Some officials are elected and some are appointed which all depends on the state. Appointed officials are usually more reasonable and elected are not because higher rates = mad voters = re-election chances lower.
For a long time, insurers have struggled to get sufficient rate changes approved. A literal quote for you during Covid was, “Son, I’m looking out my window at downtown {city} and I don’t see many cars on the road. We won’t approve the rate increases.”
This was with actual data of losses increasing due to supply chain disruption of auto parts, labor increases and many more things.
We basically had to write policies and hope for the best despite knowing the data / trend lines forecasting major losses.
Fast-forward and what do you have - major losses by all of these companies - and so these companies have two choices: - Try to get rate approvals - Exit the market or line of insurance
For California, the latter is the better option because at least for auto you cannot use credit, telematics or other very predictive attributes to price the risk. This results in essentially pooled risk which in aggregate drives up rates for all. Simply put, California officials did this to themselves.
For other states, the first option works but the rate increases are now significantly higher because it was near impossible to get any adequate rate increases last few years.
So, the bill has come due and it sucks for everyone as it’s either a) higher prices or b) can’t get insurance (Florida folks for certain types) or c) limited suppliers not being able to get reinsurance to share the risk results in higher rates that customers can’t afford so they go without.
another couple quirks: stock buybacks generally inflate the value of remaining shares (not bought back) for the public traded company shareholders...what they hoped for when acquiring shares. some companies increase dividends to return value, rather than fiddle with share prices.
but, yeah, agreed to your general observation.
For all these reasons, insurers typically must justify rate increases.
The point is that regulators have not been allowing rate increases with good faith justifications for years and now that they see their actions have caused companies to pull out they’re pointing the finger at the companies when it’s their poor judgment for years coming to fruition.
Whether this even happened is questionable. Regardless, we trust government regulators to operate in good faith 10x more than private sector corporations.
If you can’t use predictive attributes, many not allowed in California, you’re not going to get reinsurance interest because you can’t really balance the risk across different risk types for drivers.
So the end result is the customer pays more, despite their driving record being clean, because that’s the only way to manage through the risk.
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's not an easy problem.
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 call in, have to fax in or mail paperwork required and so on…
I was very confused until I realized they were doing exactly what you said.
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).
Everyone is upset their rate is going up but the issue is lack of ability to use predictive underwriting because of what you said and more.
Insurance is a for-profit enterprise and as an expert told me, "the goal of insurance companies is to not pay claims". It essentially wants to be passive income at the end of the day.
Modern capitalism runs on insurance but should it? Health insurance is a great example: it shouldn't exist, and is unnecessary in single-payer systems. Car insurance is another example, where you can argue that insurance is locked-in to hide the fact that cars are systematically unsafe. Note how you don't need insurance to ride the subway.
The point is, insurance exists to make rich people richer off of risks that could be addressed socially in other ways. When we see that entire states are losing home insurance because of other systematic problems like climate change we should look at the system itself. Maybe making profit off of people's unavoidable risk isn't a great idea.
EDIT: in response to parent, my point is that focusing on the ills of regulators harming efficiency needs to account for the impossible job regulators have in the first place, which is making an unfair system (insurance) fair.
The point is pooling unpredictable risk. You don't know ahead of time if your house is going to flood. You do know ahead of time if your house is on a flood plane. Therefore, people with houses on a flood plane pay more for flood insurance.
The alternative is that low risk customers can't get insurance because they'd have to pay the same as high risk customers and that isn't worth it. Additionally, then people build tons of houses in extremely high risk areas because they can buy insurance for the same price as someone not doing something stupid, which is a moral hazard. Existing regulations have already caused this to happen in many cases.
This is important point about knowledge which I feel leads towards another kind of hazard: Which party is capable of predicting risk and how that information asymmetry may be exploited.
We already spend a lot of time thinking about one direction, where the insured hides a pre-existing condition or their nefarious plan to commit arson, or whatever.
