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This is part of the reason few private insurers offer flood insurance. They understand they there isn't enough information to properly price the risk. The his
by bmm6o 9y ago
This is part of the reason few private insurers offer flood insurance. They understand they there isn't enough information to properly price the risk. The historic data is spotty, we don't understand the geography well enough, you have to understand how construction and urbanization affects water absorption over long distances. If everyone who claimed to know what a 500-year storm looked like had to pay out every time one happened, we might have better models.
- dmurray 9y agoI don't understand this. Even if they can't assess the risk in any one property, can't they estimate the total amount of flood damage in (say) the US each year, and spread the risk across thousands or millions of properties? If the answer to that is that only people in areas vulnerable to flooding would buy insurance, and the companies would have to pay out too much - well, that means the insurance buyers are pricing the risks better, and the insurance company should hire some of them.
- dv_dt 9y agoTo re-emphasise what the poster before you said - not only could the model be wrong, but even if it was right once before, you have to keep up the model against all the construction changes in the area that alter the watershed, as well as account for climate change contributions.
- Mz 9y agoNo, that isn't why. I worked in insurance. Not homeowners insurance, but I had a certificate and processed claims. The reason is that most human settlements occur in flood plains because we cannot live without water. We drink it. We bath in it. We irrigate crops with it. Flood plains have fertile soil. We use rivers and oceans for essential cargo transit. Insurance is about risk management. It is a form of betting. And there is no bet here because there is no question of if it will flood. The question is only when will it flood? That's a fool's bet to say "I will pay you X amount of money if it floods" when it is guaranteed to flood sooner or later. That amounts to charity, not insurance.
- bmm6o 9y ago> That's a fool's bet to say "I will pay you X amount of money if it floods" when it is guaranteed to flood sooner or later. That amounts to charity, not insurance. The bet is more like, "I will pay you X amount of money if your damages from flooding exceed your deductible within the next year." It's not at all given that it will flood at all this year, or that your losses will exceed the deductible. It's true that it would require substantial diversification or re-insurance, since flooding is a clustering event.
- schoen 9y agoI find this a little confusing, because one can also purchase life insurance, and mors certa, hora incerta.
- Mz 9y agoA lot of life insurance is term insurance. So the bet is "will you die during the years that your policy is in force?" Whole life is much, much more expensive.
- schoen 9y agoCould you then have the same kind of structures for flood insurance policies? I had to pay every year to renew my renter's insurance policy, it only covered losses during the course of that year, and the insurance carrier had discretion to adjust the premiums or not to renew it.
- Mz 9y agoIn the US, flood insurance is provided by the government. And the premiums still jump insanely sometimes. It gets handled this way for the same reason our government provides welfare et al: it makes no sense as a business, but the cost to the nation to do nothing is a bigger problem.
- cmurf 9y ago
- fallingfrog 9y agoWell, insurers will often cover you for water damage from burst pipes, but not from flooding. That's because the damage from burst pipes happens at a predictable trickle of people over the course of a year, but damage from flooding happens to tens of thousands of people on the same day. So the amount of money you have to set aside for the two cases is wildly different. Side note: This is also why your life insurance policy is useless in the case of nuclear war :)