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It may have cost you $50,000 but you now have +50 karma on HN and rising. Some would say a bargain! ;-] In all seriousness, cool story, glad you're okay, and t

It may have cost you $50,000 but you now have +50 karma on HN and rising. Some would say a bargain! ;-] In all seriousness, cool story, glad you're okay, and this makes me think "insurance" as a business needs to be re-thought entirely. How many times has it happened that insurance companies weasel out of paying? Objectively you might think THAT was their primary job.

deegles 11y ago
Wouldn't an insurance company that was TOO good at paying out go out of business? :)
- deleted 11y ago
  [deleted]
Empact 11y ago
Yep, an alternative model enabled by technology is mutual / cooperative insurance in which the policyholders not only own the company but also govern the release of funds. This way incentives are aligned - the insured want the insurance to act fairly, even with respect to others, so that it will be there for them. It would be something like gofundme but on a subscription basis, with up or down decision-making by subscribers. https://en.wikipedia.org/wiki/Mutual_insurance https://en.wikipedia.org/wiki/Mutual_insurance
- JoshTriplett 11y ago
  Vanguard would be a good model to look towards.
- chimeracoder 11y ago
  > Yep, an alternative model enabled by technology is mutual / cooperative insurance in which the policyholders not only own the company but also govern the release of funds. This way incentives are aligned - the insured want the insurance to act fairly, even with respect to others That doesn't really align incentives, though. There's really no benefit to each individual to approving another person's claim (all it means is less money in the pot). Claims are rare enough that it's not enough to simply say 'if you vote this way for someone else, we'll apply the policy consistently for you', since the expected number of claims that a person is likely to file over the course of their plan is close to zero. (And even if it weren't, the whole issue is that insurance has relatively well-written rules for clear-cut cases, but the complaints people have - like this one - are generally about the interpretation of those policies for special cases, since policies can't possibly enumerate every possible outcome.)
- ubernostrum 11y ago
  I'm pretty happy with my (mutual) auto coverage. In fact, right now I'm getting around on a rental car courtesy of my policy, while my car is being repaired; I'll be out of pocket about $250 total for around $2000 worth of damage to the car (tl;dr -- driving home a few nights back, didn't see a traffic cone that had rolled out into my lane and ran over it at 50mph, which is not good for some of the things on the underside of the car).
  - unclebucknasty 11y ago
    You sure they won't claw back that claim in the form of raised premiums?
    - duaneb 11y ago
      Doesn't that make sense? Insurance is to cover immediate problems, but the risk given the driver increases with each claim (I'm assuming, that just makes sense to me). So, premiums should reflect this.
      - msandford 11y ago
        No, it doesn't. Because I don't get insurance coverage for a nominal fee like $1 per month. I pay a non-trivial amount of money every month. So in my mind, 90% of that is going towards the possibility that I'll eventually make a rare claim (float), 5% is going towards administration, and 5% is profit. I know those numbers aren't right, but lets say that they are. In that case, paying $100/mo for insurance and not making a claim for 10 years there's over $10,000 worth of loose money (more once you factor in interest!) sitting around that's just for me because according to your analysis insurance isn't risk pooling but risk smoothing. So then I make a claim for the whole car, $20k. Fine, half of that comes out of the money I already paid to them for risk smoothing, the other half should come from the future payments I'll make to them for risk smoothing. My rates should double in this case. But most people don't total their cars every 10 years, many people go their whole lives without ever making a claim. So at the end, they might have paid $50k in self-insurance risk smoothing premiums that the company gets to just keep, that's not right is it? Clearly no. So what people actually think is supposed to happen is that everyone pays about the same amount and some people get unlucky and make claims and that doesn't get counted against them. They're all wrong, but that's how insurance is sold so it's understandable. In reality I suspect that the breakdown of float, administration and profit is more like 30%, 30% and 40% which is why premiums can go up so much after you make a claim; you're actually making almost no real contribution towards the float at "regular risk" insurance rates. Of course this also neglects the risk pooling aspect.
nathanb 11y ago
