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Generally agree about InsuranceCos, but I don't think your claim is true about profitability of core insurance operations. Their combined ratios (insurance pay

Generally agree about InsuranceCos, but I don't think your claim is true about profitability of core insurance operations. Their combined ratios (insurance payouts + expenses / premiums collected) are closely tracked by investors and if they're creeping up to 100% without a systemic reason that affects all InsuranceCos, they get a lot of scrutiny. Here's just one lens [0] for home insurance going back to 2004 (~20 years). It appears that the combined ratios were under 100% for ~8 years. [0] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-homeowners-insurers-net-combined-ratio-surges-past-110-81711947 https://www.spglobal.com/marketintelligence/en/news-insights...

s1artibartfast 2y ago
did you mean [(insurance payouts + expenses) / premiums collected] ?
- caminante 2y ago
  Sure. I don't think people get tripped up on the OoO in context.
  - s1artibartfast 2y ago
    no worries, not trying to be pedantic, just wading into new territory with a lot of questions. Sometimes financial equations take unintuitive forms for niche use cases.
dghlsakjg 2y ago
> Here's just one lens [0] for home insurance going back to 2004 (~20 years). It appears that the combined ratios were under 100% for ~8 years. For the other 12 years they were over. 60% of the years were losses. The average is 101.535 for all years in your source. So over 20 years their costs were $101.53 for every $100 in premiums collected. I didn't say that they ALWAYS post losses, I said that it is very common, and that insurance premiums are a net money loser for the industry. This is just another source proving that out, unless I'm missing something?
- caminante 2y ago
  I'm addressing your premise. >Selling insurance and paying claims is a sort of loss leader for the insurance industry. Now you say > I didn't say that they ALWAYS post losses And > that insurance premiums are a net money loser for the industry. This is circular. As for the article, it shows the context that the last couple years have been exceptional and core operations aren't sustainable. Your reasoning doesn't explain why these companies are cutting coverage, skyrocketing premiums, and leaving markets. They wouldn't be retrenching if the status quo was absorbing losses. > In 2023, insurers lost money on homeowners coverage in 18 states, more than a third of the country, according to a New York Times analysis of newly available financial data. That’s up from 12 states five years ago, and eight states in 2013. The result is that insurance companies are raising premiums by as much as 50% or more, cutting back on coverage or leaving entire states altogether. Nationally, over the last decade, insurers paid out more in claims than they received in premiums, according to the ratings firm Moody’s, and those losses are increasing. [0] [0] https://www.wlrn.org/business/2024-05-27/as-insurers-around-the-u-s-bleed-cash-from-climate-shocks-homeowners-lose https://www.wlrn.org/business/2024-05-27/as-insurers-around-...
  - dghlsakjg 2y ago
    The original discussion about insurance companies accepting small underwriting losses to gain investment capital (float) refers to the traditional insurance business model operating under normal conditions. This is different from the current market disruptions we're seeing in specific high-risk regions. Insurance companies are indeed leaving certain markets and raising premiums dramatically, but this is happening because: 1. Climate Change Risk Unpredictability * Traditional insurance models rely on being able to predict risk with reasonable accuracy * Climate change is making weather-related disasters more frequent and severe * Historical data becomes less reliable for predicting future losses * This uncertainty makes it impossible to price policies appropriately 2. Regulatory Constraints * State regulators often limit how much insurers can charge for coverage * Companies can't price premiums high enough to cover increasing risks * They're forced to choose between unsustainable losses or market exit * Political pressure often prevents charging actuarially sound rates 3. Concentration of Risk * Some areas face multiple overlapping risks (fire, flood, hurricane) * Large-scale disasters can trigger many claims simultaneously * This violates the insurance principle of risk diversification * Even investment returns can't offset such concentrated losses 4. Scale of Potential Losses * Traditional model accepts small predictable underwriting losses * Current climate risks create potential for catastrophic losses * Example: California wildfires can destroy entire communities at once * No amount of investment income can offset such massive losses 5. Market Structure Issues * Some markets require insurers to take all risks (can't be selective) * Cross-subsidization between markets becoming unsustainable * State-specific regulations creating fragmented markets * Limited ability to diversify within regulated markets While the traditional insurance model can handle planned small underwriting losses offset by investment gains, that model breaks down when facing large-scale unpredictable risks that can't be properly priced or diversified. This explains why insurers are withdrawing from certain markets while still operating profitably in others.

