economics

Insurance

News for homeowners in Florida who wish to have insurance is rough. Insurance companies can’t do business in Florida, mostly because of the high cost of hurricane damage. The average Florida homeowner is paying $4,231 for their property insurance: nearly triple the national rate of $1,544. Homeowners in Florida pay the highest rates of any state in the US. Those rates are set to increase in June by an estimated 40%, on average.

The state of Florida has a taxpayer funded insurance system for those who cannot obtain homeowners’ insurance from a private carrier. This carrier is called Citizens’ Insurance. One in five Florida homes is insured by that fund, and that number will continue to climb as insurers leave the state. Things can’t continue on this path.

Insurance is nothing but a dilution of risk. That is, the risk of damage to homes is spread out among all of the people who have insurance policies, and the premiums of everyone are used to pay the damages of those who have losses. The problem with diluting risk in Florida is that oceanfront homes are worth 50 to 100 times as much as homes located further inland. For every insured oceanfront home that is lost, the premiums of as many as 150 inland homes are used paying for the damages. Pick any coastal city in Florida and look at the home costs. A single family home on the oceanfront that sells for less than $1,000 per square foot is a steal. In Miami, single family oceanfront homes START at $20 million each.

Couple that with the fact that the vast majority of hurricane damage is within two miles of the coast. Insurance companies can’t charge $100,000 a year for insurance premiums, so they spread that cost amongst every homeowner in Florida. This can’t continue because it is mathematically impossible for the situation to stay as it is. Currently, I pay 1.5% of the value of my house each year to insure it.

If the state of Florida wants to fix the insurance problem in the state, they need to divorce the risk pool of oceanfront homeowners from the rest of the state’s homeowners. If you want to build and live in a $10 million home on the beach, fine. But make your insurance premiums 5% of the home’s value, but stop raising my insurance to cover for your house.

By Divemedic, ago

Shell Game

California is going to a fixed rate electrical billing system where electric rates are set by the household’s income level.

  • Households earning less than $28,000 a year would pay a fixed charge of $15 a month on their electric bills in Edison and PG&E territories and $24 a month in SDG&E territory.
  • Households with annual income from $28,000 – $69,000 would pay $20 a month in Edison territory, $34 a month in SDG&E territory and $30 a month in PG&E territory.
  • Households earning from $69,000 – $180,000 would pay $51 a month in Edison and PG&E territories and $73 a month in SDG&E territory.
  • Those with incomes above $180,000 would pay $85 a month in Edison territory, $128 a month in SDG&E territory and $92 a month in PG&E territory.

Setting aside the entire “make more/pay more” thing, this is really dumb. People will be paying between $15 and $128 per month for electricity, no matter how much they consume? Yep, that is EXACTLY what they are proposing.

Under the SDG&E plan, customers would pay a fixed price that covers most of the utility’s energy delivery service that would not change month-to-month regardless of how much electricity is consumed.  

I said to myself that there had to be a catch. It turns out that there is. This pricing scheme only covers the part of your electric bill that is sold via SDG&E.

 This portion of a customer’s bill, which is mostly related to the electricity purchased from natural gas, wind and solar plants, will continue to vary based on electricity usage. In San Diego County, nearly 85% of customers have their electricity purchased by local governments known as community choice aggregators or other entities – not SDG&E.

OK. This is just another grift, with the intention of redistributing money from one class to another, using socialism as cover.

By Divemedic, ago

CA Price Controls

California will be enacting price controls on gasoline within the next 4 months, with the expressed purpose of eliminating gas and oil from the state.

As I predicted this moths ago, communists always start by going after landlords before enacting price controls elsewhere. Price controls always fail. California is headed for disaster. If you are an oil company, there is only one way to beat this, but I don’t think that they have the balls to do it. The stated goal is to put the oil companies out of business, so Californians will switch to wind power. OK. Let’s do it:

This important legislation should be part of an all-out push to move the state to clean, renewable energy and off oil and gas

Stop selling all gasoline in the state immediately. Within 72 hours, there won’t be a cop car, city bus, fire truck, or National Guard vehicle moving in that state. No more food deliveries. No more goods moving anywhere in California. Give them what they want. Now they are dependent on wind and solar.

The law will be gone in less than a week.

But the oil companies won’t do it, and will participate in their own destruction.

By Divemedic, ago

Biden’s War on Banks

So the Biden administration has just guaranteed all depositors of the SVB bank. Now that he has taken this step, this has effectively nationalized all of the deposits of all banks in the country. Now banks are free to take all of the risks that they want, because they aren’t risking their own, or even their depositors’ money. It’s more free money from Uncle Sugar’s printing press.

The thing is, those who owned stock in the bank are getting screwed out of their money. The bank has declared bankruptcy, and anyone who owned stock in the bank can’t even sell it. In fact, those who were selling the bank short have also lost all of their money. The billionaire depositors are being bailed out, but the bank’s stockholders are not.

