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"Correctly" is doing a lot of work here. Some readers might miss that this is double edged. Insurance is a mandated product. You don't have a choice if you want

"Correctly" is doing a lot of work here. Some readers might miss that this is double edged. Insurance is a mandated product. You don't have a choice if you want a mortgage, or want to run a business. So while it is true that the sustainable price for insurance in many areas is higher than what current regulations allow, let's not forget what happens in an unregulated insurance market; price gouging.

chii 2y ago
> unregulated insurance market; price gouging. with sufficient competition, it is impossible to price gouge. So if there is supposed price gouging, then there must be insufficient competition. Therefore, the source of the lack of competition would need to be removed (ostensibly, by gov't - such as increasing business loans so that new insurance companies can be started).
- kstenerud 2y ago
  Or, you need to be pragmatic, realize that you're not gods and won't create a perfect system that can't be exploited, and instead tackle the issue from multiple angles while revising your approach as the exploiters attack. Don't let the perfect be the enemy of good enough.
  - d0mine 2y ago
    "good enough" assumes a lot about the rules of the game here. Imagine, the game is: "heads I win, tails you lose" and then read your comment.
    - kstenerud 2y ago
      And these kinds of defeatist attitudes are what allow the bad guys to win. You either fight the good fight, or roll over and die. Your choice.
      - d0mine 2y ago
        Who is more likely to act: who thinks it is “good enough” or “the game is rigged”?
  - dr_dshiv 2y ago
    Or, the market lets the gods do their work, rather than the government acting like one. —esoteric capitalism
  - Panzer04 2y ago
    What are you trying to say here?
    - kstenerud 2y ago
      I'm saying that running a government is a lot like running a ship: You can't just let the currents and tidal forces ("the invisible hand") run the show unconditionally because even though they can propel you great distances at very low cost, they'll eventually throw you upon the reefs. And you can't just let the rowers and tillers (legislators & executive) run the show unconditionally because they'll end up exhausting themselves with little to show for it as they fight against the winds and currents when they should cooperate. It's a balancing act that requires some science, some experience, some luck, and a steady hand - and a capable and honorable captain and crew who believe in the mission.
      - Panzer04 2y ago
        I still don't follow. If I'm reading it right, and the prior context, we shouldn't allow private insurers to charge the prices they want for insurance? What do you want us to do? Ultimately someone has to pay for the bad outcomes happening here - either that's homeowners in risky areas, insurance shareholders or the general taxpayer, depending on where you fall. If you don't make the ultimate originators of the risk pay for it (people in risky areas) they won't stop doing the stupid thing and others will bear the cost. Arguably that is the greatest strength of the "free market" - directing the efforts of everyone in the same, positive, direction.
        kstenerud 2y ago
        Because although in the recent LA case we're dealing with rich folks who could shoulder the increased burden, often it's the poor areas that are riskier, and where the people there have little choice over where they can live. There's no universal solution. A "free market" approach will work in some areas, and fail spectacularly in others. Same goes for a full-on centralized control approach. And in all cases, you also have the confounding factor of bad actors gaming the system - and your current tools may be insufficient to meet the challenge. So you need a human guiding hand to make sure things don't go too far out of whack. This isn't an either-or decision. Stability doesn't care about whose motives or approaches are more "pure".
- derektank 2y ago
  I mean, there's sometimes simply not enough capital available to support the creation of further competition in a sector. And government subsidies in the form of cheap business loans are sort of robbing Peter to pay Paul. You're simply allocating capital from one sector (the one being taxed) to another
roenxi 2y ago
If the regulators have defined 'price gouging' as a price substantially below the break even mark, literally any profitable insurance product is implicitly believed by them to be price gouging. The US does a weird thing where "insurance" no longer means pooling risk but some sort of transfer payment welfare system. If they're going to define "price gouging" as profitable activity it is hard to see how the economy is going to function. Allowing insurers to make a profit and run a business without interference is going to be cheaper - and in most instances better - than whatever the politicians are trying to build here. If you get rid of all the mandatory-this and price-gouging-thats then to stay in business insurers have sell products that people want to buy at a competitive yet sustainable price. It works for food, it'd work here too.
- hakfoo 2y ago
  The math of insurance suggests that, if it needs to be widely carried (either due to things like mortgage requirements, or the simple realization most people don't have enough resources to absorb a major catastrophe themselves), the most economical way to go is to have a single risk pool that's as broad and diverse as possible, so it can swallow a large clustered crisis more easily. Yes, this is a bit of robbing Peter to pay Paul. I always found it funny when insurance marketing talks about "personalized rates", when the goal is to DE-PERSONALIZE the risk. If you have 10,000 customers in Los Angeles, and 5 million elsewhere, you can either isolate the LA customers and charge them the "real" price of the risk, which will be unviable as a business and probably politically touchy too, or you can include them in the broad pool, and the people with a full-cinderblock home in a non-flammable state pay $20 more a year so the entire endeavour can work. The concept probably works better if you have some concept of social cohesion to lean on-- you might not get the best possible outcome personally, but the system itself is more robust for everyone.
