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Comment by paulsutter | Hacker News Reader

The article explains that insurance /coverage/ in the US tends to be inadequate, which has nothing to do with the pricing of insurance. My first reaction to the title was surprise that insurance companies would be willing to price the risk too cheaply

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The article does state this though:

  According to the American Property Casualty Insurance Association (apcia), a trade association, last year insurers paid out $1.08 in claims for every $1 in premiums they took in.

The business of insurance sometimes has good (profitable) years and sometimes has bad (losing) years. That’s why insurers work so hard to invest and spread their risk over multiple years. I got a dividend from State Farm during the pandemic because they had an unusually profitable year, and they re-distributed some of their profits to policyholders.

Another aspect is that insurance companies can make money on the float, and this can potentially let them be profitable while paying out more in claims than they take in (or at least netting out to paying out what they take in). That’s assuming that they can effectively invest the premiums.

Buffett successfully applied this strategy with geico.

Errr the pandemic profitability and refund was extremely abnormal.

It was due to the lockdown where essentially no one drove for several months and then there was reduced driving for a year is so.

The refunds were also not done willingly, they were done due to DOIs demanding it and peer pressure.

I wanted to fault them for this too, but it's an inescapable result. Liability premium costs always moves in lockstep with the rate of coverage, as it has to by probability laws for an insurance company to be viable.

Agreed, it’s a very poorly worded title.

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