241–250 of 712 posts
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And yet, people build and rebuild in flood plains...
Yeah but that’s compounded by access to the information & who do you trust. Also human nature is to look at the odds and not believe you’re going to be that 1 in 125,000 :)
Tobias: No, it never does. I mean, these people somehow delude themselves into thinking it might, but ... But it might work for us.
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In extreme cases forcing too much pooling can cause market failure. The intuition is that the least risky customers decline to purchase (much) insurance, making the average risk higher, increasing prices, making more people decline insurance, in a vicious cycle. It’s fundamentally similar to Akerlof’s market for lemons.
This is always a fun topic for me. If everybody is sharing all the risk that’s the same thing (obviously I’m being simplistic) as them underwriting the risk themselves.
Someone underwriting their own risk might as well not have actual insurance, as they’re just on the hook for actual damages correct?
So if they get sued for $1M, then they are on the hook for $1M (as an individual).
If everyone is sharing the risk, then everyone is on the hook for $1M/number of people.
So the individual that gets sued for $1M in a large state, might only be on the hook for a couple cents for their own lawsuit. Though they’d also be in the hook to the same degree for some other asshole getting sued.
Which is why insurance creates moral hazard (for things someone can control), and reduces catastrophic damage to individuals (for things someone cannot control).
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Insurance carriers have an incentive to compete on price like any other business. There are plenty of options. The margins are generally pretty small, and there is a lot of regulation around what portion of payments must be used for claims. There's a few obvious exceptions, but plenty of insurance isn't required.
They might have an incentive to compete, but I think they also have an incentive to collude. Last time I shopped around for insurance it seemed like the latter was taking place. You're required to get homeowner's insurance if you have a mortgage, and you're required to have car insurance if you want to drive a car on public roads. So the majority of Americans are forced to purchase at least one of these in order to l…
But that doesn't imply what you're saying unless the supplier has monopoly power, which they, by law, do not.
Related, my vehicle insurer keeps jacking up the rates. I've never been in an accident or had a ticket, and I drive 2000 miles per year. But every year up up up. Then they offer I install a tracking device on my car to get my rates back down to a reasonable amount. There seems to be a pattern of insurers wanting to know everything about everyone, and using irrationally higher rates to coerce consent. And I have to pa…
You’re free to change insurance companies, aren’t you?
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Why are insurance rates regulated by the government? I understand that the state has a strong interest in ensuring that insurance companies are adequately capitalized, but I don’t understand the state interest in directly regulating premium prices. (Or is that not what you are referring to?)
There are votes in it. Or, to be precise, the benefits are concrete go to precise groups of people, the costs are abstract and diffuse. Same thing as protective tariffs.
Longer term, this is bad for a society in general, and politicians do know this.
There are all sorts of potential societal consequences to people losing homes that cost the society (us!) money (homelessness, vandalism, entire neighborhoods going the way of Detroit suburbs, and much, much more). Society doesn't want this to happen.
I'm an infra guy by trade and really enjoyed learning about the tech while on their team. Mind blowing stuff to me!!
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Why is basic insurance for ordinary people a for-profit business at all, rather than something the collective (administered by the state) does to soften any misfortune that hits any of its members?
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I pay a rate based on my risk factors which I actively work to maintain as low as possible. I don't want to be forced to pay for every reckless idiot in my country (of which there are too many to count).
But I also hate non-voluntary anything, so I'm weird.
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You're right about the ultimate legal situation, but there's two problems I see with dropping insurance on a paid off home. The first is that the companies, seemingly operating in lock step, will heavily penalize you if you change your mind and want to go back to insuring. The second is the liability component, whereby simply owning a piece of real estate means you're a juicy target to be found jointly liable for a w…
I have never valued insurance more than the moment at which I owned my house outright. If you're so financially secure that the loss of an asset that large is manageable, I sort of don't much care about what you think about insurance rates?
But back to the topic - a total catastrophic structure loss would indeed be a problem. But from what I've seen, most insurance claims are not for total losses but rather things like water leaks and roof damage that have much higher sticker prices than what it actually costs to maintain/triage/mitigate/calmly repair. I've known people that have submitted claims for ice dams, oil burner blowbacks, new roofs ("wind damage"), finished basement water damage, etc. I will never submit an insurance claim for those type of things, and so it makes sense to at least consider self insuring, especially when rates are doubling every few years.
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Why are insurance rates regulated by the government? I understand that the state has a strong interest in ensuring that insurance companies are adequately capitalized, but I don’t understand the state interest in directly regulating premium prices. (Or is that not what you are referring to?)
Every state requires you to hold some minimum level of car insurance, mortgages require a level of homeowners insurance, etc. The underlying problem is that it's a significant barrier for people if they get priced out of the market (even if it's for good reason). If you can't afford car insurance or no insurers will offer it to you then you legally cannot drive a car, and in the US that becomes a problem that spirals…
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Risk pooling is fundamental to insurance, but not all pools are the same. The observation is that if you aren't able to discriminate at all or subdivide the pools, the only response is to up the average rate to cover the aggregate risk as best you can estimate it. This gets tricky if your ability to change rates is constrained, also. These things are always in fundamental tension, and also in tension with privacy. It…
Yup, exactly. Even worse for the consumer is that insurance rules say you have to “offer” insurance in the state to get your license. Well, you don’t want to drop your license but really don’t want to have a bunch of policies. What do you do? You make it impossibly difficult to get insurance. I’m not going to name names but a lot of insurance companies in California are doing this. No online applications, have to cal…