s1artibartfast 2y ago

did you mean [(insurance payouts + expenses) / premiums collected] ?

caminante 2y ago
Sure. I don't think people get tripped up on the OoO in context.
- s1artibartfast 2y ago
  no worries, not trying to be pedantic, just wading into new territory with a lot of questions. Sometimes financial equations take unintuitive forms for niche use cases.

dghlsakjg 2y ago

> Here's just one lens [0] for home insurance going back to 2004 (~20 years). It appears that the combined ratios were under 100% for ~8 years. For the other 12 years they were over. 60% of the years were losses. The average is 101.535 for all years in your source. So over 20 years their costs were $101.53 for every $100 in premiums collected. I didn't say that they ALWAYS post losses, I said that it is very common, and that insurance premiums are a net money loser for the industry. This is just another source proving that out, unless I'm missing something?

caminante 2y ago
I'm addressing your premise. >Selling insurance and paying claims is a sort of loss leader for the insurance industry. Now you say > I didn't say that they ALWAYS post losses And > that insurance premiums are a net money loser for the industry. This is circular. As for the article, it shows the context that the last couple years have been exceptional and core operations aren't sustainable. Your reasoning doesn't explain why these companies are cutting coverage, skyrocketing premiums, and leaving markets. They wouldn't be retrenching if the status quo was absorbing losses. > In 2023, insurers lost money on homeowners coverage in 18 states, more than a third of the country, according to a New York Times analysis of newly available financial data. That’s up from 12 states five years ago, and eight states in 2013. The result is that insurance companies are raising premiums by as much as 50% or more, cutting back on coverage or leaving entire states altogether. Nationally, over the last decade, insurers paid out more in claims than they received in premiums, according to the ratings firm Moody’s, and those losses are increasing. [0] [0] https://www.wlrn.org/business/2024-05-27/as-insurers-around-the-u-s-bleed-cash-from-climate-shocks-homeowners-lose https://www.wlrn.org/business/2024-05-27/as-insurers-around-...
- dghlsakjg 2y ago
  The original discussion about insurance companies accepting small underwriting losses to gain investment capital (float) refers to the traditional insurance business model operating under normal conditions. This is different from the current market disruptions we're seeing in specific high-risk regions. Insurance companies are indeed leaving certain markets and raising premiums dramatically, but this is happening because: 1. Climate Change Risk Unpredictability * Traditional insurance models rely on being able to predict risk with reasonable accuracy * Climate change is making weather-related disasters more frequent and severe * Historical data becomes less reliable for predicting future losses * This uncertainty makes it impossible to price policies appropriately 2. Regulatory Constraints * State regulators often limit how much insurers can charge for coverage * Companies can't price premiums high enough to cover increasing risks * They're forced to choose between unsustainable losses or market exit * Political pressure often prevents charging actuarially sound rates 3. Concentration of Risk * Some areas face multiple overlapping risks (fire, flood, hurricane) * Large-scale disasters can trigger many claims simultaneously * This violates the insurance principle of risk diversification * Even investment returns can't offset such concentrated losses 4. Scale of Potential Losses * Traditional model accepts small predictable underwriting losses * Current climate risks create potential for catastrophic losses * Example: California wildfires can destroy entire communities at once * No amount of investment income can offset such massive losses 5. Market Structure Issues * Some markets require insurers to take all risks (can't be selective) * Cross-subsidization between markets becoming unsustainable * State-specific regulations creating fragmented markets * Limited ability to diversify within regulated markets While the traditional insurance model can handle planned small underwriting losses offset by investment gains, that model breaks down when facing large-scale unpredictable risks that can't be properly priced or diversified. This explains why insurers are withdrawing from certain markets while still operating profitably in others.