  - roenxi 2y ago
    What if Paul built his house somewhere less flammable? I see options here where Peter doesn't need to be robbed, he could pay a fair rate and Paul could make less risky decisions. If one pool of people are taking a bad deal vs the market rate when buying insurance then it isn't really insurance any more. It is a transfer payment a.k.a. welfare. Which is cool and all in the sense that welfare is a social tool that exists. But calling it 'insurance' is needlessly polluting the language. If people expect to hoover money off others then they should be charged more until the expected return of everyone in the insured pool is equal. If the payouts are going to be held equal in the event of a disaster then that means the price of insurance has to vary depending on the risk profile of the customers.
margalabargala 2y ago
Price gouging isn't actually what we're seeing in the most disaster prone areas. Insurance companies aren't charging open ended prices, they're simply exiting the market. Florida for example.
- loeg 2y ago
  I believe Florida market exits had more to do with litigation-friendliness than premium caps or disaster risks. E.g., > In 2020, 79 percent of homeowners insurance lawsuits nationwide were in Florida—even as the state accounted for only 9 percent of the U.S. homeowners insurance claims, according to the Florida Office of Insurance Regulation. There were some recent reforms in response (HB 837, 2023; SB 2-A, 2022).
  - margalabargala 2y ago
    Ah, fair point
- jpalawaga 2y ago
  They're exiting the market because the states have limits on how premiums can increase y/y. The risk modeling (which is turning out to be right) says premiums are fractional of what they should be. So unable to raise premiums, the companies just leave. Rock, meet hard place.
CalRobert 2y ago
For what it’s worth, you can get a house with no insurance or mortgage. They tend to be cheap. I had an uninsured thatched cottage for a while, it was 68k
- lostlogin 2y ago
  You can have a mortgage with no insurance (after purchase day) here in New Zealand. The bank won’t like it, but also won’t know.
  - girvo 2y ago
    Banks in Australia were the same, but some are now starting to demand proof of insurance yearly to counter that loophole.
    - thaumasiotes 2y ago
      What's the thinking here? The bank is loaning you money and they want to ensure you buy a particular product. They're the ones with the money. They can easily guarantee that you buy the product they want. All they need to do is give you less money, buy the product themselves, and give it to you.
      - wakawaka28 2y ago
        I don't know what you mean. Banks loan out money for you to buy a house, but you don't technically own it (that is, you have no title) until it is paid off. The bank wants the house itself as collateral for the loan. It cannot be collateral if something destroys it in the 30 years or whatever during which you are repaying the loan. Therefore, they demand insurance to make sure that they will be repaid. The insurance requirement protects you but also the bank, because what do you think the odds are that someone who just lost their house in a fire or something is going to keep making mortgage payments for a pile of ashes?
      - hnick 2y ago
        I think what you mean is what I wasn't sure about (but found with a quick search), some banks do offer home loan and insurance bundles here in AU. I found one that offered a discount on the insurance if you get the loan with them, for the life of the loan. But legally, you are allowed to change insurers at any time. They would probably not be allowed to include that as a contract-breaker clause in the loan itself due to free-market-reasons, or force you to take only their insurance to have the loan (we tend to have a few laws about keeping conflicts of interest like this at arms length but I'm not sure about this case). But if insurance is legally required, I suppose they can ask for proof periodically after you leave to terminate the loan.
ahupp 2y ago
The big risk that we need regulation for is not that insurance charges too much, but too little. There will always be the temptation to charge less than the other guy, get lots of customers and hope nothing really bad happens.
- cloverich 2y ago
  This is a great callout, although I suspect the two main things insurers need but can't get today, due to regulations: 1. Ability to raise price based on risk. Regulation example: State won't let insurance company modify their fire risk maps. I believe this has come up in central Oregon for example. 2. Ability to drop people out right. i.e. if they think risk of home insurance is 50/50 next 10 years, they won't insure at all. 1 can accommodate for 2, but then its basically insurer charging the actual price of the home, year one. Maybe they can work out a deal though, like you get the money back if it doesn't burn down. (Mostly parroting things I've heard that seems to make sense).
devman0 2y ago
P&C insurance is a pretty competitive industry, and there are plenty of mutual insurance companies in the P&C business that don't have a price gouging incentive. Most of the regulations that are about reducing counterparty risk for the insured are probably necessary, but price controls are not, and generally, they only distort the market.
School-Cotton 2y ago
Can you define “price gouging”?
wakawaka28 2y ago
Insurance (at least the kind we are talking about) is only mandatory if you have loans, and even then it is not 100% mandated. We do need insurance regulations, but price caps limit what things actually make sense to cover. To put it another way, you are free to buy land in a risky area if you want, but nobody has to insure it or loan you money for it. If you find someone who will loan you the money if you can get insurance, then you can't get insurance, that sucks for you but nobody owes it to you to hand over money on a losing investment. These requirements can be abused, but there really isn't much evidence of insurers, lenders, and investors colluding to rip people off.

