course it will be more expensive… also… just canceling these policies of the blue in my opinion is unethical…
I think they are just jumping on the bandwagon… of the mold scare and possibly the bigger possibility of what you talk about…
Although I didnt even know about RE in the 80’s… you never know what could cause the next shake out… maybe this is it…
Everyone worries about interest rates going up, subject to deals being called due… which I don’t see…
Hmmm… Wild… but, loans without insurance… not pretty… go figure… you never know when or how you’ll get hit.
Posted by Mark (SDCA) on February 04, 2002 at 11:50:51:
This is ALREADY happening. If you live in Texas… try to get property coverage… even on your personal residence… You can… for a price.
The issue here was mold, but the concept is the same.
As for the conflict between banks and insurers… It’s simple. There will ALWAYS be insurance available at a price. It will simply cost more to get a mortgage because of increased insurance costs.
This is a very real concern. I don’t believe it will be the end of the world, but it’s effects are being felt in the multi housing market and building owners are going to have to pass this on to tenants. In Texas last year they experienced major hail damage storms and major flooding which hurt the insurance companies. Then 9/11 made things obviously worse. Between 1997 and 2001, our cost for property insurance was between 14 and 18.5 cents per $100 property value. After 9/11, the cost has increased to 50 cents per $100 property value. The liability portion of the policy did not increase nearly as much, but the umbrella liability portion went up about 70%. All in all, my premiums more than doubled. I have friends in other parts of the country that have seen their multi family premiums double. This has not been my experience with my personal residence as that premium increased only about 6%. But multi family is being hit. In my opinion, this will pass with time, but will hurt short term.
Re: Interesting dilemma, but also opportunity - Posted by Suzanne
Posted by Suzanne on February 04, 2002 at 14:21:22:
If the insurance prices goes up and it is harder to get a traditional mortgage because of that, then wouldn’t that create more of a demand for Real Estate Investors?
The owners will have alot harder time trying to sell through realtors since mortgages have been more difficult to obtain. The realtors will get more picky about which houses they list. The owners who can not get the house sold through a realtor or can not get it listed with them becomes a motivated seller. You as an investor step in with your owner financing or whatever else is in your arsenal of creative financing deals.
Since it is almost impossible for the average person to get mortgages, you have an increased demand of people wanting to buy housing through non-traditional means.
I would think that this may increase hard money lenders business, because they would have more people wanting to borrow money to buy houses bypassing a bank, if the LTV is low enough and the lender feels it is worth the risk.
I’m usually on the oppsite side of the track of people running around in a panic. What they see as their world crumbling, there are people looking at the same situation and seeing opportunity.
The trick is to get yourself away from the panic crowd into the opportunity crowd. Many people who have made it rich have seen the deals when no one else has.
Posted by Rob FL on February 04, 2002 at 10:07:39:
Close to disappearing is doubtful. People simply came up with other ways to handle things. In 1929, the federal government put in some safeguards but even then the majority of the banks stayed in business.
As for the S&L crisis, at least in my opinion the RTC put alot of lenders out of business that probably could of survived on their own through some simple reorganizing. Instead the RTC came in and sold their assets for ridiculous discounts. And guess who they sold it to. Other lenders who were circling like vultures over the dead S&L.
I think long term what will happen with the insurance companies is simply another policy exclusion for “terrorist acts” or something similar to that. Have you ever read the exclusions page of your current homeowner’s insurance policy. It almost appears that the insurance companies exclude more things than the cover.
Just like banks, insurance companies have been around for hundreds of years. I don’t think they are going away any time soon. They will just get smarter.
Posted by Franko (IA) on February 04, 2002 at 15:33:19:
how are YOU going to be able to provide this ‘valuable service’ aside from skittish banks if YOUR insurance on THE house your marketing is as sky high as the others?
You’re going to have to insure with someone so you’ll be paying through the nose too!