When one of my upstairs toilets started leaking in my house in the US, it finally got so bad that I noticed a stain on the garage ceiling. The insurance inspector said that insurance would not cover a "slow leak". I was very nice and polite and pointed out how soaked the subfloor was and that there was no way to know when the leak started (which was true). She wrote her recommendation that it be covered, which the company apparently accepted since they wrote me a check. Definitely not $50k (more like $2.5k), but it's still disturbing that the line between insurance covering it and not covering it was so thin. I wonder if a more thorough inspection would have caught it. Surely houses built around that time are routinely inspected for asbestos, lead-based paint, etc before purchase anyway. (Actually, going back and reading the comments, he actually addresses this point: http://www.jefftk.com/p/mercury-spill#fb-752340840802_752343036402 http://www.jefftk.com/p/mercury-spill#fb-752340840802_752343.... Perhaps he could have made it a condition of purchase, that the seller pay for a mercury vapor inspection? Perhaps it's not such a common problem that such a requirement would be reasonable. Hindsight, etc.)
- rdtsc 11y ago
  Yap. An insurance inspector if they are nice enough, will let you know between the lines how you need to phrase your claim. Forgot what the trick word was when we had a leak at our house, but it was similar phrasing -- "So let me remind you, if it is <this>, we'll cover it. If it is <that> we won't. So... which one is it". -- "Oh ok, definetely <this> then ...". /smile
  - scottcanoni 11y ago
    Reminds of Mr. Incredible's day job as an insurance salesman who helped the nice old lady by telling her how to work the insurance system.
  - nathanb 11y ago
    It's kind of scary that something of this magnitude would depend on the kindness of the claims inspector. The one I dealt with was professional yet friendly and helpful (and climbed my wooden stepladder while wearing heels without a second thought). If she had been having a bad day, or just generally of grumpy disposition, or whatever, things could easily have gone the other way.
maxerickson 11y ago
The more coverage the policy provides, the higher the premium will need to be. Given the discussion in the comments here of avoiding the cleanup, perhaps something similar to Superfund would be a good idea (there is some clear general benefit to cleaning up the house).
nostromo 11y ago
Insurance is such a scam. A friend of mine made two claims within about five years: once for water damage and once for a burglary. The insurance company agreed that she was covered. So they paid her and then dropped her. No big deal, right? Wrong. Once you've made a claim or two against your insurance, it can be very hard to get any new insurance company to cover you. She finally did find a new insurer, but the price has gone way up -- negating her original claims. Did you know every claim you make goes into a CLUE report? It's like a credit report, but few people know about it. Once you make "too many claims" - even if they're legit and beyond your control, you become an insurance pariah. Because of this, I avoid making any claims unless absolutely required.
- rdtsc 11y ago
  Wonder how they share this information. Is it a private database service they are all subscribed to?
  - nostromo 11y ago
    I just edited my comment to add that. It's called a CLUE report. Every claim you make goes into your report and it's shared amongst all insurers. https://www.privacyrights.org/fs/fs26-CLUE.htm https://www.privacyrights.org/fs/fs26-CLUE.htm
    - rdtsc 11y ago
      Thanks. This explains a lot of things I heard related to claims that I have wondered about in the past.
- chimeracoder 11y ago
  > She finally did find a new insurer, but the price has gone way up -- negating her original claims. This isn't a scam at all. That's exactly what you'd expect from insurance. Insurance isn't there to save you money. In fact, the expected value of an insurance plan is always going to be negative on an infinite time horizon[0]. The whole point of an insurance plan is to smooth risk: instead of the small possibility of a catastrophic failure, you take the relative certainty of having a fixed monthly payment (your premium). At a very high level, it's sort of similar to taking on consumer debt (credit card debt): in the long run, you'll always pay more than if you just paid cash up-front, because of the interest. The difference between credit cards and insurance is that you don't know when the expensive event is going to happen, so you agree to always pay the monthly payment regardless of what happens. And while banks charge interest based on the risk that you won't pay back and the opportunity cost of that money, insurers charge you a premium in exchange for the luxury of not having to guess whether next month will have an expensive event or not. In your friend's case, the fact that she had two claims adjusted her relative risk profile, which means that her premium had to adjust accordingly. [0] If it weren't, there'd be no point to going into business as an insurer, because you'd be guaranteed to make an operating loss. The only way you'd be able to make any money is based on the investments that you make, at which point you might as well eliminate the insurance side of your business and operate as a bank. (Interestingly, this is why the relationships between banks and insurers are so close in many countries, and also why most insurance markets - car insurance and health insurance[1] being two notable exceptions - have surprisingly slim profit margins). [1] Health insurance is a special case because, strictly speaking, it's not really "insurance", but that's a whole separate discussion.
