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Buying Home and Auto Insurance Is Becoming Impossible
(www.wsj.com)
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this post was submitted on 16 Jan 2024
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Maybe it's time for a state to start a nonprofit insurance fund? Insurance companies exist only for profit, which is antithetical to the point of insurance.
You egomaniac! Don't you ever think of the shareholders? Monster!
This doesn't address the core issue, that the math simply doesn't work in several places. Even ignoring profit, at the very least, you have to balance your payouts with your premium revenue, and if your payouts are so high that premiums must be higher than what people can afford, then you're toast.
Or you invoke government subsidies, in which case it's essentially a tax to subsidize people's poor decision making. At the end of the day, living in an area extremely prone to fires or flooding has real costs, and either somebody pays them, whether that be the individual, an insurance pool, or the government, or you simply stop incurring the cost by moving somewhere else (there's a strong argument for some amount of government assistance here)
I'm not suggesting we stop at nonprofit insurance. We can use the data so states can determine regions that are unfit for human habitation, which will become necessary due to climate change. A state-ran insurance could still have risk pools as well for matters like house and car insurance, without nonsense like charging charging more for owners of red cars.
I mean, there's no mystery here. You can literally just look at the regions that home insurers have been pulling out of to get a pretty good start. This data already exists. Collecting and processing that data is literally the primary thing that insurance companies do.
If a company whose sole purpose is extracting every bit of profit they can is deciding that insuring an area is not feasible, that probably says something. The inevitable, but obviously unpopular, answer is that there are some places where people moving there need to do so at their own risk, because it's not fair for them to throw these fundamentally unnecessary high costs on other people. Minus a small adjustment to account for how state insurance doesn't need profit and so can operate at zero margin, the structure of the insurance doesn't really make a difference here.
People moving into areas of high risk are only a tiny portion of the problem. The existing owners, and their kids, are already too much risk for a lot of places. Hundreds of thousands of retiree's already live in beach front condos that have been there for 30 years or more, and they have no way to move. There are millions more in similar places, that just have to accept whatever happens to them, because they have no resources to move, and a fixed or non existent income.
That problem is going to be the biggest one when dealing with climate change as a species. Moving hundreds of millions of people, who can't afford to move, to places that don't want them to move there. Interspersed with random natural catastrophes causing horrible loss of lives and resources.
I have always thought that the people you are talking about should be able to get insurance, maybe even at a reasonable rate, but if/when a natural disaster occurs the insurance payout should be for a property/place not in a high risk zone rather than rebuilding, and that land should then be disallowed for human habitation.
Basically a compromise of sorts. I'm sure someone will tell me why I'm wrong though, lol.
In some places that's exactly what has been done. Usually the government uses eminent domain on the land rather than allow reconstruction. The problem being the cost. Most cities and states would have nowhere near enough money to move a fraction of the homes in danger, or even pay for their relocation when they're destroyed.
While sea levels rising may be something that someone 30 years ago didn't predict, most of the other risks were well known 200 years ago.
Replace climate with war and this is how refugee groups have lived for centuries. Life doesn't always work out, bad choices can have very long timelines and there's likely zero way to bail everyone out, even with the most altruistic of motives.
Bailing them out might not work at scale but ensuring they have somewhere to live when things get too hot, literally and metaphorically speaking, is feasible and will prevent the negative consequences of millions of displaced people.
You're absolutely right. This is a problem that requires some amount of direct government assistance. Beachfront housing is significantly more costly than people think it is and than it used to be, and it's only going to get worse. If you can't afford regular repairs after storms (or if a collectively relevant insurance pool can't), you can't afford to live there, and for people who are already there and can't afford to easily get out, some government assistance is more than warranted.
I don't think that there is an inherent link between profit and safety, so I'm hesitant to call their data useful for determining where a place is safe to live. Maybe useful for determining risk pools, but not for determining safety. There are places that should not be habitated, but it shouldn't be determined by capital interests.
I'm not talking about raw safety. I'm referring to the situation where the average costs a resident of the area will incur due to environmental damage surpasses the amount an average person is willing to pay in insurance premiums. In these kinds of areas, insurance in inherently unworkable, regardless of profit seeking or not (again, minus a minor adjustment in margins)
In these places, you can either add in external subsidies to make the numbers work, which is bound to be unpopular with the people having to pay extra money to support people choosing to incur unnecessary costs, or you can accept that there is no workable insurance scheme in the area that and residents must take account of their own risks. There's no real way around this basic reality.
This isn't about safety - those places are safe to live most of the time, and the weather predictions are very good at giving you a week notice to get out before the exceptions.
It is just too expensive to have buildings in those areas. Nobody builds a house that can be moved away from those areas in a week. Thus if you live there you need to account for the costs of rebuilding your house every few years when the weather destroys it. Or you need to build a house that can survive the weather - I don't know how expensive that would be.
I don't care if you want to live in those places, but I do not want to subsidize your housing if you choose to live there. Come move closer to me if you don't like it. (note that there are other risks living close to me)
What you're describing is the reason risk pools exist. Someone in a high risk pool pays a higher premium, and there is no reason that couldn't exist with gov run insurance. Personally, I imagine something like 3 major natural disaster claims in 5 years before a higher premium, and 10 natural disaster claims in 10 years to be declared unfit for habitation. After the 3rd claim in 5 years, claimants can accept a payout equivalent to average cost of a safer regional house under the condition to vacate the area
Good actuary science needs to figure out people who while they haven't yet had a claim still belong in the ultra high risk group. There are houses all over in hurricane areas that have never been hit in 150 years, while not too far away some other land was hit several times - this is random chance.
