7 ms·

When insurance companies are legally forced to choose between providing insurance at a loss and not providing it at all, they'll predictably choose the latter.

When insurance companies are legally forced to choose between providing insurance at a loss and not providing it at all, they'll predictably choose the latter. I have to wonder: who on earth thought those price-restriction laws were a good idea?

dehrmann 3y ago
I'm not convinced a lot of state lawmakers are smart enough to realize this, it's an easy policy to sell to voters, and when insurance companies do pull out, you just frame them as "greedy businesses."
baggy_trough 3y ago
Voters and politicians don’t want to believe the laws of economics. A tale as old as time.
- Obscurity4340 3y ago
  Only when it works for them. The Lord, in his infinite wisdom, makes it rain for the rich and rain on the poor alike.
baq 3y ago
What’s the difference between not providing a service and bumping the price 20x in a year?
- oatmeal1 3y ago
  Where are you getting the 20x number from?
  - baq 3y ago
    It’s a IMHO reasonable first guess in a market without functioning price discovery. Can ask the same question from 2x to 200x easily.
- nomel 3y ago
  Rate of change limits, to combat this, are sane. Historically, the rate one paid was related to the risk one was insuring. The alternative is to have those with low risk pay for those with high risk. I would prefer we don’t build I. Places that need to be rebuilt every few years, which you and I are paying for.
  - baq 3y ago
    Exactly my point. They can’t reduce their risk at current prices so either raise prices or stop offering products. If can’t raise prices, only the other option remains.
  - mschuster91 3y ago
    > Historically, the rate one paid was related to the risk one was insuring. And that's still the case today. The rate of change regarding extreme weather events is significantly accelerating due to climate change and unintentional geoengineering [1], humans are ever more and more encroaching on nature, and a lot of infrastructure like power lines is frankly rotting, so it's only a matter of maths that insurers introduce serious rate hikes. Another part is that insurers try to anticipate future risk increases as well so they can build up reserves for when disaster (inevitably) strikes... and politicians all over the world aren't exactly prioritizing tackling climate change, quite a few openly deny it. So of course insurances have to price in the additional risk coming from the expectation of many more years of inaction making climate change and its impact even worse. [1] https://www.science.org/content/article/changing-clouds-unforeseen-test-geoengineering-fueling-record-ocean-warmth https://www.science.org/content/article/changing-clouds-unfo...
jfoutz 3y ago
I'm not familiar with the price restrictions. I thought, the way insurance worked was, I take a little money from a lot of people, and when some rare event happens, I pay out that one person whose house burned down. I don't know the math off the top of my head to calculate how likely a lightning strike, or bad wiring or whatever might cause a house to burn down, but I'm sure such tables exist. So I bet every month that no more than one house will burn down. If no houses burn down, I'm in great shape and put that money in the stock market or whatever and get a better return. Maybe I get unlucky and have to rebuild 2 houses. The sort of sense I get is, the insurance companies can't calculate the probability of catastrophic weather. So there's no way to pick how much to charge for premiums. I get that it's a continuous curve. But if the cost of the premium is half the cost of rebuilding the house, why buy insurance? If I can squeak by one year without having to rebuild, I should just keep the money and rebuild out of pocket. Perhaps I'm way way wrong. But insurance is cheap. If it's not cheap, why bother? if it's annually a big chunk of the total value of the asset, is there any point? Why put a $100 lock on a $50 bicycle?
- badlucklottery 3y ago
  > If it's not cheap, why bother? The mortgage lender can require it. They don't want to have a burnt down house on the books for any amount of time.
  - digitalsushi 3y ago
    Mortgage lenders can just start to require yet another insurance, like PMI, but for natural disasters. I have faith in them that they will find a way to bill us.
    - lotsofpulp 3y ago
      In the US, the lender for a home mortgage is usually the federal government (Fannie Mae, Freddie Mac, Ginnie Mae). https://www.investopedia.com/terms/c/conformingloan.asp https://www.investopedia.com/terms/c/conformingloan.asp
  - 3y ago
MattGaiser 3y ago
You assume that the goal of everyone involved was to have affordable insurance. This is also an easy way to get people out of wildfire areas without being the bad guy. Can blame Allstate that someone needs to move. It could also be that it is better politically to have cheap insurance for 80% than more expensive insurance for 100%. Or frankly, just an easy way to get some votes without really getting blamed later.
YeBanKo 3y ago
Do insurances actually end up loosing money in the sate of California for example? Or is it a negotiating tactic tp increase rate? So far the statement coming from insurers themselves, and I think the reason why it was denied, is that they refused to share they financial statements proving losses.
- gruez 3y ago
  If you're against insurance company profiting, shouldn't you fix that through payout minimums? Even if they could somehow make money in california as a whole, it still a bad idea because the price limit implies of transfer from people with less risk to people with high risk, effectively subsidizing people to live in high risk areas. Regardless of how you feel about insurance profits, I think you can agree that's a bad idea for society as a whole.
  - jabroni_salad 3y ago
    Insurance companies already have profit caps. If the loss ratio is too low they will partially refund premiums to bring it up.
- mistrial9 3y ago
  > end up loosing money in the sate of California for example? the home insurance industry in California changed dramatically with the 2017 summer fire season. The numbers are about "billion" in claims. (edit) substantial destruction of buildings of a major city Santa Rosa. At the same time, price escalation of homes was in full swing. Some houses experience a paper-value growth of more than ten percent a year, on top of high prices. The combination is fatal to the stable insurance industry. No party is innocent on this.. all players are aggressively padding their positions adversarially, including local government. Less than half the burned homes were rebuilt, four years later IIR. ps- a recent study claims that about fifteen percent of residential homes are under extreme fire risk in California now, out of maybe 1.5 million structures... roughly, depending on definitions.
  - jeffbee 3y ago
paulmd 3y ago
> I have to wonder: who on earth thought those price-restriction laws were a good idea? “Free-market, pro-freedom” conservatives in places like Florida and South Carolina. https://www.palmbeachpost.com/story/news/state/2023/07/18/hurricane-climate-change-fueling-florida-insurance-crisis-policies-dropping-farmers-insurance/70419343007/ https://www.palmbeachpost.com/story/news/state/2023/07/18/hu... https://www.miamiherald.com/news/state/florida/article12983720.html https://www.miamiherald.com/news/state/florida/article129837...
cortesoft 3y ago
> I have to wonder: who on earth thought those price-restriction laws were a good idea? Your mistake is assuming the intention of the people who passed the law was to actually create cheaper insurance. The laws WERE a good idea for the people who got them passed, for their actual purpose; getting the representatives re-elected.
- eurleif 3y ago
  That implies voters thought the laws were a good idea, which is consistent with the GP's question.