existencebox 11y ago
I'll throw my hat in the ring. Recently had a car totaled when getting it shipped cross country. Apparently because it was an "Act of god" (a hailstorm, with what looks like fist-sized-rock-hail in that every piece of glass and most trim on the car had holes in it, although I'd argue the insurance was for the idiot driver who didn't pull over or cover his load.) the insurance company refused to do squat. The car was only blue booked at 5k at the time, but we had to replace it with a 25k car, so I count that as a decent amount of loss. To bring this back to topic, I would gladly get on board with any plan to fix "insurance". It really feels like less insurance and more government mandated protection money ; but that seems to be the fundamental problem, that reforming insurance is almost paramount to reforming finance. How do you even begin to make headway against an entity with that much power/influence and tentacles already so deep in these processes? (edit re: protection money; the gist of it is anger that if you fall on a "responsible/lucky" part of the bell curve, you'll likely end up paying out for FAR more than you ever get back while simultaneously watching the insurance company often do everything in their power to NOT come through when they should. In my case, I would have expected the transportation company's mandatory liability insurance to cover this.)
- mbroshi 11y ago
  Insurance companies cannot credibly cover acts of god, aka correlated risks, because they happen to too many people all at once. It's not a simple matter of "fixing" insurance for those matters. NPR's Planet Money had a good discussion: http://www.npr.org/sections/money/2014/10/03/353030214/bedbugs-lava-and-bowling-balls-inside-my-homeowners-insurance-policy http://www.npr.org/sections/money/2014/10/03/353030214/bedbu...
  - cbr 11y ago
    We're talking about hail. Insurance companies cover hail damage all the time. (Actually, hail claims have been going up: http://www.claimsjournal.com/news/national/2014/05/02/248354.htm http://www.claimsjournal.com/news/national/2014/05/02/248354... )
  - jsprogrammer 11y ago
cbr 11y ago
I do understand why insurance companies don't want to pay for things that happened before the policy took effect. Otherwise people could do harmful things, take out a policy, and then file a claim. All sorts of bad incentives. On the other hand, it's pretty frustrating in our case!
atmosx 11y ago
> How many times has it happened that insurance companies weasel out of paying? That's the business model for insurance companies. They try to make you think that you're covered when in reality you're not.
lucaspiller 11y ago
Last year I was travelling around Italy and somebody broke into the rental car I was using (a Smart Fortwo) and stole my luggage - which contained my camera, laptop and passport :D Although I had travel insurance and separate car rental insurance, neither covered theft of personal possessions from an unattended vehicle. Even the 'super everything included' insurance rental companies try to sell wouldn't have covered this, as they exclude items accessible from the passenger compartment (like most small cars, the Smart Fortwo doesn't have a separate boot).
pierre 11y ago
If you are interesting about innovation in insurance this post is a good startpoint : https://medium.com/@robmoff/disrupting-insurance-4cf61fb8c551 https://medium.com/@robmoff/disrupting-insurance-4cf61fb8c55... There is little insurance startup compared to fintech but 'insurtech' is a really promising field with old incumbent and a lot of opportunities.
pjc50 11y ago
Weaseling out of paying is their primary job, yes. ("Companies are legally obliged to maximise shareholder value" isn't exactly true, but it's usually what people cite when a business is doing something awful)
digler999 11y ago
I support their refusal to pay in this case. Its impossible for a policy to cover events that happened in the past. A policy covers an individual against specific events that may occur for a fixed duration based on how much they pay. The house was already damaged, likely decades ago. The house was inspected by a licensed home inspector before sale. Due diligence was attempted. Insurance isn't a product that allows you to buy damaged goods and have them repaired. It allows you to preserve the utility and value of existing goods.