Sorry, but I'm not willing to formulate a major piece of legislation for a discussion on the Internet. I'm aware that something like what I'm describing requires a lot of detail and needs to handle edge cases that I don't even know exist at the moment
You understand that there's nothing about the paint that makes red cars more prone to claims, but rather the drivers predominately that select red cars statistically have higher claims. If you're a generally safe driver, is there a reason that you would want to subsidize someone who is statistically a less safe driver?
For a few reasons. It's not easy to determine the difference between a streak of bad luck and a bad driver. I also don't think that people should go bankrupt because of an accident, regardless of fault. I believe that people will feel more responsible if they have a sense of collective responsibility through mutual funding.
You seem to be arguing that drivers of red cars statistically have worse luck. Statistics doesn't deal in luck, only results. If red cars cost more to insure (and we both acknowledge there nothing in paint pigment that can cause this) then it is a behavior of the drivers that choose these cars. That does seem like a good reason to not penalize safer drivers that don't drive red cars. Also, realistically we're talking about one tiny input into the actuarial tables that go into pricing insurance premiums for drivers. Red paint is probably way lower than other more important factors such as the complexity of repairs necessary for like accidents or the individual driver's previous driving history.
How is a person going bankrupt is if they're insured? Their future premiums will can certainly go up, but that's not a bankruptcy event.
Perhaps in some cultures, but certainly not in the USA. If anything socializing the losses creates less feeling of responsibility because the person committing the act only suffers a tiny fraction of the consequences.
Florida, of all states, created this. There are requirements to use it, but for many it is their only real option.
Does it actually cover anything? I haven't looked into it but my knee-jerk reaction is that it's very simple and doesn't cover anything important, especially anything having to do with climate change.
Florida here. They have adequate coverage, but there are caps in some extra options or high-end tell estate. The bigger issue is that all the other instance agencies are pulling out of the state so Citizens (the state insurance) is having to cover more and more to the point that the state is just one direct hurricane hit away from insolvency.
Being from BC the basic car insurance is a non profit Provincial run scheme. All vehicles on the road need this basic insurance. They also manage rules, regulations, and other safety requirements for the Province.
Then extra coverage can be bought from the government agency or from private providers. The government is covering for all the bad drivers and then dealing with all the scammers while the private providers then cherry pick the best drivers for the extra coverage.
Insurance is expensive and there are the usual cries to make it private so it will be much cheaper!
I've lived in other Provinces where it's a private scheme. They are very expensive for new drivers, and those that have problematic issues can't afford to get insurance making it harder on those that have it and become tangled up with these uninsured drivers. This affects the good drivers eventually too. Most insurance works this way as it is.
It seems the grass is always greener...
Well some states already have that for example Citizens in FL. Everyone who buys property insurance has to pay into it to cover people who own property in places that nobody in their right mind would insure for wind. Some states only allow work comp through the state or the state competes with private insurers as well. But given the political climate in like half of states I'm not sure how you expect that will really be better. Private insurers are definitely looking for profit but when the state steps in it's not like rates are going to be dirt cheap, or if they are just just going to be paid by tax increases instead. Home and property insurance is hella expensive in some areas because it costs a lot of money to constantly rebuild people's buildings and auto insurance is hella expensive because people buy hella expensive cars then drive like fuckin maniacs, and medical costs are outrageous. If they state handles the insurance you're still gonna have to pay for your insurance and you're still gonna have to subsidizebstupid people who drive like idiots and whatnot, but you have Ron DeSantis siphoning funds instead of CEO bonuses and golden parachutes.
Insurance companies are required to pay out all but 15% as it is, so really, that's the most it could save, and since a new governing body to handle claims would have to exist, it would require at least 5% to pay staff, so that cuts it down to saving maybe 10 at best over an insurance company.
Right now the nation is supplementing states that have higher storm damage. People living at those rich coastal states that get hit by these storms are paying less than their risk and causing the rest of the nation to pay higher rates because the insurance companies aren't allowed to charge places like Florida more.
In other words, if insurance went state to state, places like Oklahoma and Missouri would save money due to the lower risk, but places like Florida would have to pay out more than they currently are or the state would lose money in payouts.
So insurance companies wanting to charge Florida and California more isn't really going to make the insurance companies more money a year. They're still locked at having to pay out 85% of what they take in to their insured customers. It would actually mean that the insurance company wouldn't have to inflate prices they charge to all the rest of the country in order to supplement the customer's they have in the states in high damage areas. I'd be all for it, since I don't live in a warm state with a beach. It's not right that I don't get a day trip to the ocean, but I have to pay the higher insurance rates for the people who do.
And the states regulate the hell out of insurance anyway, might as well just provide it at no profit if you're making all the rules.
Or provide it at not profit because insurance decisions should not be driven by profit motivations.
They still have to be driven by basic math. You slim the margins a bit by not needing to generate profit, but the situation hasn't fundamentally changed.
We have province run auto insurance in British Columbia. It isn't perfect but it works fairly well.
Only if you make it one time thing as in you get your insurance payment only if you use it to rebuild somewhere else.
You mean like a GovErmnent Insurance COmpany?