Is the world becoming uninsurable?

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.

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.

"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.

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.

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.

> 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

That's the only way.

> which will be unviable as a business and probably politically touchy too

Why would it be? If you live in Los Angeles - doesn't mean you don't need insurance (even if it several times the cost of insurance in the safer areas).

> or you can include them in the broad pool

No, you can't. Your competitor who doesn't do this will offer cheaper insurance - because they doesn't distribute high risk of small group to everybody else.

> the people with a full-cinderblock home in a non-flammable state pay $20 more a year so the entire endeavour can work.

Why would they do that? 20 bucks is 20 bucks.

> The concept probably works better if you have some concept of social cohesion to lean on

You mean if you with totalitarian governance deprive people of the ability to choose? Yeah, that could work. I mean, that's how the gulags were justified.

I'm trying to understand how what you're suggesting is different from mandating everyone just get a personal savings account, where they must pay some specified minimum calculated to cover them in the event of a loss of their personal property?

Are you saying that we should only pool risk between people in the same risk bucket?

How do you aim to determine the resolution of that risk? Not to mention calculating it accurately?

> I'm trying to understand how what you're suggesting is different from mandating everyone just get a personal savings account

Because insurance will cover you even if your house burns down in the first year of coverage, whereas a personal savings account will have only a very small amount of money in it in the first year of home ownership.

That's the whole point of insurance.

I don't know where the idea came from that the purpose of home insurance is for people in low-risk homes to subsidize people in high-risk homes, but it's a very strange idea.

Right, that is the purpose of insurance, to take risk and spread it across a population.

Now the simplest way of doing that is you decide whether someone is "insurable" or "uninsurable" and then for everyone insurable, you define payout criteria and a fair pay in rate (premiums) which is based on your ability to calculate their risk and taking some extra on top for providing the service.

Your skill at:

1. assessing risk correctly as to whether you take them on as clients

2. calculating their risk correctly and mapping it to a price to charge them (premiums)

3. defining payouts in a way that allows you to pay out when things happen to your clients so others trust you to pay out, but not so often that you have no working capital

broadly determine how well you'll do.

You can do all kinds of other complicated things on top of that, but from what I can tell, the fundamental idea seems to be that given those considerations, the insurer pays out, so the fact that someone has a high risk home should be priced into their premiums or they should not have been taken on in the first place.

Now you appear to dislike that people who have different risk profiles are grouped together, what I'm trying to understand is how that works.

For example, in the case of the house burning down:

1. The insurer pays the homeowner out and increases their premiums

2. The insurer pays the homeowner out and places them into a different risk category of people who own similar homes, but have had their house burn down, works out their new premiums, which are now likely much higher as they're in a riskier category and it's likely that population is smaller.

I assume you're arguing for something like 2 to happen?

Or is it something else?

> Now you appear to dislike that people who have different risk profiles are grouped together

There is no problem with pooling properties with different risk profiles so long as each property pays premiums that adequately represent that property's risk profile.

Don't people who live in higher risk homes already pay higher premiums?

Do you believe that's not the case? Or that insurers are giving them discounts? Or are the risks miscalculated?