deegles 11y ago

Wouldn't an insurance company that was TOO good at paying out go out of business? :)

deleted 11y ago
[deleted]

Empact 11y ago

Yep, an alternative model enabled by technology is mutual / cooperative insurance in which the policyholders not only own the company but also govern the release of funds. This way incentives are aligned - the insured want the insurance to act fairly, even with respect to others, so that it will be there for them. It would be something like gofundme but on a subscription basis, with up or down decision-making by subscribers. https://en.wikipedia.org/wiki/Mutual_insurance https://en.wikipedia.org/wiki/Mutual_insurance

JoshTriplett 11y ago
Vanguard would be a good model to look towards.
chimeracoder 11y ago
> Yep, an alternative model enabled by technology is mutual / cooperative insurance in which the policyholders not only own the company but also govern the release of funds. This way incentives are aligned - the insured want the insurance to act fairly, even with respect to others That doesn't really align incentives, though. There's really no benefit to each individual to approving another person's claim (all it means is less money in the pot). Claims are rare enough that it's not enough to simply say 'if you vote this way for someone else, we'll apply the policy consistently for you', since the expected number of claims that a person is likely to file over the course of their plan is close to zero. (And even if it weren't, the whole issue is that insurance has relatively well-written rules for clear-cut cases, but the complaints people have - like this one - are generally about the interpretation of those policies for special cases, since policies can't possibly enumerate every possible outcome.)
ubernostrum 11y ago
I'm pretty happy with my (mutual) auto coverage. In fact, right now I'm getting around on a rental car courtesy of my policy, while my car is being repaired; I'll be out of pocket about $250 total for around $2000 worth of damage to the car (tl;dr -- driving home a few nights back, didn't see a traffic cone that had rolled out into my lane and ran over it at 50mph, which is not good for some of the things on the underside of the car).
- unclebucknasty 11y ago
  You sure they won't claw back that claim in the form of raised premiums?
  - duaneb 11y ago
    Doesn't that make sense? Insurance is to cover immediate problems, but the risk given the driver increases with each claim (I'm assuming, that just makes sense to me). So, premiums should reflect this.
    - msandford 11y ago
      No, it doesn't. Because I don't get insurance coverage for a nominal fee like $1 per month. I pay a non-trivial amount of money every month. So in my mind, 90% of that is going towards the possibility that I'll eventually make a rare claim (float), 5% is going towards administration, and 5% is profit. I know those numbers aren't right, but lets say that they are. In that case, paying $100/mo for insurance and not making a claim for 10 years there's over $10,000 worth of loose money (more once you factor in interest!) sitting around that's just for me because according to your analysis insurance isn't risk pooling but risk smoothing. So then I make a claim for the whole car, $20k. Fine, half of that comes out of the money I already paid to them for risk smoothing, the other half should come from the future payments I'll make to them for risk smoothing. My rates should double in this case. But most people don't total their cars every 10 years, many people go their whole lives without ever making a claim. So at the end, they might have paid $50k in self-insurance risk smoothing premiums that the company gets to just keep, that's not right is it? Clearly no. So what people actually think is supposed to happen is that everyone pays about the same amount and some people get unlucky and make claims and that doesn't get counted against them. They're all wrong, but that's how insurance is sold so it's understandable. In reality I suspect that the breakdown of float, administration and profit is more like 30%, 30% and 40% which is why premiums can go up so much after you make a claim; you're actually making almost no real contribution towards the float at "regular risk" insurance rates. Of course this also neglects the risk pooling aspect.