But what about the other direction? What about when the insurer has tools and relationships to determine something but doesn't tell the insured?
That might either be because there's not enough competitive pressure to make them lower the premium, or perhaps they raised the premium to cover the higher risk but refuse to disclose exactly what the risk is or how they determined it.
Of course, if you don't have enough competition that doesn't work, but then your problem is that you don't have enough competition. Which, especially in insurance markets, is generally caused by regulatory barriers.
You mean like this one? https://www.yahoo.com/news/united-airlines-flight-diverted-t...
…I’ll see myself out.
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?)
Car prices are not regulated because there are plenty of options for the consumer.
The actual reason is that some consumers are extremely high risk, the market rate for those consumers is correspondingly extreme, and then they whine to legislators that they're getting ripped off when in fact the rate reflects the risk. And then the company either refuses their business if they're allowed to or raises rates on everybody else to compensate if they're not.
It’s a market type that is fundamentally messy and prone to abusive behavior by both sides.
This only happens when regulations cap premiums, because otherwise there is always a rate at which selling insurance is profitable. Even if you have a 50% risk of a claim (extremely high), you'd still be able to buy $100,000 in insurance for a little over $50,000. Of course, you may not be able to afford this, but then maybe if your risk is that high you should just refrain from engaging in that activity eh?
> At which point, there is strong incentive to only claim the most outrageously bad losses
That's what insurance is for. If you have a 20% chance of losing $100 every year, you don't need to pay $21/year for an insurance policy, you just lose $100 once every five years.
> and for people to only actually get insurance if they have real reason to suspect a loss that is non obvious to others.
The reason to get insurance is if there is a low probability high cost risk, like a house fire. You don't expect it to happen, but it could, and you'd rather pay $1000/year, have it and not need it, than lose the value of your house in the event of a random accident.
Or ‘refrain’ from buying house insurance because someone tripped in your house and is suing you for $1M worth of damages, or you discovered your house was built in a high risk fire zone.
Or ‘refrain’ from buying vehicle insurance after an accident because the state will not let you drive without valid insurance.
That’s the whole point.
Because for normal humans, there is no difference between ‘insurance won’t be issued’ and premiums shooting up from $100/mo to $90k/mo. especially when the policy renewal period is in the middle of whatever is going on. Like trying to live. And if insurance companies didn’t have caps on premiums, that’s what they’d do - or just cancel it to avoid even worse PR.
At least ‘pre existing conditions’ aren’t automatically a death sentence when trying to switch insurance anymore eh?
The thing you're insuring against in this case is a cancer diagnosis. If you're insured when that happens, the insurance company should now be on the hook for your lifetime worth of cancer treatment regardless of whether you pay them any more premiums. That isn't how we implement it, the existing regulations don't work like that, but that's how it would work if what you were buying was actually insurance. The insurer eats the cost at the point when the unknown risk becomes known.
> Or ‘refrain’ from buying house insurance because someone tripped in your house and is suing you for $1M worth of damages
You don't have to buy liability insurance if you own your house. Of course, then if your negligence injures someone they're going to get the house instead of the insurance company's money, but that's up to you. And can be avoided in either event by not giving people valid legal claims against you.
Notice that a single claim is generally not enough to make insurance unaffordable, and multiple large valid claims is generally a sign that you're doing something wrong.
> or you discovered your house was built in a high risk fire zone.
It's not the insurance company's fault that you bought a house without checking what it would cost to insure. The cost of insuring houses there is supposed to be high, to deter people from building them there.
> Or ‘refrain’ from buying vehicle insurance after an accident because the state will not let you drive without valid insurance.
So you take the bus or move to a walkable neighborhood. What's your alternative, that someone can total two new cars every week and still get insurance for the same rates as anyone else?
> Because for normal humans, there is no difference between ‘insurance won’t be issued’ and premiums shooting up from $100/mo to $90k/mo.
