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Is the world becoming uninsurable?

(charleshughsmith.substack.com)
478 points spking | 8 comments | 17 Jan 25 00:32 UTC | HN request time: 0s | source | bottom
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Animats ◴[17 Jan 25 04:28 UTC] No.42734092[source]▶
Not uninsurable, but buildings are going to have to become tougher.

It's happened before. Chicago's reaction to the Great Fire was simple - no more building wooden houses. Chicago went all brick. Still is, mostly.

The trouble is, brick isn't earthquake resistant. Not without steel reinforcement.

I live in a house built of cinder block filled with concrete reinforced with steel. A commercial builder built this as his personal residence in 1950. The walls look like a commercial building. The outside is just painted cinder block. Works fine, survived the 1989 earthquake without damage, low maintenance. It's not what most people want today in the US.

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Sabinus ◴[17 Jan 25 04:31 UTC] No.42734105[source]▶
If the market is allowed to price insurance correctly then we can motivate building designs to be more disaster resist. If the McMansion can't get insurance but disaster resistant, modest homes do, then people will adapt.
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iandanforth ◴[17 Jan 25 04:48 UTC] No.42734200[source]▶
"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.
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roenxi ◴[17 Jan 25 05:33 UTC] No.42734406[source]▶
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.

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hakfoo ◴[17 Jan 25 06:25 UTC] No.42734655[source]▶
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.

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roenxi ◴[17 Jan 25 06:30 UTC] No.42734685[source]▶
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.

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throwawayqqq11 ◴[17 Jan 25 07:00 UTC] No.42734847[source]▶
> It is a transfer payment a.k.a. welfare

Its called solidarity and yes, it means some people NOT have to pay more but others recieve more. Paul AND Peter get the security of disaster coverage in exchange. This is what you pay for. A big risk pool and not your individual disaster recovery.

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JoshTriplett ◴[17 Jan 25 07:48 UTC] No.42735061[source]▶
If you want "solidarity" you need a government service. Private insurance has every incentive to price things accurately and not subsidize higher-risk people. If you tell insurance companies what they have to charge, they have every reason to say "nope, I don't want to offer that service at that price, that doesn't make economic sense".
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1. oytis ◴[17 Jan 25 08:30 UTC] No.42735278[source]▶
Insurance that is able to quantify risks precisely and set prices individually based on that is useless. If it has to make any profits - or at least pay salaries - it's guaranteed to be a bad deal for everyone. Whereas solidarity can bring a better society - which even those who have to occasionally pay more benefit from in the end.
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2. roenxi ◴[17 Jan 25 09:12 UTC] No.42735534[source]▶
> If it has to make any profits - or at least pay salaries - it's guaranteed to be a bad deal for everyone.

It is insurance. You pay money, the company takes away the risk. That doesn't make it a bad deal, that makes it a service. That is like complaining about a hypothetical garbage company that charges for taking away trash even though the trash might have some notional value.

Insurance isn't an investment scheme. If you want to pay money for a positive-expected-value deal, go buy stocks and bonds.

3. purple_turtle ◴[17 Jan 25 10:16 UTC] No.42735975[source]▶
whole point of insurance is that you pay for avoiding risk

in other words, you pay more than you would on average loss from bad events - but you avoid catastrophic losses that would break your life

that is why insuring your phone is likely a bad idea (as you can pay for a new one) but liability insurance or insuring your home/flat may make sense

> If it has to make any profits - or at least pay salaries - it's guaranteed to be a bad deal for everyone.

paying 3k per year, to avoid 1% risk of 250k losses may be a good idea, especially if 3k loss is survivable without trouble and 250k loss would be more than 90 times worse.

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4. oytis ◴[17 Jan 25 13:28 UTC] No.42737290[source]▶
> paying 3k per year, to avoid 1% risk of 250k losses may be a good idea

You are basically guaranteed to pay 3k to avoid financial risk with a mean value of 2,5k. That sounds like a fallacy to me (isn't it the same as saying that paying 3k for 1% chance of winning 250k is a good idea?), may make sense psychologically though.

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5. ipsento606 ◴[17 Jan 25 14:29 UTC] No.42737843[source]▶
> Insurance that is able to quantify risks precisely and set prices individually based on that is useless.

This is simply untrue.

This may be true for health insurance, because there is a strong moral case to be made that is unfair and illiberal to make people pay more for genetics or simple bad luck that result in them being likely to need more health care.

It is not true for home insurance, where people can choose where to live and choose what kind of housing to live in.

The purpose of home insurance is to reduce time-based variance for disaster, not for people in low-risk properties to subsidize people in high-risk properties.

It is not "solidarity" for someone in a steel-and-concrete house with a metal roof who clears brush and trees from around their house to subsidize someone who lives in wooden mansion who doesn't take any fire precautions. It is a perverse incentive.

> If it has to make any profits - or at least pay salaries - it's guaranteed to be a bad deal for everyone.

Again, it is not the purpose of insurance for it to be positive expected value for people in high risk homes! It is expected for insurance to be negative expected value. The point is to reduce variance.

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6. kgwgk ◴[17 Jan 25 15:06 UTC] No.42738256[source]▶
Surely you don’t want your taxes to go into rebuilding other people’s beachfront houses as many times as needed. Show a little empathy!

https://reason.com/2024/01/10/the-feds-shouldnt-subsidize-fa...

7. JoshTriplett ◴[17 Jan 25 19:41 UTC] No.42742400[source]▶
> Again, it is not the purpose of insurance for it to be positive expected value for people in high risk homes!

Insurance should not be positive expected value for anyone; if it is, either the actuaries are doing a poor job, or the product is a loss leader, or there's some regulatory reason the company can't pull out of the market. (Or, you are in a very rare circumstance where you actually know better than the actuary.)

8. JoshTriplett ◴[17 Jan 25 19:46 UTC] No.42742469{3}[source]▶
That logic is reasonable if you can trivially afford 250k; in that case, you might choose to self-insure. However, that logic does not hold if the 1% event is not something you can afford.

Every dollar does not have the same incremental value. Going from $1B to $1B-$250k is not the same as going from $300k to $50k, and definitely not the same as going from $50k to -$200k.