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.
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.
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.
Source: https://www.lawteacher.net/free-law-essays/judicial-law/gove...
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.
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.
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.
The state interest stems from the political interests of elected officials. See comment above by @broprogrammernot.
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.