But why should an insurance company be required to insure you at all? "Known arsonists can't get/afford fire insurance" is fine. "People who get into a major car accident every week can't get/afford car insurance" is fine.
> especially when the policy renewal period is in the middle of whatever is going on.
That's not how insurance works. You buy insurance, then something happens, then you file a claim. They can't retroactively raise your premiums, they can only raise the future ones because there is now evidence that your risk is higher, and then you get to decide if continuing to carry insurance is worth it, and you still get the money from the claim that happened while you were insured. Then you can either choose to pay the higher rates, go uninsured going forward or stop doing the thing you need insurance coverage for.
> At least ‘pre existing conditions’ aren’t automatically a death sentence when trying to switch insurance anymore eh?
This has a similar effect to putting the full lifetime cost on the insurance company you had when you got diagnosed, except that you can then change insurance companies. Which is weird and has perverse incentives, like there is no reason to carry good insurance against long-term cancer treatment until after you find out you have cancer. Which makes the good insurance much more expensive because buyers would self-select and only people who know they have cancer would buy it.
Then we try to avoid that by tying health insurance to employment which makes it harder for people to switch when they get a diagnosis, and that in turn has a ton of other negative effects because now there is much less competitive pressure in the health insurance market.
Regulators seem to really suck at thinking through the consequences of what they're doing. Or they don't and someone is getting paid to do it this way on purpose.
Things like fire danger risk tend to change after the home is built as new data comes in.
Health insurance isn’t implemented that way, as you acknowledge, exposing folks to exactly that risk.
You seem to be stuck in theoretical. I’m talking about actual behaviors.
You don't have to get a mortgage to live. You can save up and pay cash, or you can rent. Or you can pay the higher premiums that reflect your actual risk.
> Things like fire danger risk tend to change after the home is built as new data comes in.
In which case this is a different class of insurance that you could buy if you wanted it. You wouldn't be insuring against fire, you'd be insuring against the risk of your property value going down to reflect higher fire insurance premiums if the fire risk goes up. But why should you be forced to buy that type of insurance if you don't want it, or have it priced into everyone else's fire insurance premiums?
And regardless of that, why should someone who buys their house after the fire risk is known to be high be subsidized by everyone else?
> Health insurance isn’t implemented that way, as you acknowledge, exposing folks to exactly that risk.
It isn't implemented that way because of regulations, but the issue is what kind of regulations there should be. The existing regulations are extremely inefficient -- Americans pay more for healthcare/insurance than any other country, regardless of whether the other country has a public or private healthcare system.
They’re obviously related but less regulatory focus on rates, more on cost of business and that.
Edit: Basically you can run at a loss (most do) for a limited period of time but have to show that you will be liquid on the other side of the losses.
Insurance rates are regulated for the same reason most states regulate utility rates. You can’t really opt out and the markets where price regulations have been removed have left most consumers worse off.
Private insurers have the incentive to price this in. If they can predict you're going to be high risk, or uncover evidence of arson, they can charge you higher rates or refuse coverage. For state insurers the cost goes on the taxpayer and if claims are refused for legitimate reasons, the perpetrators go to the media and accuse the state of bankrupting their family. This puts pressure on elected officials to shift the burden of this fraud onto the taxpayer, whereas private insurers would push back because they have a direct financial incentive not to eat the cost of fraud and mispriced risk.
https://en.wikipedia.org/wiki/Insurance_Corporation_of_Briti...
After all, we can't have the community suffer an unsustainable loss because some guy earned too much money and selfishly bought a Camaro.
So, obviously the collective should create a list of cheap and economical cars ordinary people are allowed to buy.
If that doesn't feel right to you, remember, the so called "freedom of choice" is a bourgeois value. Transcend it.