chii 2y ago

> unregulated insurance market; price gouging. with sufficient competition, it is impossible to price gouge. So if there is supposed price gouging, then there must be insufficient competition. Therefore, the source of the lack of competition would need to be removed (ostensibly, by gov't - such as increasing business loans so that new insurance companies can be started).

kstenerud 2y ago
Or, you need to be pragmatic, realize that you're not gods and won't create a perfect system that can't be exploited, and instead tackle the issue from multiple angles while revising your approach as the exploiters attack. Don't let the perfect be the enemy of good enough.
- d0mine 2y ago
  "good enough" assumes a lot about the rules of the game here. Imagine, the game is: "heads I win, tails you lose" and then read your comment.
  - kstenerud 2y ago
    And these kinds of defeatist attitudes are what allow the bad guys to win. You either fight the good fight, or roll over and die. Your choice.
    - d0mine 2y ago
      Who is more likely to act: who thinks it is “good enough” or “the game is rigged”?
- dr_dshiv 2y ago
  Or, the market lets the gods do their work, rather than the government acting like one. —esoteric capitalism
- Panzer04 2y ago
  What are you trying to say here?
  - kstenerud 2y ago
    I'm saying that running a government is a lot like running a ship: You can't just let the currents and tidal forces ("the invisible hand") run the show unconditionally because even though they can propel you great distances at very low cost, they'll eventually throw you upon the reefs. And you can't just let the rowers and tillers (legislators & executive) run the show unconditionally because they'll end up exhausting themselves with little to show for it as they fight against the winds and currents when they should cooperate. It's a balancing act that requires some science, some experience, some luck, and a steady hand - and a capable and honorable captain and crew who believe in the mission.
    - Panzer04 2y ago
      I still don't follow. If I'm reading it right, and the prior context, we shouldn't allow private insurers to charge the prices they want for insurance? What do you want us to do? Ultimately someone has to pay for the bad outcomes happening here - either that's homeowners in risky areas, insurance shareholders or the general taxpayer, depending on where you fall. If you don't make the ultimate originators of the risk pay for it (people in risky areas) they won't stop doing the stupid thing and others will bear the cost. Arguably that is the greatest strength of the "free market" - directing the efforts of everyone in the same, positive, direction.
      - kstenerud 2y ago
        Because although in the recent LA case we're dealing with rich folks who could shoulder the increased burden, often it's the poor areas that are riskier, and where the people there have little choice over where they can live. There's no universal solution. A "free market" approach will work in some areas, and fail spectacularly in others. Same goes for a full-on centralized control approach. And in all cases, you also have the confounding factor of bad actors gaming the system - and your current tools may be insufficient to meet the challenge. So you need a human guiding hand to make sure things don't go too far out of whack. This isn't an either-or decision. Stability doesn't care about whose motives or approaches are more "pure".
derektank 2y ago
I mean, there's sometimes simply not enough capital available to support the creation of further competition in a sector. And government subsidies in the form of cheap business loans are sort of robbing Peter to pay Paul. You're simply allocating capital from one sector (the one being taxed) to another

