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Alright, I spent years working and building 0-1 insurance products. Let me peel back some stuff that’s been happening behind the scenes. Some officials are ele
by brogrammernot 2y ago
Alright, I spent years working and building 0-1 insurance products. Let me peel back some stuff that’s been happening behind the scenes.
Some officials are elected and some are appointed which all depends on the state. Appointed officials are usually more reasonable and elected are not because higher rates = mad voters = re-election chances lower.
For a long time, insurers have struggled to get sufficient rate changes approved. A literal quote for you during Covid was, “Son, I’m looking out my window at downtown {city} and I don’t see many cars on the road. We won’t approve the rate increases.”
This was with actual data of losses increasing due to supply chain disruption of auto parts, labor increases and many more things.
We basically had to write policies and hope for the best despite knowing the data / trend lines forecasting major losses.
Fast-forward and what do you have - major losses by all of these companies - and so these companies have two choices:
- Try to get rate approvals
- Exit the market or line of insurance
For California, the latter is the better option because at least for auto you cannot use credit, telematics or other very predictive attributes to price the risk. This results in essentially pooled risk which in aggregate drives up rates for all. Simply put, California officials did this to themselves.
For other states, the first option works but the rate increases are now significantly higher because it was near impossible to get any adequate rate increases last few years.
So, the bill has come due and it sucks for everyone as it’s either a) higher prices or b) can’t get insurance (Florida folks for certain types) or c) limited suppliers not being able to get reinsurance to share the risk results in higher rates that customers can’t afford so they go without.
- pishpash 2y ago[flagged]
- deleted 2y ago[deleted]
- brogrammernot 2y agoThanks for the insightful and thought-provoking comment.
- salawat 2y agoThey are not wrong. Insurance with perfect info ceases to ne any form of a recognizable social good. In fact, it just becomes indistinguishable from a sanctioned form of populational segregation, instead of the pull-a-long stick-with-carrot through which risk is mitigated against long tail events through active propagation of best practices as a condition of coverage. Insurance companies should be exposed to the same level of risk as anyone else, which includes having things boow up in your face if you mismanage your float.
- chomp 2y agoNo one said they were wrong, they just lobbed a grenade to end the conversation.
- brogrammernot 2y agoTheir comment didn’t add anything to the conversation, contrasted with yours I’m sure you can see the difference. I agree with your commentary, my point was that they’re (insurance companies) unable to use the information they learn or newer predictive elements to help avoid the mismanagement. Arbitrary decisions by these elected or appointed officials, as I have seen first-hand, ignoring the reality that if they aren’t able to off-set that risk it comes at great cost to the company first and their constituents later as a knock-on effect results in the only way to not have it “blow up in their face” by removing services. So to your point, the lack of ability of control rates in a more reasonable fashion (I’m not pro no regulations btw) actually results in the same thing you’ve pointed out above - the ones who need the insurance the most can no longer get it or cannot get adequate coverage.
- gizmo686 2y agoInsurance with perfect info would be an amazing social good. If they could say "you can build a house there, but it will burn down in a forest fire 15 years from now", we could make an informed decision on if we want to build that house.
- sdenton4 2y ago
- gosub100 2y agoThe idea of business leadership is to minimize losses, not provide a public service.
- tfehring 2y agoYes, insurance companies should sometimes lose money on business that they expected to be profitable. But they shouldn’t be writing business that they expect to be unprofitable a priori. Many states and lines of business are firmly in the second category right now due to overzealous insurance regulators.
- lokar 2y agoIn CA, a recent batch of wild fires wiped out 20 years of profits.
- nick7376182 2y agoThen maybe they should have worked with customers proactively to prune trees and set up fire exclusion zones or fire resistant exteriors instead of sitting on their laurels raking it in.
- more_corn 2y agoSeconded. Also let’s require PG&E (the company that set the fires) to actually follow the maintenance and safety schedules they repeatedly promise to follow and repeatedly fail to follow.
- nick7376182 2y ago[dead]
- kuchenbecker 2y agoSeems like a lot of work when leaving the state is possible.
- tptacek 2y agoIf losses reach the point where it's irrational to invest in insurance businesses versus other competing business propositions, insurers exit the market, and the boo-hoo is on you. You can moralize your way out of cuts in profits, but you can't moralize your way out of sustained losses.
- jjtheblunt 2y agoI’m not seeing you motivate or justify the rate increases.
- lokar 2y agoThe insurance companies are loosing money. Rates have to go up.
- epolanski 2y agoAnd not just a bit. Insurances have lost money for most of the last 5/6 years.
- bagels 2y agoThey are not all losing money.
- stalfosknight 2y agoAnd yet there's seems to always been enough money for stock buybacks and disgustingly excessive executive compensation.
- jjtheblunt 2y agoIn insurance companies?
- stalfosknight 2y agoIn most publicly traded for-profit organizations.
- jjtheblunt 2y agoi think "most" isn't necessarily right since selection bias applies : ones not making money get delisted from public trading, so don't pull down an average, skewing it. another couple quirks: stock buybacks generally inflate the value of remaining shares (not bought back) for the public traded company shareholders...what they hoped for when acquiring shares. some companies increase dividends to return value, rather than fiddle with share prices. but, yeah, agreed to your general observation.
- myself248 2y agoI thought risk pooling was the point?
- brogrammernot 2y agoIt is through reinsurance mechanisms and the way you build the portfolio. If you can’t use predictive attributes, many not allowed in California, you’re not going to get reinsurance interest because you can’t really balance the risk across different risk types for drivers. So the end result is the customer pays more, despite their driving record being clean, because that’s the only way to manage through the risk.