Yep, we already do that. Vehicles and houses have to conform to a set of standards that provide security and safety measures for others, e.g. "Street legal" car restrictions, fire hazard safety requirements and building permit regulations and state codes that adhere to city guidelines, etc. Might need to include a few more talking points from the political pundit you're regurgitating views from for a better argument.
There are two provinces in Canada (British Columbia and Saskatchewan, since 1973 and 1945 respectively) who have a crown insurance corporation and require everyone purchase insurance through the government.
Neither of them force everyone to drive a Lada.
There are mutual insurance companies [1], including the largest insurance company in the US (State Farm). At the end of every year, if the amount of money left over exceeds the formula they have set, every policyholder gets a refund.
That's commonly a requirement of regulation too. I've had refunds from car insurance and healthcare insurance because claims were lower than expected.
https://en.wikipedia.org/wiki/Reinsurance
If the final insurer is the government, you don't have the risk of ruin because you have control of the money printer.
If you believe that in an infinite time scale the spike of a "random walk martingale" will exceed every level, then you also believe that you'll go bankrupt even if you don't sell insurance at break even. Maybe mathematically incorrect, but entirely irrelevant in the real world.
IN ADDITION, the money that insurers make isn't just the underwriting profit but also the investment profit. You you're talking twice as much shit as the average HN commenter.
If you don’t sell at break even, it’s not a martingale, so the Law doesn’t apply.
Reminds of the guy who lost his keys in the darkness and was looking for the keys under the lamp because that's where he can see. Likewise, you're using your tools and hoping that the tools have some connection to real life.
You sound like one of those "that's all good in practice but it would never work in theory" type of people.
But if your business goes bankrupt with probability 100% with even a simplified mathematical model, I wouldn't want to invest 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.
They may not have been well designed, or they may not wear well. But most of the time they are put in place because somebody got badly hurt, one way or another.
Industry could usually design itself better regulation. But unless it finds a way to mutually enforce compliance, the task will fall to government.
I would say overall there's no good answer to this problem that everybody would be happy with, just maybe one you consider "less bad" than the other ones.
https://www.mass.gov/info-details/massachusetts-auto-insuran...
It is also the theory behind universal healthcare coverage, because people will have medical issues that eventually end them in the ER regardless of coverage status and someone has to get paid for services rendered. And also insurers will literally take any excuse to deny coverage if they can.
So, it’s a complex thing but the state has a vested interest in drivers being insured because of state / federal funding for roads, infrastructure and all of that.
The original intent was to stop humans from being greedy assholes and to provide a stick for when they messed up. Without the states involvement, insurance would likely go the way of used auto with “buy here pay here” lots which is a net negative for the state & society as a whole.
They want to make sure that “fair” prices are set so that there isn’t an overly disproportionate amount of people who need the insurance not having insurance. In reality, the less risky drivers do for all intents and purposes help off-set the cost of the more risky people but all of that is hidden in the premium logic.
At the end of the day, what has happened though is the state’s regulatory group overstepping their bounds (in my opinion) and ignoring good faith proposals with data showing why rate increases are needed which leads to situations we’re in now.
Having been in that world (I left it) I can honestly say there has to be some regulations or regulatory body because a lot of these folks spend so much time looking at numbers (actuarial science in general) they forget the fact there are humans behind those numbers.
The state interest stems from the political interests of elected officials. See comment above by @broprogrammernot.
Source: https://www.lawteacher.net/free-law-essays/judicial-law/gove...
Why wouldn't they be?
The only reason why you might believe they shouldn't be is if you fell for the "free market knows all" nonsense.
I didn’t deal much on commercial insurance btw, I have _some_ awareness of that.
https://assets.ctfassets.net/nnc41duedoho/BNR4qtOTGPJuyQADtK...
I wonder if the difference was largely because of Canada's more strict lock downs. The roads were nearly dead here for quite awhile.
For all? I'd think it reduces rates for some and increases it for others.
All of these things have either reduced or stabilized over the last two years, but prices seem to keep going up. Strange!