roenxi 2y ago

If the regulators have defined 'price gouging' as a price substantially below the break even mark, literally any profitable insurance product is implicitly believed by them to be price gouging. The US does a weird thing where "insurance" no longer means pooling risk but some sort of transfer payment welfare system. If they're going to define "price gouging" as profitable activity it is hard to see how the economy is going to function. Allowing insurers to make a profit and run a business without interference is going to be cheaper - and in most instances better - than whatever the politicians are trying to build here. If you get rid of all the mandatory-this and price-gouging-thats then to stay in business insurers have sell products that people want to buy at a competitive yet sustainable price. It works for food, it'd work here too.

hakfoo 2y ago
The math of insurance suggests that, if it needs to be widely carried (either due to things like mortgage requirements, or the simple realization most people don't have enough resources to absorb a major catastrophe themselves), the most economical way to go is to have a single risk pool that's as broad and diverse as possible, so it can swallow a large clustered crisis more easily. Yes, this is a bit of robbing Peter to pay Paul. I always found it funny when insurance marketing talks about "personalized rates", when the goal is to DE-PERSONALIZE the risk. If you have 10,000 customers in Los Angeles, and 5 million elsewhere, you can either isolate the LA customers and charge them the "real" price of the risk, which will be unviable as a business and probably politically touchy too, or you can include them in the broad pool, and the people with a full-cinderblock home in a non-flammable state pay $20 more a year so the entire endeavour can work. The concept probably works better if you have some concept of social cohesion to lean on-- you might not get the best possible outcome personally, but the system itself is more robust for everyone.
- roenxi 2y ago
  What if Paul built his house somewhere less flammable? I see options here where Peter doesn't need to be robbed, he could pay a fair rate and Paul could make less risky decisions. If one pool of people are taking a bad deal vs the market rate when buying insurance then it isn't really insurance any more. It is a transfer payment a.k.a. welfare. Which is cool and all in the sense that welfare is a social tool that exists. But calling it 'insurance' is needlessly polluting the language. If people expect to hoover money off others then they should be charged more until the expected return of everyone in the insured pool is equal. If the payouts are going to be held equal in the event of a disaster then that means the price of insurance has to vary depending on the risk profile of the customers.

margalabargala 2y ago

Price gouging isn't actually what we're seeing in the most disaster prone areas. Insurance companies aren't charging open ended prices, they're simply exiting the market. Florida for example.

loeg 2y ago
I believe Florida market exits had more to do with litigation-friendliness than premium caps or disaster risks. E.g., > In 2020, 79 percent of homeowners insurance lawsuits nationwide were in Florida—even as the state accounted for only 9 percent of the U.S. homeowners insurance claims, according to the Florida Office of Insurance Regulation. There were some recent reforms in response (HB 837, 2023; SB 2-A, 2022).
- margalabargala 2y ago
  Ah, fair point
jpalawaga 2y ago
They're exiting the market because the states have limits on how premiums can increase y/y. The risk modeling (which is turning out to be right) says premiums are fractional of what they should be. So unable to raise premiums, the companies just leave. Rock, meet hard place.

