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Yes, those fires are scary, so are hurricanes.
Do those fires mean my insurance will go up?
In a word, no. Insurance rates are a state-by-state issue. If you live in New York, your insurance company sets rates as regulated by the State Insurance Department.
Hence paying billions in claims because of flooding in Texas, hurricanes in Florida or wildfires in California has no impact on your homeowner’s insurance.
The parent company might have a rough time making money but it can’t make up for losses in Florida by raising prices in New York.
Anyone with a car knows car insurance has increased drastically in New York. What they don’t know is why. It’s not insurance companies making profits because they can.
Instead, it is the function of used car prices and the supply chain.
Let's say you total a used car you bought 4 years ago for $17,000. You expect an $8,000 settlement or so. Since we are in New York, the insurance company, which has rates based on that $8,000 value, because of State Law has to do a search and identify fair market value. It discovers your car is worth $14,000.
Now rather than totaling your car, let’s say you just bang it up. You think the damage is going to be $2,500 or so, say a quarter panel and a rear bumper cover because you backed into a utility pole.
The collision shop comes back with a $4,000 estimate. All good. Now because the supply chain is messed up, the shop can’t get parts. When it does, rather than costing $1,500 they cost $1,800 and take an extra 14 days to get there. You have rental coverage at $50 per day. That makes and extra $700 in rental costs and an extra $300 in parts. The $4,000 loss to the insurance company is suddenly $5,000. Add in the extra $6,000 your got and the loss is up to $11,000.
I could paint the same picture after the fire guts your back room and the contractor prices out replacement framing lumber and roofing material. Everything costs more than anticipated.
Insurance companies, in response, sometimes decided to stop selling new insurance in New York. They also try to raise rates as high as the state allows.
Finally, they search for other sources of revenue like financial services, my vocation. Then they go to the entrepreneur who owns the agency and set a financial services goal. If they don’t hit the goal, they get dinged 2% on comp. It seems like nothing until you realize that is 2.5% on $4.5 million in revenue. That makes a $90,000 pay cut.
That makes it seem like a good time to be the investment professional working with those agents except the rules changed. I am a fiduciary. I always was, but that was codified by the SEC in the first Trump administration.
Going back to the 2016 election, I remember being fiercely lobbied to support Trump for President because if Hillary got in, we would face a “fiduciary standard. Our clients would know how much we made and we’d have to only do what was right for them.”
I stood there, with a blank look on my face.
“What do you mean?” I said. “You guys don’t just do what is right for your clients all the time? How do you sleep at night?”
I got blank stares.
A decade later I am still grinding forward, only doing what is right for people, helping with life insurance and retirement planning. Several of my coworkers from that conversation back in 2015 have moved on to new careers while I just made Million Dollar Roundtable for the first time.