- ska 2y agoRisk pooling is fundamental to insurance, but not all pools are the same. The observation is that if you aren't able to discriminate at all or subdivide the pools, the only response is to up the average rate to cover the aggregate risk as best you can estimate it. This gets tricky if your ability to change rates is constrained, also. These things are always in fundamental tension, and also in tension with privacy. It's not an easy problem.
- brogrammernot 2y agoYup, exactly. Even worse for the consumer is that insurance rules say you have to “offer” insurance in the state to get your license. Well, you don’t want to drop your license but really don’t want to have a bunch of policies. What do you do? You make it impossibly difficult to get insurance. I’m not going to name names but a lot of insurance companies in California are doing this. No online applications, have to call in, have to fax in or mail paperwork required and so on…
- hilux 2y agoYup - I have experienced this trying to buy health insurance (pre-Obamacare) in California. I was very confused until I realized they were doing exactly what you said.
- 2y ago
- trogdor 2y agoWhy are insurance rates regulated by the government? I understand that the state has a strong interest in ensuring that insurance companies are adequately capitalized, but I don’t understand the state interest in directly regulating premium prices. (Or is that not what you are referring to?)
- gumby 2y agoFor the same reason credit card interest rates are regulated: there's an asymmetry in bargaining power. Car prices are not regulated because there are plenty of options for the consumer.
- AnthonyMouse 2y agoIf there is such an asymmetry in bargaining power then why do most people pay less than the statutory maximum? If there are multiple insurance companies, how is it not the consumer who has the bargaining power, since they can just take the lowest price? The actual reason is that some consumers are extremely high risk, the market rate for those consumers is correspondingly extreme, and then they whine to legislators that they're getting ripped off when in fact the rate reflects the risk. And then the company either refuses their business if they're allowed to or raises rates on everybody else to compensate if they're not.
- lazide 2y agoEh, or without regulation when people switch risk categories due to a loss they get completely screwed because no company will insure them anymore. At which point, there is strong incentive to only claim the most outrageously bad losses, and for people to only actually get insurance if they have real reason to suspect a loss that is non obvious to others. It’s a market type that is fundamentally messy and prone to abusive behavior by both sides.
- AnthonyMouse 2y ago> Eh, or without regulation when people switch risk categories due to a loss they get completely screwed because no company will insure them anymore. This only happens when regulations cap premiums, because otherwise there is always a rate at which selling insurance is profitable. Even if you have a 50% risk of a claim (extremely high), you'd still be able to buy $100,000 in insurance for a little over $50,000. Of course, you may not be able to afford this, but then maybe if your risk is that high you should just refrain from engaging in that activity eh? > At which point, there is strong incentive to only claim the most outrageously bad losses That's what insurance is for. If you have a 20% chance of losing $100 every year, you don't need to pay $21/year for an insurance policy, you just lose $100 once every five years. > and for people to only actually get insurance if they have real reason to suspect a loss that is non obvious to others. The reason to get insurance is if there is a low probability high cost risk, like a house fire. You don't expect it to happen, but it could, and you'd rather pay $1000/year, have it and not need it, than lose the value of your house in the event of a random accident.
- Vic-Bhatia 2y agoHi, This is a very informative post. I am trying to learn more about how the insurance industry works. Would you be open to sharing any resources (websites, books etc) that teach the 0 to 1 of insurance? Or can I DM you with a couple of questions? Thanks!
- brogrammernot 2y agoYeah, sure shoot me a DM and when I’m back later at my computer I have some. I didn’t deal much on commercial insurance btw, I have _some_ awareness of that.
- lm411 2y agoHere in British Columbia, our provincially owned insurer (ICBC) saved significant money because of fewer claims during Covid. They even issued a rebate to most drivers. Though they also noted losing some revenue due to fewer or lower premiums being paid. The amount saved was far greater. https://assets.ctfassets.net/nnc41duedoho/BNR4qtOTGPJuyQADtK5u9/405b9ba73ff89f10787d97b5f0402c89/impacts-of-covid-19-q1.pdf https://assets.ctfassets.net/nnc41duedoho/BNR4qtOTGPJuyQADtK... I wonder if the difference was largely because of Canada's more strict lock downs. The roads were nearly dead here for quite awhile.
- Scoundreller 2y agoAnd Canadian auto-parts prices are through the roof anyway. If there's a factory-gate price increase/supply issue, there's room for margin compression instead of raising prices. Maybe?
- lm411 2y agoI'm with you on that 100% Scoundreller.
- stalfosknight 2y agoAnd yet there's seems to always been enough money for stock buybacks and disgustingly excessive executive compensation.
- wolverine876 2y ago> This results in essentially pooled risk which in aggregate drives up rates for all. For all? I'd think it reduces rates for some and increases it for others.
- kchoudhu 2y ago> supply chain disruption, labor increases All of these things have either reduced or stabilized over the last two years, but prices seem to keep going up. Strange!
- PrairieFire 2y agoOne key part of the formula omitted is most major insurers while posting underwriting losses in certain markets, etc in 2023 posted annual net profit over $1.0bn. Am I right in thinking these sweeping rate increases and market exits are justified by protection of $250mm+ per quarter net income? If so, then are we right to blame anybody other than the insurers shareholders and owners for this current state? Wouldn’t $25mm per quarter net income be sufficient? Why does runaway profits maxxing have to apply to every market including public good markets like insurance?