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The state doesn’t take unlimited liability

by bvan 2y ago

buran77 2y ago
I answered to the hypothetical from OP's comment as I understood it, and quoted. > regulation to help ensure the solvency of insurers The only way to ensure solvency is for the state/people to bail them out as needed. That's not a business, that's literally privatizing the profits and socializing the costs. It's clear that if the insurers themselves are tasked with ensuring their own solvency it would be prohibitively expensive, so they'll pack their things and go.
- amluto 2y ago
  No, the state can and should regulate the market such that anyone selling insurance (in CA, that’s “admitted” insurance IIRC) must meet certain requirements in regard to their ability to pay large claims. Kind of like how states and the federal government regulate banks to minimize the risk that they end up needing FDIC funds. This type of solvency regulation may not be 100% perfect, but it’s a lot better than nothing. > It's clear that if the insurers themselves are tasked with ensuring their own solvency it would be prohibitively expensive Why is that? Sure, a massive event like the Palisades fire might cost $40bn (in a functioning insurance market — we’ll see how much of this gets eaten by homeowners with insufficient coverage in the broken CA market), but this was still a low probability event, it ought to be spread among 10k policies or so, giving a few million dollars per policy. At a (wildly made up) risk of 1% per year of such a loss, that’s $40k per year even before accounting for the fact that these costs get shared by policies covering homes that weren’t in the Palisades. This is expensive but in line with what property taxes ought to be, and it’s manageable. And would be lower if homes were updated to meet modern WUI fire codes. The real issue is that CA did not allow insurers to set premiums appropriately, so the insurers either get screwed or refuse to issue the policies. That was (AFAICT) the actual problematic regulation, and CA is trying to roll it back.
  - buran77 2y ago
    > must meet certain requirements in regard to their ability to pay large claims [...] states and the federal government regulate banks to minimize the risk that they end up needing FDIC funds Deposit guarantees have a ceiling, and in the US that's about three times lower than the median CA home value. It also pays out after the bank is no longer solvent. That kind of regulation does not (and here I am quoting it for the third time) "ensure the solvency of insurers", or banks in your example. Which was specifically what I replied to.

The state doesn’t take unlimited liability

by bvan 2y ago

The state doesn’t take unlimited liability

I answered to the hypothetical from OP's comment as I understood it, and quoted. > regulation to help ensure the solvency of insurers The only way to ensure solvency is for the state/people to bail them out as needed. That's not a business, that's literally privatizing the profits and socializing the costs. It's clear that if the insurers themselves are tasked with ensuring their own solvency it would be prohibitively expensive, so they'll pack their things and go.

amluto 2y ago
No, the state can and should regulate the market such that anyone selling insurance (in CA, that’s “admitted” insurance IIRC) must meet certain requirements in regard to their ability to pay large claims. Kind of like how states and the federal government regulate banks to minimize the risk that they end up needing FDIC funds. This type of solvency regulation may not be 100% perfect, but it’s a lot better than nothing. > It's clear that if the insurers themselves are tasked with ensuring their own solvency it would be prohibitively expensive Why is that? Sure, a massive event like the Palisades fire might cost $40bn (in a functioning insurance market — we’ll see how much of this gets eaten by homeowners with insufficient coverage in the broken CA market), but this was still a low probability event, it ought to be spread among 10k policies or so, giving a few million dollars per policy. At a (wildly made up) risk of 1% per year of such a loss, that’s $40k per year even before accounting for the fact that these costs get shared by policies covering homes that weren’t in the Palisades. This is expensive but in line with what property taxes ought to be, and it’s manageable. And would be lower if homes were updated to meet modern WUI fire codes. The real issue is that CA did not allow insurers to set premiums appropriately, so the insurers either get screwed or refuse to issue the policies. That was (AFAICT) the actual problematic regulation, and CA is trying to roll it back.
- buran77 2y ago
  > must meet certain requirements in regard to their ability to pay large claims [...] states and the federal government regulate banks to minimize the risk that they end up needing FDIC funds Deposit guarantees have a ceiling, and in the US that's about three times lower than the median CA home value. It also pays out after the bank is no longer solvent. That kind of regulation does not (and here I am quoting it for the third time) "ensure the solvency of insurers", or banks in your example. Which was specifically what I replied to.