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That wouldn't be pointless, because you would have a predictable expense instead of an unpredictable expense. What you're describing is actually the ideal scena

That wouldn't be pointless, because you would have a predictable expense instead of an unpredictable expense. What you're describing is actually the ideal scenario for both individuals and companies.

lamontcg 3y ago
Yes, so the insurance company should underwrite your roof for a fixed cost (adjusted for inflation) on your home. After 20 years of paying into that pool they shouldn't be able to just drop you now that your roof is old and pocket all the money and walk away and leave you with a roof that needs replacement. What I'd expect is that you pay into the pool and then after 20 years you've more than paid for the new roof and so you get a new roof. It should be slightly stochastic financing of your new roof and since a roof has a finite lifetime there should be a new roof at the end of it. It shouldn't be "hey, looks like your roof is about to have issues now, and we only insure new roofs, thanks for the profits, byeeeeee...."
- trogdor 3y ago
  Insurance protects against unexpected losses during the policy period. An insurance policy is not a home warranty. If your roof has a finite lifetime and is approaching the end of its life, the cost of insuring your roof will be close to the cost of a new roof. If your insurance company is not allowed to increase your rate to match your risk (which seems to be the case in California), they will drop you as a customer. Your previous premium payments insured against the risk of unexpected loss during those earlier policy periods only. They have nothing to do with your current insurance rate.
dragonwriter 3y ago
> That wouldn't be pointless, because you would have a predictable expense instead of an unpredictable expense. What you're describing is actually the ideal scenario for both individuals and companies No, if the expense were that predictable, the best case would be dispense with insurance entirely, since it effects the cost not at all and imposes overhead, especially insurance where the rates are accurately computed over short periods. Without uncertainty, there is no point in insurance.
- shepherdjerred 3y ago
  If you can manage your finances well, then sure. Many people would see that pile of cash in their savings and spend it. Paying a monthly amount to a third-party is safer in many ways, even if you have some % of overhead.
  - mb7733 3y ago
    I don't care how well you manage your expenses, it doesn't make sense to keep enough cash on hand to rebuild your house if it burns to the ground. (Not to mention that is completely impossible for almost everyone.)
  - bartonfink 3y ago
    so in your world, it's irresponsible to own anything unless you also put its replacement cost in escrow. house burned down two weeks after closing? fuck you, take the loss and enjoy being broke or homeless. that's asinine. think more before posting in the future.
    - shepherdjerred 3y ago
      I'm open to having my mind changed, but when you post with this attitude it achieves no purpose. You assumed my views without asking. My comment only referred to there still being a benefit in choosing to have insurance even with perfect information about risk and expected benefits. At no point did I even imply that I thought "it's irresponsible to own anything".
  - dragonwriter 3y ago
    If insurance can predict when losses will occur accurately and price accordingly, even this arguable temporal-cost-spreading benefit is lost.
- mb7733 3y ago
  If you dispense with insurance entirely, how do you deal with catastrophic expenses? The key things I think you are not considering are: 1. If you choose not to take out an insurance policy, and instead save the money yourself, you will not have the lump sum immediately available to cover catastrophe. Whereas as soon as you start paying insurance premiums you are covered. 2. The payout you receive when you make an insurance claim does not just come from the premiums you have personally paid. In fact, for a rare event, the size of the payout likely exceed the total cost of all premiums you could pay over your entire lifetime. This is because the risk is pooled over all customers, and not all customers will make claims. Neither of the above 2 points become any less relevant as the insurance premiums become more and more accurately priced.

That wouldn't be pointless, because you would have a predictable expense instead of an unpredictable expense. What you're describing is actually the ideal scenario for both individuals and companies.

lamontcg 3y ago

Yes, so the insurance company should underwrite your roof for a fixed cost (adjusted for inflation) on your home. After 20 years of paying into that pool they shouldn't be able to just drop you now that your roof is old and pocket all the money and walk away and leave you with a roof that needs replacement. What I'd expect is that you pay into the pool and then after 20 years you've more than paid for the new roof and so you get a new roof. It should be slightly stochastic financing of your new roof and since a roof has a finite lifetime there should be a new roof at the end of it. It shouldn't be "hey, looks like your roof is about to have issues now, and we only insure new roofs, thanks for the profits, byeeeeee...."

trogdor 3y ago
Insurance protects against unexpected losses during the policy period. An insurance policy is not a home warranty. If your roof has a finite lifetime and is approaching the end of its life, the cost of insuring your roof will be close to the cost of a new roof. If your insurance company is not allowed to increase your rate to match your risk (which seems to be the case in California), they will drop you as a customer. Your previous premium payments insured against the risk of unexpected loss during those earlier policy periods only. They have nothing to do with your current insurance rate.

dragonwriter 3y ago

> That wouldn't be pointless, because you would have a predictable expense instead of an unpredictable expense. What you're describing is actually the ideal scenario for both individuals and companies No, if the expense were that predictable, the best case would be dispense with insurance entirely, since it effects the cost not at all and imposes overhead, especially insurance where the rates are accurately computed over short periods. Without uncertainty, there is no point in insurance.

shepherdjerred 3y ago
If you can manage your finances well, then sure. Many people would see that pile of cash in their savings and spend it. Paying a monthly amount to a third-party is safer in many ways, even if you have some % of overhead.
- mb7733 3y ago
  I don't care how well you manage your expenses, it doesn't make sense to keep enough cash on hand to rebuild your house if it burns to the ground. (Not to mention that is completely impossible for almost everyone.)
- bartonfink 3y ago
  so in your world, it's irresponsible to own anything unless you also put its replacement cost in escrow. house burned down two weeks after closing? fuck you, take the loss and enjoy being broke or homeless. that's asinine. think more before posting in the future.
  - shepherdjerred 3y ago
    I'm open to having my mind changed, but when you post with this attitude it achieves no purpose. You assumed my views without asking. My comment only referred to there still being a benefit in choosing to have insurance even with perfect information about risk and expected benefits. At no point did I even imply that I thought "it's irresponsible to own anything".
- dragonwriter 3y ago
  If insurance can predict when losses will occur accurately and price accordingly, even this arguable temporal-cost-spreading benefit is lost.
mb7733 3y ago
If you dispense with insurance entirely, how do you deal with catastrophic expenses? The key things I think you are not considering are: 1. If you choose not to take out an insurance policy, and instead save the money yourself, you will not have the lump sum immediately available to cover catastrophe. Whereas as soon as you start paying insurance premiums you are covered. 2. The payout you receive when you make an insurance claim does not just come from the premiums you have personally paid. In fact, for a rare event, the size of the payout likely exceed the total cost of all premiums you could pay over your entire lifetime. This is because the risk is pooled over all customers, and not all customers will make claims. Neither of the above 2 points become any less relevant as the insurance premiums become more and more accurately priced.