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No, 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 oc

• 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 ago
  I find this a little confusing, because one can also purchase life insurance, and mors certa, hora incerta.
  • Mz 9y ago
    A 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 ago
      Could 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 ago
        In 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
          There is some private flood insurance these days, but I don't know who offers it, in what locations, what the premiums are, and what kinds of exclusions there are. Since it's a new thing, I think the claim that it'll be vastly better than NFIP is invisible hand waving. Nevertheless... http://www.insurancejournal.com/magazines/features/2017/07/10/456390.htm http://www.insurancejournal.com/magazines/features/2017/07/1... I think the bigger issue is that there is an inherent incompatibility between free markets (or strict laissez faire, non-intervention of any kind) and democracy. Of course people, in the millions, are going to say "help us" and direct it at their various layers of government, and punish those who don't at the election booth. Therefore it stands to reason in major floods like this, that everyone is going to get some kind of relief even if they didn't have flood insurance. What I'm not sure of is whether the insured get 100% payouts and those not insured get partial payouts? What's the incentive to have flood insurance, except in smaller, localized, 50 or 100 year floods? This is asset destruction and the only way to properly handle it is through savings. So it's either made compulsory or you do end up with something of a free loader problem. Whether that free loader problem is a real problem, I don't know.
      • lr4444lr 9y ago
        How could term insurance for homes be possible? Homes are (despite some fluctuations) relatively good stores of value that you want to pass on to later generations. Comparatively, once a typical human retires from working, he isn't producing much of insurable value (and presumably, his offspring are capable of achieving financial independence).
        • maxerickson 9y ago
          Homeowners insurance is all term insurance, the contract only covers a short period of time. At the end of the contract, the policy holder doesn't have anything.
  • dyarosla 9y ago
    I had to look it up to confirm: "death is certain, its hour is uncertain" (latin)
• euyyn 9y ago
  That reasoning fails in the face of there existing earthquake insurance in the Bay Area.
  • Mz 9y ago
    Major earthquakes are less frequent than major flooding. If the time frame is large enough and the timing uncertain enough, it can still make sense as a bet.
    • Retric 9y ago
      Frequency only changes premiums, car insurance is much more likely to pay out than earthquake insurance per year. That just means it costs more money per year relative to the payout.
• BillinghamJ 9y ago
  You wouldn’t be provided with a fixed lump sum, but rather your costs would be covered up to a limit. So it’s about determining the expected value of losses for a given risk. You’re right that given a long enough time, there is a near-certain chance of a flood, but the question is more about how much that’s likely to cost. That is entirely insurance.
• Retric 9y ago
  That's not the problem. Private insurance does not offer flood insurance because A) it tends to all be due at the same time requiring a very large fund. B) It also promotes people living in flood prone areas. C) It's very hard to asses risks. Combined and you end up with bankrupt insurance companies. The industry also feels B makes selling flood insurance a bad idea. That said, there are Private policies you can buy in some areas. PS: Insurance companies like frequent small scale random events like car accidents, because they are easy to plan for.
  • HillaryBriss 9y ago
    > it tends to all be due at the same time requiring a very large fund. i don't quite see that. if the flood insurer covered a broad variety of geographically dispersed areas across North America, or even just the US, would that be true?
    • emeraldd 9y ago
      The company would have to be huge to pull it off. One event like what happened in Houston could easily wipe out a big chunk of any fund they could amass. That kind of diversity could also be a problem if there are shared waterways, think back to the Mississippi/Missouri flood from 1993. I'm seeing 15 billion as the damages there, which is a large percentage of the "cash" pile Apple is claimed to have. https://en.m.wikipedia.org/wiki/Great_Flood_of_1993 https://en.m.wikipedia.org/wiki/Great_Flood_of_1993 Edit: fix an extraneous wording mistake.
      • koolba 9y ago
        What does this have to do with Apple? Is that just a reference to them hoarding large amounts of cash or are they in the reinsurance business?
        • yardie 9y ago
          I believe it's a reference to the fact that even large companies, Apple is $800b, don't have all that cash on hand. To convert $15b into cash takes time. Disaster victims can't exactly pay for hotels or buy foods with bonds or stock certificates.
• CamperBob2 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. A statement with profound implications in other areas of insurance, notably health insurance. You're insuring against expensive losses that will almost certainly happen at some point... which suggests that traditional insurance isn't the right framework for solving the problem at hand.
  • Mz 9y ago
    I have said that repeatedly on HN. Obamacare is a terrible idea and we need another solution.
    • HillaryBriss 9y ago
      well. ok. but, i don't see placing the blame on Obamacare. i mean that was not the origin of the concept of health insurance.
      • Mz 9y ago
        Yes, but health insurance worked differently before Obamacare. Insurance companies simply did not cover chronically ill people or people with preexisting conditions, thus they were able to arrange a "bet." Obamacare removes the element of a "bet" from the system. Just like the government provides fire protection in the form of fire departments, the government needs to provide health care. What we are doing currently is broken.
        • Joeri 9y ago
          Structuring healthcare as an insurance doesn't work because pretty much everyone needs it at some point. It needs to be structured like a tax, because the rate at which you pay in has no correspondance with how much you need to get back out, but in aggregate the total sum paid matches the total care provided. That's why the successful healthcare systems in the world are typically single payer systems. However, such systems are politically untenable in the U.S. and so you get obamacare. I'm sure if it was within the overton window of acceptable political thought obamacare would have been a single payer system.
• malteof 9y ago
  Hey, I work in insurance too - as a non-life actuary for the last almost 8-9 years. Your description is not at all how insurance works, and insurance is not a form of betting or gambling but really distinctly different. What it's really about is just risk pooling; my share of the risk pool is smaller than if I would keep the risk to myself. Insurance companies don't mind insuring risks that they know will happen at some point, e.g. most property policies will have some claims, and life term contracts (as have been stated below) of course will have a claim at some point (unless the policy is lapsed). However, they have an idea of how often and how costly these claims will be, and through risk pooling diversification, this is lower (per policy) than the cost to the individual. Thus there is an incentive to buy the policy, and an incentive to sell it - as the difference can be made as profit to the insurer. In addition there's a timing element to insurance: insurers take in premiums "now" for claims that will be paid out "later", so they can invest the money in the meantime. Large insurance companies may have $200bn investment portfolios. EDIT: So the point is that flood insurance can of course be sold by private companies, however they know the risk is too high and won't offer competitive premiums. If we only had private flood insurance in the US, in the long term this would lead to people having to move to places with cheaper flood insurance. In this way it actively promotes people moving away from risky places (which I think is a good thing) - but it makes it difficult for people in the short term.
  • ianai 9y ago
    You're both right. Cost pooling and betting are two ways of thinking of the same thing. If anything, betting is closer to marginal thinking than cost pooling, but the two are not exclusive viewpoints.
• deleted 9y ago
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