dehrmann 3y ago

I'm not convinced a lot of state lawmakers are smart enough to realize this, it's an easy policy to sell to voters, and when insurance companies do pull out, you just frame them as "greedy businesses."

baggy_trough 3y ago

Voters and politicians don’t want to believe the laws of economics. A tale as old as time.

Obscurity4340 3y ago
Only when it works for them. The Lord, in his infinite wisdom, makes it rain for the rich and rain on the poor alike.

baq 3y ago

What’s the difference between not providing a service and bumping the price 20x in a year?

oatmeal1 3y ago
Where are you getting the 20x number from?
- baq 3y ago
  It’s a IMHO reasonable first guess in a market without functioning price discovery. Can ask the same question from 2x to 200x easily.
nomel 3y ago
Rate of change limits, to combat this, are sane. Historically, the rate one paid was related to the risk one was insuring. The alternative is to have those with low risk pay for those with high risk. I would prefer we don’t build I. Places that need to be rebuilt every few years, which you and I are paying for.
- baq 3y ago
  Exactly my point. They can’t reduce their risk at current prices so either raise prices or stop offering products. If can’t raise prices, only the other option remains.
- mschuster91 3y ago
  > Historically, the rate one paid was related to the risk one was insuring. And that's still the case today. The rate of change regarding extreme weather events is significantly accelerating due to climate change and unintentional geoengineering [1], humans are ever more and more encroaching on nature, and a lot of infrastructure like power lines is frankly rotting, so it's only a matter of maths that insurers introduce serious rate hikes. Another part is that insurers try to anticipate future risk increases as well so they can build up reserves for when disaster (inevitably) strikes... and politicians all over the world aren't exactly prioritizing tackling climate change, quite a few openly deny it. So of course insurances have to price in the additional risk coming from the expectation of many more years of inaction making climate change and its impact even worse. [1] https://www.science.org/content/article/changing-clouds-unforeseen-test-geoengineering-fueling-record-ocean-warmth https://www.science.org/content/article/changing-clouds-unfo...

