How California Fires Affect Insurance Companies
It has been dominating the headlines for the past several weeks and created a horrific situation for thousands of people. I don’t know about anyone else but I’m getting tired of these catastrophes on such a grand scale. It was Hawaii first and then North Carolina. Each time I knew someone in the affected area and California is no different. My heart goes out to all the people who lost something and I wish them the best in rebuilding their previous life.
We could talk about all sorts of things related to this. The conspiracy theorists have been going hog wild uncovering various rabbit holes and finding similarities in how all tragedies started and were handled by officials. How in the world do we give so damn much money to other countries in aid but taxpaying homeowners who lost everything only get a few hundred bucks in relief? There’s a lot of other interesting questions being asked but that’s not the purpose of me doing this.
One of the greatest benefits of living in Montana is a peaceful, quiet lifestyle in a beautiful place. Sure it’s cold here right now but we get to relax and observe all the insanity of the world from a distance.
I’ll be closing in on 200 podcasts in the next six months and really thought that all questions had been answered, but most people don’t have the time to go through them all. From time to time I need to remind everyone of some important information that is relevant to all. After last week’s post about a potentially failing company, even more people are asking about what happens if an insurance company goes bankrupt. That’s not even the correct term because insurance companies aren’t banks and operate in a completely different way. I have covered this in the past so it’s a reminder to those who have seen it and points to a relevant past production for anyone new.
Lots of agents claim that strength ratings for insurance companies don’t matter because state guaranty funds will insure any losses. This is illegal and irresponsible to claim. Safety and security should be foremost for all potential purchases and every product is obviously different. A three year MYGA gives you less exposure to a company than does a lifetime income product. I will make some exceptions for short term contracts but am extremely picky with longer ones. Every time one of these disasters happens it puts some pressure on insurance companies so I understand why the questions about industry solvency increase.
I talked about it specifically in October 2022 when a hurricane did a lot of damage in Florida. State guaranty funds don’t work like people think they do so I explained that it’s mostly for catastrophic losses. You can find that newsletter and podcast here: State Insurance Guaranty Funds
It will be hard to find a case of someone losing money with a fixed annuity product. I’ve never seen one so if you know otherwise please share it with me. Over 22 years there have of course been times when I heard stories of the failure of a certain company and all have been dealt with in a different way. First, regulators attempt to rehabilitate a company. If that doesn’t work, different lines of business will be liquidated and sold to other companies. If liabilities remain once that is done, only then will state guaranty funds get involved. It almost never happens. In the one case I’m familiar with, the first two steps took 23 years to complete before the final mess was cleaned up by all states involved. During that time, income payments were made and a number of contracts were cashed out. Not a penny was lost by any policyholder.
A more detailed explanation of this process is available in a newsletter I wrote back in 2019: What if an Insurance Company Goes Bankrupt?
I talked about Sentinel Security being in trouble last week. I’m telling everyone who contacts me to just hold tight and not make any major moves. In all likelihood things will work out just fine for policyholders because like all companies, regulators stepped in well before the company was actually performing poorly. I told one person that an absolutely disastrous result would be that he only gets back about 90% of the money he has in there. That’s just a guess because something like that has never happened. Insurance companies are very well capitalized and strictly regulated.
That doesn’t mean you shouldn’t be as equally selective as me. Think about the stress that would be created if your annuity company was locked down by a state commissioner. You won’t get an immediate cash out and there have been times when money was frozen for several years. It’s just not going to happen because of a natural disaster. An insurance company is not going to raid annuities to pay for a house that burned down. That’s not how it works and you can feel even more comfortable the higher a credit rating your company carries. Don’t settle for anything less.
My thoughts and prayers go out to everyone affected in Hawaii, North Carolina, and California. These were thousand year disasters and it’s unfortunate that we have to deal with such loss in the wealthiest country in the world. Maybe it did include a bunch of celebrities this time but they are people who desire safety and security as well. I care about all people and that’s one of the biggest reasons I work as hard at this as I do. Make sure to take some of your money and keep it free of any disasters that might come but don’t worry about property damage being a reason you don’t get it back.
All my best,
Bryan
Watch The Episode How The California Wildfires Affect Insurance Companies
Last Updated on January 31, 2025 by Bryan Anderson