The government has removed risk from the banking sector, now it doesn’t matter if you are a good bank manager or not, you are gonna get paid by the taxpayers. There are those calling this a failure of capitalism, but they are wrong. In a free market system, well run businesses are rewarded, poorly run businesses fail. That is how the market stays healthy- the poorly run businesses are eliminated.

Not so in our system. In this system, poorly run businesses that are favored by government are continually bailed out, thus avoiding all consequences of their poor decision making. This is the government picking winners and losers. So let’s look ahead and see the consequences:

Stocks in small banks just became a whole lot riskier, while keeping huge balances in them are now without risk. Banks will have gigantic pools of money that they are now able to use to make risky loans and investments. If the risks don’t pan out, the depositors will be made whole, and the stockholders left holding the bag. A larger bank will then buy out those risky investments for pennies on the dollar. It’s a system begging for abuse and fraud. The ultimate consequence is the destruction of small banks, concentrating all banking in the realm of banks that the government has deemed “too big to fail.”

I wonder who paid one of the Biden clan to make this happen, and how much did it cost?

By Divemedic, ago

Insurance as an Inflation Indicator

I closed the books on 2022 and got our taxes filed this past weekend, a full month early. I didn’t do too bad with the projections from last year. We only owed $400 this year. It’s the smallest check to the IRS I’ve written in quite a few years. With that, the financial merry go round never stops. It’s time to start on 2023’s projections.

Our insurance costs went up significantly this year. We just got our insurance bills for the year. Homeowner’s insurance is up 35%, auto insurance up 11%, and our umbrella policy is up 10%. Overall, insurance costs are 16% higher than last year.

The stunning increase came from our rental. Expenses for running our rental were up 27% year over year (2021 to 2022). We only raised rent by 11%, so we lost ground, making our margins smaller. We made a profit of about 7.4% on our investment. Our target is 8%, so we were a little under what we want to see.

This is being caused by increasing expenses. It’s going to be just as bad for 2023, and we only raised rent by 12%. For our rental, insurance is up by 56%, 2022 to 2023. In fact, we are seeing big increases across the board:

  • Insurance is up 56%
  • Pest Control up 7%
  • Termite treatments up 12%
  • Lawn Service up 10%

I do all repairs, and that is dependent on how many problems there are. Still, we are looking overall at a 20% increase in expenses there. That will mean another rent increase next year, and we may see a loss for 2023. That will mean a minimum of a 10% increase in rent for 2024, perhaps as high as 20%. I would love to hold it to less than 15%, but that depends on how the rest of 2023 goes.

There are regulatory filings with the state that are due in April. Required annual reports, fees paid to registered agents, those sorts of thing. Those remained unchanged from last year.

The next big expense will be coming in July when we get the TRIM notice of expected property taxes from the county. Since our largest expenses are insurance and taxes, that largely sets the rental rates for the coming year.

I imagine that many households are seeing similar increases in their budgets. I am guessing that inflation’s true number is somewhere around 15%, all things considered.

By Divemedic, ago

Taxes Are Racist

It’s tax season, and now we have an article claiming that taxes are racist: “Black married couples face heavier tax penalties than white couples,” and it’s pure BS. This is the logic:

When a Black or white couple have the same income, deductions and family structure, they will have the same tax liability, Gale said. But given the average economic differences between white and Black couples, according to the report, Black married couples are still more likely to face penalties and smaller bonuses.

Before tearing into the faulty logic here, I want to point out that “white” is not capitalized once in the article, while “Black” is capitalized every time. A bit of subtle “othering” that happens in journalism today.

So the taxes aren’t racist, it’s just that black married couples have more children than their white counterparts and taxpayers with children generally tend to face larger penalties under our current tax code. So it would be more accurate to say that the tax code discriminates against those with children.

I call bullshit on that, too. If a couple has a child, they get additional personal exemptions, they also get:

  • child tax credit
  • dependent care credit
  • earned income credit
  • adoption credit
  • education credit

Let’s look at two married couples: they have the same income, same jobs, same financial situation. Each couple earns a combined $68,000 a year. Their employers withheld $5,000 from their paychecks for Federal taxes. The only difference is that couple one has no children, and couple two has two children.

Couple one is in the 12 percent tax bracket, with an effective tax rate of 11.03%. They will pay $4,644 in Federal income taxes this year, so they will get a $356 refund.

Couple two has two children. They are both latchkey children, so there are no childcare expenses to deduct. They are also in the 12 % bracket, and had the same effective tax rate as couple two. However, they get more credits, so only wind up paying a net $644 in Federal income tax, and will wind up with a refund of $4,356.

So if in fact black couples have more children that whites, blacks pay LESS in taxes.

By Divemedic, ago