First Maui, then Western North Carolina, and now Los Angeles. The last few months have shown us how quickly the forces of nature can utterly destroy homes and businesses built over generations.
Setting aside, for the purposes of this discussion, the question of whether malice, incompetence, or plain bad luck was to blame for these events, it’s worth taking a moment to forecast the likely outcome, and the probable winners and losers.
Insurance is Not Magic
The losers in these disasters are easy to identify: they are the families, shopkeepers, retirees, and other hard-working men and women who expected that the roof over their heads yesterday would still be there tomorrow. Whether through fire or flood, they have been violently displaced – essentially turned into refugees in their own state. Nobody knows where they will go, how they will rebuild their lives, or how they will make ends meet in the meantime.
It’s common to hear people scoff at such grim observations, with comments like, “They all have insurance.” Actually, they don’t all have insurance. As actor James Woods pointed out, insurance companies have been unilaterally cancelling policies, leaving homeowners high and dry.
Also, if you’ve never been through the ordeal of a major insurance claim, you may not know what’s involved. Here are some highlights:
In the wake of a disaster, there aren’t enough insurance adjusters to handle the workload. Every property has to be inspected by a “field adjuster,” and then the claim has to be evaluated by a “desk adjuster.” When the number of claims is far above normal, you’re looking at delays of days, weeks, or longer, just waiting for somebody to review your claim.
Many property insurance policies exclude “Acts of God,” so major events like hurricanes and wildfires may not even be covered. After waiting for someone to review your claim, you may be denied any compensation at all.
If your policy does cover your loss, the insurance company won’t just write you a fat check. Based on the field adjuster’s report, the desk adjuster will calculate how much the company is willing to pay, and then break that up into multiple payments. Those payments to you are made at a leisurely pace, which becomes a problem when you have to pay contractors who don’t like being paid at a leisurely pace.
If you have a mortgage, the payment checks need to be endorsed by the mortgage company. In this Byzantine process, each check can take weeks to be issued by the insurance company, and is then snail-mailed to you. Once you receive it, you have to turn around and mail it (often with a self-addressed, postage-paid return envelope) to your mortgage company. They stamp the back, and then mail it back to you. This can also take weeks, for each check. Ask yourself this: if your home were destroyed, what address would you use for all this back-and-forth mailing, and how would you cover your expenses in the meantime?
For a large claim, the insurance company and/or the mortgage company will insist on “supervising” what you do with the money. Even in a (highly unlikely) best-case scenario, in which you have the architectural plans for your home, and you can find a contractor who can rebuild it, you will face delays at every step of the process as multiple paper-shufflers scrutinize your decisions.
Oh, and don’t forget the deductible. For natural disasters, the deductible is likely to be a percentage of the property’s value – commonly, 3%. That means the deductible is likely to be $10,000 - $20,000 for a modest home in Asheville, and $50,000 - $150,000 for a Pacific Palisades estate. Just as in the rest of the country, many people in L.A. are “house rich,” meaning they have few liquid assets other than their home. For them, the cost of the deductible, on top of what it will take to feed and house their families for the indefinite future, may well be unaffordable.
Do You Even Own Anything?
As the insurance process highlights, if you have a mortgage, you don’t actually own your property; the bank you borrowed money from is holding it as collateral until you pay off the loan. Since many people whose homes are destroyed have neither the ability nor the inclination to continue making mortgage payments, the first direct beneficiary of any disaster is the financial industry. They foreclose on the property, sell the land to real estate developers, and write off the losses.
Standing next to the bankers are the government bureaucrats. Often billed as a way to ensure that “the rich pay their fair share,” property tax is actually one of the most regressive and abusive forms of taxation. Even if you’ve owned your property for years, failure to pay property tax allows the government to seize it, leaving you with absolutely nothing. This means that even long-time residents who have paid off their mortgages are stuck paying taxes on what used to be their homes. If they can’t or won’t do that, the state will seize it and either sell the land to real estate developers or use it for its own purposes.
Under normal circumstances, both bank and state foreclosures take a long time – sometimes years. But, in the wake of widespread devastation, there are a variety of emergency measures, urban blight regulations, health and safety protocols, and other diabolical methods that the authorities can use to accelerate the process.
What Comes Next?
According to sociologist Bill Domhoff, who has been studying power structures for the last six decades, local authority is dominated by “growth coalitions,” consisting of developers, banks, utilities, major retailers, and other entities who benefit from, and therefore advocate for, a larger population and higher property values.
While a major disaster can be a short-term setback for a local growth coalition, it’s also an opportunity, to borrow a phrase we’ve seen elsewhere, to “build back better.”
What that looks like in the context of Maui, North Carolina, and Los Angeles is anybody’s guess, but whether it involves fully-planned “smart cities” like the one being built by Saudi Arabia, or a more conventional urban development process that sees luxury estates and condominiums built where single-family homes used to stand, it’s clear that the most powerful entities in these communities will be profiting handsomely from the misery of the least powerful.