(Gasp) What happens when an insurance company is forced to repair everyone’s damaged property and the bug businesses that fund them go bankrupt? Will the country feel it then? Won’t someone think of the big businesses!
Insurance companies rarely go bankrupt as it requires insane incompetency to achieve this.
Insurance companies work like casinos: Develop a probabilistic model to determine the average amount of claims per customer per region and then charge more.
That’s why they are exiting regions where the expected yearly damages exceed what they are allowed to charge. Insurances are the first to exit a sinking ship.
Insurance companies work like casinos: Develop a probabilistic model to determine the average amount of claims per customer per region and then charge more.
I agree, but I would like to add that developing those probabilistic models relies on the premise that future circumstances will remain similar enough to past circumstances for the models to be effective. With global warming, those future circumstances are becoming wildly different from the past ones. The models are not accurately reflecting the new odds of a customer filing a claim so the premiums the companies are charging are too low to cover those claims while allowing the company to still show a profit.
Of course, once the models do start to reflect more accurate odds, customers may no longer be willing or able to pay the necessary premiums. This is the reason why many insurance companies have closed up shop in Florida. There have been so many claims from hurricanes in the last 10-20 years that it’s become impossible for them to maintain their profitability.
I’ve got family who live down there who are now self-insuring. Pretty crazy, in my opinion, but they can’t afford the premiums now. It’s either that or sell and move out of Florida. They could do that, but they probably couldn’t sell their houses for what they owe because, thanks to the insurance issues in the state, home prices have been dropping.
(Gasp) What happens when an insurance company is forced to repair everyone’s damaged property and the bug businesses that fund them go bankrupt? Will the country feel it then? Won’t someone think of the big businesses!
Insurance companies rarely go bankrupt as it requires insane incompetency to achieve this.
Insurance companies work like casinos: Develop a probabilistic model to determine the average amount of claims per customer per region and then charge more.
That’s why they are exiting regions where the expected yearly damages exceed what they are allowed to charge. Insurances are the first to exit a sinking ship.
I agree, but I would like to add that developing those probabilistic models relies on the premise that future circumstances will remain similar enough to past circumstances for the models to be effective. With global warming, those future circumstances are becoming wildly different from the past ones. The models are not accurately reflecting the new odds of a customer filing a claim so the premiums the companies are charging are too low to cover those claims while allowing the company to still show a profit.
For example, that horrible flooding in Texas that killed 120 people last month was just one of four different once in a thousand year rain events that occurred in the USA within a one week period. The existing models would not be very likely to predict that level of risk so the premiums they charge may well not cover the insurance companies expenses.
Of course, once the models do start to reflect more accurate odds, customers may no longer be willing or able to pay the necessary premiums. This is the reason why many insurance companies have closed up shop in Florida. There have been so many claims from hurricanes in the last 10-20 years that it’s become impossible for them to maintain their profitability.
I’ve got family who live down there who are now self-insuring. Pretty crazy, in my opinion, but they can’t afford the premiums now. It’s either that or sell and move out of Florida. They could do that, but they probably couldn’t sell their houses for what they owe because, thanks to the insurance issues in the state, home prices have been dropping.