CalRobert 2y ago

For what it’s worth, you can get a house with no insurance or mortgage. They tend to be cheap. I had an uninsured thatched cottage for a while, it was 68k

lostlogin 2y ago
You can have a mortgage with no insurance (after purchase day) here in New Zealand. The bank won’t like it, but also won’t know.
- girvo 2y ago
  Banks in Australia were the same, but some are now starting to demand proof of insurance yearly to counter that loophole.
  - thaumasiotes 2y ago
    What's the thinking here? The bank is loaning you money and they want to ensure you buy a particular product. They're the ones with the money. They can easily guarantee that you buy the product they want. All they need to do is give you less money, buy the product themselves, and give it to you.
    - wakawaka28 2y ago
      I don't know what you mean. Banks loan out money for you to buy a house, but you don't technically own it (that is, you have no title) until it is paid off. The bank wants the house itself as collateral for the loan. It cannot be collateral if something destroys it in the 30 years or whatever during which you are repaying the loan. Therefore, they demand insurance to make sure that they will be repaid. The insurance requirement protects you but also the bank, because what do you think the odds are that someone who just lost their house in a fire or something is going to keep making mortgage payments for a pile of ashes?
    - hnick 2y ago
      I think what you mean is what I wasn't sure about (but found with a quick search), some banks do offer home loan and insurance bundles here in AU. I found one that offered a discount on the insurance if you get the loan with them, for the life of the loan. But legally, you are allowed to change insurers at any time. They would probably not be allowed to include that as a contract-breaker clause in the loan itself due to free-market-reasons, or force you to take only their insurance to have the loan (we tend to have a few laws about keeping conflicts of interest like this at arms length but I'm not sure about this case). But if insurance is legally required, I suppose they can ask for proof periodically after you leave to terminate the loan.

ahupp 2y ago

The big risk that we need regulation for is not that insurance charges too much, but too little. There will always be the temptation to charge less than the other guy, get lots of customers and hope nothing really bad happens.

cloverich 2y ago
This is a great callout, although I suspect the two main things insurers need but can't get today, due to regulations: 1. Ability to raise price based on risk. Regulation example: State won't let insurance company modify their fire risk maps. I believe this has come up in central Oregon for example. 2. Ability to drop people out right. i.e. if they think risk of home insurance is 50/50 next 10 years, they won't insure at all. 1 can accommodate for 2, but then its basically insurer charging the actual price of the home, year one. Maybe they can work out a deal though, like you get the money back if it doesn't burn down. (Mostly parroting things I've heard that seems to make sense).

devman0 2y ago

P&C insurance is a pretty competitive industry, and there are plenty of mutual insurance companies in the P&C business that don't have a price gouging incentive. Most of the regulations that are about reducing counterparty risk for the insured are probably necessary, but price controls are not, and generally, they only distort the market.

School-Cotton 2y ago

Can you define “price gouging”?

wakawaka28 2y ago

Insurance (at least the kind we are talking about) is only mandatory if you have loans, and even then it is not 100% mandated. We do need insurance regulations, but price caps limit what things actually make sense to cover. To put it another way, you are free to buy land in a risky area if you want, but nobody has to insure it or loan you money for it. If you find someone who will loan you the money if you can get insurance, then you can't get insurance, that sucks for you but nobody owes it to you to hand over money on a losing investment. These requirements can be abused, but there really isn't much evidence of insurers, lenders, and investors colluding to rip people off.