jfoutz 3y ago

I'm not familiar with the price restrictions. I thought, the way insurance worked was, I take a little money from a lot of people, and when some rare event happens, I pay out that one person whose house burned down. I don't know the math off the top of my head to calculate how likely a lightning strike, or bad wiring or whatever might cause a house to burn down, but I'm sure such tables exist. So I bet every month that no more than one house will burn down. If no houses burn down, I'm in great shape and put that money in the stock market or whatever and get a better return. Maybe I get unlucky and have to rebuild 2 houses. The sort of sense I get is, the insurance companies can't calculate the probability of catastrophic weather. So there's no way to pick how much to charge for premiums. I get that it's a continuous curve. But if the cost of the premium is half the cost of rebuilding the house, why buy insurance? If I can squeak by one year without having to rebuild, I should just keep the money and rebuild out of pocket. Perhaps I'm way way wrong. But insurance is cheap. If it's not cheap, why bother? if it's annually a big chunk of the total value of the asset, is there any point? Why put a $100 lock on a $50 bicycle?

badlucklottery 3y ago
> If it's not cheap, why bother? The mortgage lender can require it. They don't want to have a burnt down house on the books for any amount of time.
- digitalsushi 3y ago
  Mortgage lenders can just start to require yet another insurance, like PMI, but for natural disasters. I have faith in them that they will find a way to bill us.
  - lotsofpulp 3y ago
    In the US, the lender for a home mortgage is usually the federal government (Fannie Mae, Freddie Mac, Ginnie Mae). https://www.investopedia.com/terms/c/conformingloan.asp https://www.investopedia.com/terms/c/conformingloan.asp
- 3y ago

MattGaiser 3y ago

You assume that the goal of everyone involved was to have affordable insurance. This is also an easy way to get people out of wildfire areas without being the bad guy. Can blame Allstate that someone needs to move. It could also be that it is better politically to have cheap insurance for 80% than more expensive insurance for 100%. Or frankly, just an easy way to get some votes without really getting blamed later.

YeBanKo 3y ago

Do insurances actually end up loosing money in the sate of California for example? Or is it a negotiating tactic tp increase rate? So far the statement coming from insurers themselves, and I think the reason why it was denied, is that they refused to share they financial statements proving losses.

gruez 3y ago
If you're against insurance company profiting, shouldn't you fix that through payout minimums? Even if they could somehow make money in california as a whole, it still a bad idea because the price limit implies of transfer from people with less risk to people with high risk, effectively subsidizing people to live in high risk areas. Regardless of how you feel about insurance profits, I think you can agree that's a bad idea for society as a whole.
- jabroni_salad 3y ago
  Insurance companies already have profit caps. If the loss ratio is too low they will partially refund premiums to bring it up.
mistrial9 3y ago
> end up loosing money in the sate of California for example? the home insurance industry in California changed dramatically with the 2017 summer fire season. The numbers are about "billion" in claims. (edit) substantial destruction of buildings of a major city Santa Rosa. At the same time, price escalation of homes was in full swing. Some houses experience a paper-value growth of more than ten percent a year, on top of high prices. The combination is fatal to the stable insurance industry. No party is innocent on this.. all players are aggressively padding their positions adversarially, including local government. Less than half the burned homes were rebuilt, four years later IIR. ps- a recent study claims that about fifteen percent of residential homes are under extreme fire risk in California now, out of maybe 1.5 million structures... roughly, depending on definitions.
- jeffbee 3y ago

paulmd 3y ago

> I have to wonder: who on earth thought those price-restriction laws were a good idea? “Free-market, pro-freedom” conservatives in places like Florida and South Carolina. https://www.palmbeachpost.com/story/news/state/2023/07/18/hurricane-climate-change-fueling-florida-insurance-crisis-policies-dropping-farmers-insurance/70419343007/ https://www.palmbeachpost.com/story/news/state/2023/07/18/hu... https://www.miamiherald.com/news/state/florida/article12983720.html https://www.miamiherald.com/news/state/florida/article129837...

cortesoft 3y ago

> I have to wonder: who on earth thought those price-restriction laws were a good idea? Your mistake is assuming the intention of the people who passed the law was to actually create cheaper insurance. The laws WERE a good idea for the people who got them passed, for their actual purpose; getting the representatives re-elected.

eurleif 3y ago
That implies voters thought the laws were a good idea, which is consistent with the GP's question.