In practice, you are going to find they are never arbitrarily doing it. They are doing it because the price no longer covers the cost of providing the insurance. Just like when I decide the price of X isn't worth it anymore, I stop doing the transaction. The reasonable response would be to increase the price, but in some situations it's not possible due to regulation.
You're free to go without insurance on a house that you own, but so long as the bank owns it, they're going to make insurance mandatory, and that has nothing to do with lobbying.
Home insurance isn't mandatory, but refinancing your mortgage is impossibile without one.
No, it wouldn't. It would go down to the value of the land (where a construction is permitted).
Nowadays, that's often more than 90% of the price.
Only very approximately - it depends on contextual situation.
We had a ton of uninsurable "as-is" houses after the Christchurch Earthquake. Prices for those houses dropped massively because without a mortgage you only get cash bidders so demand was relatively low compared with supply. The price someone is willing to pay for an as-is property depends on many factors, and it can easily be below land valuation.
Firstly desperate or naive sellers would accept well below the land value. You assume that that there are enough buyers to compete. There were not enough buyers shortly after the quake because not enough had cash so there were very cheap properties. Plus you were buying risk too - you simply couldn't price correctly because there were too many unknowns - when whole suburbs are uninhabitable a new construction is irrelevant. The city population dropped significantly.
You could offer below land value on some properties because you are also purchasing a liability e.g. the council required some houses to be demolished & removed (demolition costs were tens of thousands - and demo companies were busy as fuck).
You might pay a lot more than land value:
• Some places could still be rented (uninsurable is not uninhabitable) so potential income mattered.
• Many places just needed work done - sometimes not much - but often a new foundation e.g. lift house and put in new foundation. New foundations had to be compliant with earthquake strengthening rules so usually very very expensive. The as-is homes were often sold by the insurance companies because they were uneconomic to fix.
I advise everyone to be very careful buying property in suburbs or cities where all houses have common/correlated risks of an event - floods - fire - etcetera. Insurance premiums will rise until it is unaffordable - then all houses will not maintain value. Disclosure: I do live in a flood prone suburb but I can afford to self-insure and most people cannot do that.
Even worse: insurance did not cover the financial losses for many people in the Christchurch Earthquake. Especially small businesses. Then again - many other people ended up with huge payouts and were financially much better off. However even then money is usually a poor substitute for emotional costs.
Construction is pretty expensive too.
For home insurance, usually it's a mortgage requirement, which is not by law. In condominiums, the community may require it of individual owners, and then it's not really law either.
That said, that seems like a risky idea in a world full of LLCs, trusts, etc.
It's completely insufficient, but it's not nothing. A reasonable person would carry much more insurance.
In either the bond, deposit, or liability insurance scenario, the responsible party remains on the hook for whatever is not covered in advance.
$200,000 is a much better floor than, for example, Ohio's $25,000. An Ohioan friend was injured by a motorist who had the minimum coverage. Her care cost more than that. The motorist who caused the injuries didn't have a lot of assets and she was unable to recover the excess from the motorist.
Still, there are some perhaps unintended downsides. Canadian rental car companies, as the owners of the vehicles, are obliged to provide $200,000 insurance as part of every contract. As a result, it seems there's not much market for them to sell excess liability insurance, and none do that I'm aware of. I, as someone who has plenty of assets to lose if I injured someone, would happily buy a higher liability insurance. Doubly so when I rent a car to travel to the US, since the terms of the contract are often "the rental car company will provide the minimum insurance required in the jurisdiction where the claim is incurred".
[1]: https://www.ontario.ca/laws/statute/90c25 [2]: https://www.ontario.ca/laws/statute/90i08
I agree that 200k is a much better minimum. Although I would think a deposit of $200k should be just as good as a policy of $200k... But the Ontario law doesn't allow for a deposit.
I wonder if there's a speciality business available in Ontario for single customer insurance, so individuals or businesses can self-insure without risk pooling.