nathanb 11y ago

When one of my upstairs toilets started leaking in my house in the US, it finally got so bad that I noticed a stain on the garage ceiling. The insurance inspector said that insurance would not cover a "slow leak". I was very nice and polite and pointed out how soaked the subfloor was and that there was no way to know when the leak started (which was true). She wrote her recommendation that it be covered, which the company apparently accepted since they wrote me a check. Definitely not $50k (more like $2.5k), but it's still disturbing that the line between insurance covering it and not covering it was so thin. I wonder if a more thorough inspection would have caught it. Surely houses built around that time are routinely inspected for asbestos, lead-based paint, etc before purchase anyway. (Actually, going back and reading the comments, he actually addresses this point: http://www.jefftk.com/p/mercury-spill#fb-752340840802_752343036402 http://www.jefftk.com/p/mercury-spill#fb-752340840802_752343.... Perhaps he could have made it a condition of purchase, that the seller pay for a mercury vapor inspection? Perhaps it's not such a common problem that such a requirement would be reasonable. Hindsight, etc.)

rdtsc 11y ago
Yap. An insurance inspector if they are nice enough, will let you know between the lines how you need to phrase your claim. Forgot what the trick word was when we had a leak at our house, but it was similar phrasing -- "So let me remind you, if it is <this>, we'll cover it. If it is <that> we won't. So... which one is it". -- "Oh ok, definetely <this> then ...". /smile
- scottcanoni 11y ago
  Reminds of Mr. Incredible's day job as an insurance salesman who helped the nice old lady by telling her how to work the insurance system.
- nathanb 11y ago
  It's kind of scary that something of this magnitude would depend on the kindness of the claims inspector. The one I dealt with was professional yet friendly and helpful (and climbed my wooden stepladder while wearing heels without a second thought). If she had been having a bad day, or just generally of grumpy disposition, or whatever, things could easily have gone the other way.

maxerickson 11y ago

The more coverage the policy provides, the higher the premium will need to be. Given the discussion in the comments here of avoiding the cleanup, perhaps something similar to Superfund would be a good idea (there is some clear general benefit to cleaning up the house).

nostromo 11y ago

Insurance is such a scam. A friend of mine made two claims within about five years: once for water damage and once for a burglary. The insurance company agreed that she was covered. So they paid her and then dropped her. No big deal, right? Wrong. Once you've made a claim or two against your insurance, it can be very hard to get any new insurance company to cover you. She finally did find a new insurer, but the price has gone way up -- negating her original claims. Did you know every claim you make goes into a CLUE report? It's like a credit report, but few people know about it. Once you make "too many claims" - even if they're legit and beyond your control, you become an insurance pariah. Because of this, I avoid making any claims unless absolutely required.

rdtsc 11y ago
Wonder how they share this information. Is it a private database service they are all subscribed to?
- nostromo 11y ago
  I just edited my comment to add that. It's called a CLUE report. Every claim you make goes into your report and it's shared amongst all insurers. https://www.privacyrights.org/fs/fs26-CLUE.htm https://www.privacyrights.org/fs/fs26-CLUE.htm
  - rdtsc 11y ago
    Thanks. This explains a lot of things I heard related to claims that I have wondered about in the past.
chimeracoder 11y ago
> She finally did find a new insurer, but the price has gone way up -- negating her original claims. This isn't a scam at all. That's exactly what you'd expect from insurance. Insurance isn't there to save you money. In fact, the expected value of an insurance plan is always going to be negative on an infinite time horizon[0]. The whole point of an insurance plan is to smooth risk: instead of the small possibility of a catastrophic failure, you take the relative certainty of having a fixed monthly payment (your premium). At a very high level, it's sort of similar to taking on consumer debt (credit card debt): in the long run, you'll always pay more than if you just paid cash up-front, because of the interest. The difference between credit cards and insurance is that you don't know when the expensive event is going to happen, so you agree to always pay the monthly payment regardless of what happens. And while banks charge interest based on the risk that you won't pay back and the opportunity cost of that money, insurers charge you a premium in exchange for the luxury of not having to guess whether next month will have an expensive event or not. In your friend's case, the fact that she had two claims adjusted her relative risk profile, which means that her premium had to adjust accordingly. [0] If it weren't, there'd be no point to going into business as an insurer, because you'd be guaranteed to make an operating loss. The only way you'd be able to make any money is based on the investments that you make, at which point you might as well eliminate the insurance side of your business and operate as a bank. (Interestingly, this is why the relationships between banks and insurers are so close in many countries, and also why most insurance markets - car insurance and health insurance[1] being two notable exceptions - have surprisingly slim profit margins). [1] Health insurance is a special case because, strictly speaking, it's not really "insurance", but that's a whole separate discussion.

