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It should be noted that California's sprawl into fire zones is built on a mix of economic and legal incentives - development, insurance, and fire suppression al

It should be noted that California's sprawl into fire zones is built on a mix of economic and legal incentives - development, insurance, and fire suppression all hide the true costs of living in a place that is known to burn. Malibu has burned many times, but if you can afford a good policy, you don't "lose" your wealth - thus Malibu has ended up with high-end developments.

pmiller2 6y ago
Wait a second. Shouldn't the magic of the "free market" mean that fire insurance explicitly does not hide the cost of living in someplace that has a fire issue? The insurance company has to take in more than it pays out, even considering that they invest the premiums to maintain buying power, or juice profit margins a bit. In general, your premiums should be roughly equal to your risk (amount of loss, weighted by probability of loss), plus a bit to go toward the company's bottom line.
- Someone 6y ago
  I don’t think the insurance market in California is a free market. https://www.nbcbayarea.com/news/california/california-bill-bars-insurers-from-declining-fire-coverage/2237019/ https://www.nbcbayarea.com/news/california/california-bill-b...: “Amid mounting cries of California homeowners being denied wildfire insurance in high-risk areas, lawmakers want to require insurance companies to cover all existing homes, as long as they meet new safety standards. The measure, coming after years of deadly fires causing insurers to turn down more customers, would also require insurance companies to give homeowners financial incentives for fire safety upgrades. Existing homes that meet a new state standard for “fire-hardening” would not be denied coverage under the law.” And no, I don’t think insurers will be allowed to counteract by raising premiums. https://en.wikipedia.org/wiki/California_Department_of_Insurance#Proposition_103_(1988) https://en.wikipedia.org/wiki/California_Department_of_Insur...: “On November 8, 1988, California voters passed Proposition 103, by a narrow margin (51%), on the promise of providing consumers with a 20% rate rollback” I don’t understand how insurers still want to do business in California unless there already was something seriously wrong with the insurance market before 1988, leading to high profit margins. But frankly, I don’t understand these ballots.
- RugnirViking 6y ago
  Yes. But the free market is not magic nor perfectly efficient in short term reality, and there are many factors at play. Consider: after 9/11, or after covid, terrorism and pandemic insurance policies rose in price significantly. The actual risk of these events is not higher just because a particularly notable event just happened - but the price still rose because of psychology. Lots of people wanted insurance from major events that were in their psyche and companies all rose prices and pocketed pure profit because they could. Some insurance agencies in the UK have been driven bankrupt by Corona: they didn't have an accurate model of the risk. This kind of event is how a market would correct itself: insurers losing money until they leave the market or raise prices. It takes a really long time

pmiller2 6y ago

Wait a second. Shouldn't the magic of the "free market" mean that fire insurance explicitly does not hide the cost of living in someplace that has a fire issue? The insurance company has to take in more than it pays out, even considering that they invest the premiums to maintain buying power, or juice profit margins a bit. In general, your premiums should be roughly equal to your risk (amount of loss, weighted by probability of loss), plus a bit to go toward the company's bottom line.

Someone 6y ago
I don’t think the insurance market in California is a free market. https://www.nbcbayarea.com/news/california/california-bill-bars-insurers-from-declining-fire-coverage/2237019/ https://www.nbcbayarea.com/news/california/california-bill-b...: “Amid mounting cries of California homeowners being denied wildfire insurance in high-risk areas, lawmakers want to require insurance companies to cover all existing homes, as long as they meet new safety standards. The measure, coming after years of deadly fires causing insurers to turn down more customers, would also require insurance companies to give homeowners financial incentives for fire safety upgrades. Existing homes that meet a new state standard for “fire-hardening” would not be denied coverage under the law.” And no, I don’t think insurers will be allowed to counteract by raising premiums. https://en.wikipedia.org/wiki/California_Department_of_Insurance#Proposition_103_(1988) https://en.wikipedia.org/wiki/California_Department_of_Insur...: “On November 8, 1988, California voters passed Proposition 103, by a narrow margin (51%), on the promise of providing consumers with a 20% rate rollback” I don’t understand how insurers still want to do business in California unless there already was something seriously wrong with the insurance market before 1988, leading to high profit margins. But frankly, I don’t understand these ballots.
RugnirViking 6y ago
Yes. But the free market is not magic nor perfectly efficient in short term reality, and there are many factors at play. Consider: after 9/11, or after covid, terrorism and pandemic insurance policies rose in price significantly. The actual risk of these events is not higher just because a particularly notable event just happened - but the price still rose because of psychology. Lots of people wanted insurance from major events that were in their psyche and companies all rose prices and pocketed pure profit because they could. Some insurance agencies in the UK have been driven bankrupt by Corona: they didn't have an accurate model of the risk. This kind of event is how a market would correct itself: insurers losing money until they leave the market or raise prices. It takes a really long time