←back to thread

Is the world becoming uninsurable?

(charleshughsmith.substack.com)
478 points spking | 4 comments | 17 Jan 25 00:32 UTC | HN request time: 0.899s | source
Show context
bluedevil2k ◴[17 Jan 25 01:50 UTC] No.42733208[source]▶
Like we see in California, when the government sets a price ceiling, insurance companies just leave. Same in Florida. If the free market truly was allowed run normally, the insurance rates in Pacific Palisades or on the Florida coast would be so high that no one could afford to live there. Is that a bad thing? If someone was living in a house near where they tested missiles, we'd call them crazy. At what point can we say the same about people building and rebuilding over and over in these disaster areas.
replies(20): >>42733219 #>>42733293 #>>42733338 #>>42733367 #>>42733486 #>>42733536 #>>42733984 #>>42734013 #>>42734047 #>>42734060 #>>42734202 #>>42734459 #>>42734714 #>>42734874 #>>42739590 #>>42740487 #>>42741749 #>>42742138 #>>42743881 #>>42744799 #
underwater ◴[17 Jan 25 02:05 UTC] No.42733293[source]▶
Price caps always seem like such a transparent political move.
replies(1): >>42733332 #
mgiampapa ◴[17 Jan 25 02:11 UTC] No.42733332[source]▶
How about profit caps? I feel like government stepping in and being the insurer with a sufficiently large pool of risk to spread around lets them set a fair rate without the need to make a return or answer to shareholders.

To some extent this has helped with health insurance. Each year I get a check back from my insurer saying they didn't spend enough on my care vs my premiums.

replies(9): >>42733343 #>>42733377 #>>42733396 #>>42733458 #>>42733468 #>>42733898 #>>42733997 #>>42734006 #>>42734550 #
donavanm ◴[17 Jan 25 06:06 UTC] No.42734550[source]▶
> I feel like government stepping in and being the insurer with a sufficiently large pool of risk to spread around lets them set a fair rate without the need to make a return or answer to shareholders.

Youre about 20-30 years late to the game, but arrive in time to see the conclusion does not match your assumption. See california for fire, florida for fstorm damage, and everywhere in the us for federal flood coverage. It doesnt work. CA FAIR has higher rates to account for increasing the coverage pool, but it doesnt look like premiums will cover the current or future loses. Which is the universal story when your policy attracts all the high risk/payout buyers. And FAIR, roughly, is setup to go recoup losses from all the _other_ insurance providers in the state. Even ones not insuring those policy holders _or that type of insurance_. Its just a layer of indirection to subsidize fire risk against all poly holders.

replies(1): >>42734618 #
1. mgiampapa ◴[17 Jan 25 06:20 UTC] No.42734618[source]▶
In all of those examples you have the for profit private insurance leaving the market because it's not profitable enough. When you take away excessive profits and allow the governmental pool to compete with for profit insurance, risk is leveled across the pool and consumers pay less. If the big private insurance companies can't be more efficient or have better risk models than the government, well they should stop trying to sell policies.
replies(1): >>42734795 #
2. Panzer04 ◴[17 Jan 25 06:49 UTC] No.42734795[source]▶
The people are risk pay less, all of the other people forced to participate in your general insurance pay more.

If I live in the middle of a city in an apartment block should I pay the same rates to insure against wildfire as someone in the middle of a dry forest? Probably not, but govenrment-mandated insurance programs force me to.

replies(1): >>42734889 #
3. mgiampapa ◴[17 Jan 25 07:09 UTC] No.42734889[source]▶
Premiums should be based on risk, not flat. I don't know where you are drawing that line of reasoning from. Just because the government is providing coverage doesn't mean it's all the same rate. Every insurance product has a risk model to set prices. I was just advocating that we have a non profit minded entity with deep pockets do it vs private companies motivated by maximizing profit.

Public benefit corps fit this model as do regulated utilities.

replies(1): >>42735566 #
4. donavanm ◴[17 Jan 25 09:16 UTC] No.42735566{3}[source]▶
Edit: i think were talking past each other until agreeing that risk/cost/rates are being intentionally suppressed by or on behalf of the public. Kind if like this other housing related mortgage thing Ive heard if that may be mispriced/misstructured in favor of many at the expense of all.

I dont get it. Your argument is that if everything was priced accurately and aggregated "fairly" insurance would work. Ok, totally true statement. Very much the case that's not what is happening now for any of the example markets or gov programs.

You appear to believe "profit" is the problem, which is true in that negative profit is known as "loss" which is what has and will be occurring even with the public "last resort" rates. The private insurers are not withdrawing because their "fantastic" 6-15% margin on disaster insurance isnt enough. Using CA as an example they withdrew because 1) the state required they dont use risk based modeling for individual rates and 2) they dont include reinsurance costs as a rate signal. Shockingly their CA insurance pool turned upside down on costs/losses in a decade or two and they bailed.

FAIR is exactly the sort of or youre talking about; non profit government mandated insurance pool, open to all residents, with proportional policy/loss assignment, rates set based on regulated-interpretation-of-risk-exposure + costs, regulated by the CA Dept of Insurance. And yes, their policies are risk adjusted, but theyre not _accurate_. And yes, insurance should accurate according to risk and (payout) costs but basically none of the public last resort issuers can!

See again florida, national flood, etc. In every case 1) risk & cost modeling (accurate pricing) is suppressed on behalf of the public 2) risk prices/costs soon exceed private risk markets 3) private insurers withdraw 4) public "last resort" insurers emerge 5) risks/costs continue to grow, private insurers withdraw, the "last resort" insurer becomes the risk aggregating insurer 6) last resort insurer shockingly cant meet its commitments 7) public funds and/or backdoor insurance taxes socialize losses due to unprices disk.