existencebox 11y ago

I'll throw my hat in the ring. Recently had a car totaled when getting it shipped cross country. Apparently because it was an "Act of god" (a hailstorm, with what looks like fist-sized-rock-hail in that every piece of glass and most trim on the car had holes in it, although I'd argue the insurance was for the idiot driver who didn't pull over or cover his load.) the insurance company refused to do squat. The car was only blue booked at 5k at the time, but we had to replace it with a 25k car, so I count that as a decent amount of loss. To bring this back to topic, I would gladly get on board with any plan to fix "insurance". It really feels like less insurance and more government mandated protection money ; but that seems to be the fundamental problem, that reforming insurance is almost paramount to reforming finance. How do you even begin to make headway against an entity with that much power/influence and tentacles already so deep in these processes? (edit re: protection money; the gist of it is anger that if you fall on a "responsible/lucky" part of the bell curve, you'll likely end up paying out for FAR more than you ever get back while simultaneously watching the insurance company often do everything in their power to NOT come through when they should. In my case, I would have expected the transportation company's mandatory liability insurance to cover this.)

mbroshi 11y ago
Insurance companies cannot credibly cover acts of god, aka correlated risks, because they happen to too many people all at once. It's not a simple matter of "fixing" insurance for those matters. NPR's Planet Money had a good discussion: http://www.npr.org/sections/money/2014/10/03/353030214/bedbugs-lava-and-bowling-balls-inside-my-homeowners-insurance-policy http://www.npr.org/sections/money/2014/10/03/353030214/bedbu...
- cbr 11y ago
  We're talking about hail. Insurance companies cover hail damage all the time. (Actually, hail claims have been going up: http://www.claimsjournal.com/news/national/2014/05/02/248354.htm http://www.claimsjournal.com/news/national/2014/05/02/248354... )
- jsprogrammer 11y ago

cbr 11y ago

I do understand why insurance companies don't want to pay for things that happened before the policy took effect. Otherwise people could do harmful things, take out a policy, and then file a claim. All sorts of bad incentives. On the other hand, it's pretty frustrating in our case!

atmosx 11y ago

> How many times has it happened that insurance companies weasel out of paying? That's the business model for insurance companies. They try to make you think that you're covered when in reality you're not.

lucaspiller 11y ago

Last year I was travelling around Italy and somebody broke into the rental car I was using (a Smart Fortwo) and stole my luggage - which contained my camera, laptop and passport :D Although I had travel insurance and separate car rental insurance, neither covered theft of personal possessions from an unattended vehicle. Even the 'super everything included' insurance rental companies try to sell wouldn't have covered this, as they exclude items accessible from the passenger compartment (like most small cars, the Smart Fortwo doesn't have a separate boot).

pierre 11y ago

If you are interesting about innovation in insurance this post is a good startpoint : https://medium.com/@robmoff/disrupting-insurance-4cf61fb8c551 https://medium.com/@robmoff/disrupting-insurance-4cf61fb8c55... There is little insurance startup compared to fintech but 'insurtech' is a really promising field with old incumbent and a lot of opportunities.

pjc50 11y ago

Weaseling out of paying is their primary job, yes. ("Companies are legally obliged to maximise shareholder value" isn't exactly true, but it's usually what people cite when a business is doing something awful)

digler999 11y ago

I support their refusal to pay in this case. Its impossible for a policy to cover events that happened in the past. A policy covers an individual against specific events that may occur for a fixed duration based on how much they pay. The house was already damaged, likely decades ago. The house was inspected by a licensed home inspector before sale. Due diligence was attempted. Insurance isn't a product that allows you to buy damaged goods and have them repaired. It allows you to preserve the utility and value of existing goods.