Auto insurance is mandatory, and it can be government run, or private.
Other areas of insurance can be indirectly required, say one side of renting, etc. Effectively lenders can set the conditions they desire.
It's a stressful situation for many property owners. They may not realize the impact that recent high inflation has had on repair costs, especially when prices tend to spike up higher after major disasters.
If I have any sort of risk mitigation (file backup, fire alarms, spare tire, a generator, whatever) I can test that it works periodically. So I know I'm actually safe for the event.
For insurance, you can't know what bullshit they'll come up with to deny a claim when the time comes for it.
You're left with having paid for the insurance all that time for nothing! Much better to have put that money in a piggy bank instead.
If you actually feel like you could recoup of the cost of paying for insurance by instead keeping the money in a piggy bank, you are buying too much insurance. There’s a sweet spot for insurance and overpaying for too little insurance is a you-problem.
And I know plenty of people myself, who had legitimate accidents not of their own fault who were left $10-15K out of pocket after insurance and settlements.
Let's start with a car that was two years old, I owed $22K on. Car was totaled and most of the comps from the insurer was $25-28K. Oh good, says I. And then they find one 150 miles away that is $13,500. This drags the value down to about $20K. While there's obviously something wrong with this entry, "Doesn't say salvage title in the ad, so it's a valid comp".
It takes them over a month to figure this out, all the while they have me in a rental, and then try to tell me that they're only covering one week of rental coverage. Had to threaten to sue to get compensation for my injured wrist/arm (which was hyperextended when the airbag went off as I was holding the steering wheel).
I still ended up losing out on $6K 'equity' in my car, having to come up with another downpayment, and months of calls from various medical providers who were having a hard time getting my insurer to pay their bills.
For another driver who ran a stop sign, t-boned me, and whose insurance had admitted 100% liability within 48 hours.
That's from https://www.bankrate.com/insurance/homeowners-insurance/flor..., which explains how the roofing scams work in that state. The legislature is working on it.
What's actually happening in Florida is the insurance companies are Janus entities. One part is an insurance company that's subject to rate regulation and the other part is a consulting firm that gets paid large sums of money from the regulated company and that's where all the profits live.
But I do think the total bullshit is that companies are just using it to come up with essentially fake reasons to drop customers:
> Cindy Picos was dropped by her home insurer last month. The reason: aerial photos of her roof, which her insurer refused to let her see. ... Her insurer said its images showed her roof had “lived its life expectancy.” Picos paid for an independent inspection that found the roof had another 10 years of life. Her insurer declined to reconsider its decision.
I also don't have a problem if an insurer decides to leave a state entirely - that decision is essentially saying the state has made it impossible for them to adequately price risk, and that's something the state should fix if so desired.
But these BS cancellation reasons seem like a case of insurers wanting to have their cake and eat it too. I'm not very familiar with state-by-state insurance law, but I'm assuming they have to come up with some reason to drop a homeowner that already has a policy, so this looks like they're trying to find BS reasons to just drop potentially less profitable parts of their portfolio.
If the roof needs replacing (in the insurance company’s view) then charge whatever the rate is that covers that and still makes them a profit. Don’t just deny coverage.
The primary insurance market is even more illiquid than thinly traded options.
That is in sharp contrast to the insurance company that is supposedly making their determination based on drone photos that they won't even let their clients see.
Besides, the article quotes from insurance company agents that directly refutes what you are saying: "Brink, who worked for Farmers in Michigan, said some customers were dropped based on aerial images that were two or three years old. One person wasn’t renewed because of a roof, despite its being brand new."
Full stop. (I just like how people think that adding "full stop" to their comments somehow makes their position unassailable or something...)
Your logic is completely falling apart, that’s why you’re confused.
How else are execs going to pay for that third vacation home?
What you can do, which the U.S. already does, is government-run insurance, socializing the losses among a population. Flood insurance, for example.