I have had enough problems with USPS, both sending and receiving, that I no longer rely on them, and I'm just an average person who doesn't use USPS much. Whether it's first-class, certified mail, or priority mail with tracking–they all get lost at higher than acceptable rates. (Maybe domestic registered mail is the last reliable option.)
When a mail piece gets stuck or lost, there's no way to get help. USPS staff is generally unhelpful. It's a disaster.
One small caveat: As much as I appreciate his writing, I'd take some of the technical explanations with a grain of salt – the approach is definitely more that of an (extremely knowledgeable and experienced!) outsider looking at the system and coming up with hypotheses for its workings than that of an authoritative source with hands-on experience working on the system. It's sometimes not that easy to figure out what's hypothesis and what's "confirmed" knowledge as a result.
That said, much of what I've learned about Japanese transit payment systems (without ever having visited) was via that blog. It's amazing!
Somebody from the tiny intersection of people apparently having hands-on experience with Felica and writing about it in English is this pseudonymous Reddit user (often also quoted on the blog): https://www.reddit.com/user/FelicaDude/
The MIFARE protocol (which Oyster cards use) takes 300ms to 500ms per tap. EMV (i.e. contactless cards) take ~500ms, which slows down normal walking speed.
I certainly believe so. Most executives (heck, most professions) are just pattern-matching and regurgitating cargo cult fads of the day. When's the last time someone had an original thought? The only problem is AI can't shake your hand, yet.
This is what worked for me. (In my case the insurance company and provider were the same - Kaiser - so YMMV.)
Write a letter to your insurance company to dispute the explanation of benefits. Follow the instructions for the dispute process. Cite and attach relevant information, like what annual preventative labwork is mandated to be covered by insurance for people your age due to the affordable care act (I believe this is on healthcare.gov). Note that the labwork was preventative and NOT diagnostic. Then wait for them to process it.
Providers submit my explanation of benefits wrong (in their favor) almost every time I go into a clinic or hospital or lab. And it boils my blood to know they get away with it because 90% of the people just pay it.
Edit: if it's the provider's mistake, then you got to start with the provider.
Yeah there needs to be a better solution to this. Either some sort of expedient arbitration by a 3rd party, or ability to get reimbursed for your time.
Problem is, with growing inequality, the 80th-percentile school and the 20th-percentile school is vastly different, whether that is in school resources or the life trajectories of graduates.
There is a huge asymmetry in costs. When an issue arises, the customer has to spend an inordinate amount of time and effort to fix it, but for the company, the problem actually benefits them (e.g. a billing mistake, refunds for a cancelled flight, saving customer support costs).
Company profits increase and stock goes up, but customers' lost weekdays and weekends are not measured.
I'm less concerned about the spying and more concerned about insurance companies arbitrarily non-renewing policies with no recourse for the consumer. Insurance is heavily regulated for good reason, and insurance should be a source of stability instead of anxiety.
Alright, I spent years working and building 0-1 insurance products. Let me peel back some stuff that’s been happening behind the scenes.
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.
Here in British Columbia, our provincially owned insurer (ICBC) saved significant money because of fewer claims during Covid. They even issued a rebate to most drivers. Though they also noted losing some revenue due to fewer or lower premiums being paid. The amount saved was far greater.
And Canadian auto-parts prices are through the roof anyway. If there's a factory-gate price increase/supply issue, there's room for margin compression instead of raising prices. Maybe?
Why are insurance rates regulated by the government?
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?)
If there is such an asymmetry in bargaining power then why do most people pay less than the statutory maximum? If there are multiple insurance companies, how is it not the consumer who has the bargaining power, since they can just take the lowest price?
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.
Eh, or without regulation when people switch risk categories due to a loss they get completely screwed because no company will insure them anymore. At which point, there is strong incentive to only claim the most outrageously bad losses, and for people to only actually get insurance if they have real reason to suspect a loss that is non obvious to others.
It’s a market type that is fundamentally messy and prone to abusive behavior by both sides.
> Eh, or without regulation when people switch risk categories due to a loss they get completely screwed because no company will insure them anymore.
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.
Hard to ‘refrain’ from buying health insurance in the middle of cancer treatment eh?
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?
> Hard to ‘refrain’ from buying health insurance in the middle of cancer treatment 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.
> You can’t get a mortgage without house insurance.
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.
More than that, you can choose to go without a credit card. Insurance is mandatory for most people. Either the law requires it or a lender requires it in order to approve the loan.
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.
Not a good comparison - you can also choose to go without buying a house, its a very US thing to measure success in life with such (massively incorrect) yardstick.
I thought there were also requirements that insurance rates are profitable (in expected value) to prevent some loss-making customer acquisition strategies and to reduce some long-term risks from insurers going bust. I’m not very confident in this claim.
Every state requires you to hold some minimum level of car insurance, mortgages require a level of homeowners insurance, etc. The underlying problem is that it's a significant barrier for people if they get priced out of the market (even if it's for good reason). If you can't afford car insurance or no insurers will offer it to you then you legally cannot drive a car, and in the US that becomes a problem that spirals into bigger problems.
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.
While there’s a lot I dislike about the Mass auto insurance rules, the rules for “no insurance company will voluntarily insure you” are pretty friendly to drivers who are otherwise uninsurable.
In practice what actually happens is that these people will drive anyways and cause damage before being pulled over, except now they have no insurance and it’s a whole mess.
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.
Why is basic insurance for ordinary people a for-profit business at all, rather than something the collective (administered by the state) does to soften any misfortune that hits any of its members?
Because state insurance programs have perverse incentives. Insurance itself is a moral hazard. You buy insurance and then do something risky you wouldn't otherwise have done because if it goes wrong you're insured. It's also an opportunity for outright fraud. If the book value of your property is higher than its true value, you carry insurance and then set a fire.
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.
> Why is basic insurance for ordinary people a for-profit business at all, rather than something the collective...
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.
Mathematically, if you sell insurance at break even, you're guaranteed to go bankrupt - on an infinite time scale, the "spike" of a random walk martingale (this last word means, it doesn't make a profit) will exceed every level, i.e. it will wipe out any amount of collateral / capital / equity the company might have.
Reinsurance isn’t magic. This helps with one-off losses, but if you’re fundamentally not able to make a profit, they’re not going to cover you, because all you’ve done is shift the negative expected value to them.
It also probably increases the odds of total ruin... think a Katrina or an Andrew but a bit worse. On a smaller scale, it's never gonna be just one car in a town with hail damage.
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.
You can prove mathematical propositions, you obviously can't make truthful conclusions about insurance. And that's really the crucial parts. Anyone can make prove mathematical statements.
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.
> you must also regulate the sort of vehicles ordinary people can buy and the sort of homes they can own.
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.
> If you do that, you must also regulate the sort of vehicles ordinary people can buy and the sort of homes they can own.
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.
Even if the government ran the insurance program, you wouldn't be forced to charge everyone the same amount for their insurance. The Camaro driver could pay more for their coverage.
Very few people hate having insurance in case of accidents but a lot of people hate having guns stuck in their back and told to pay up for other people.
I pay a rate based on my risk factors which I actively work to maintain as low as possible. I don't want to be forced to pay for every reckless idiot in my country (of which there are too many to count).
But I also hate non-voluntary anything, so I'm weird.
And without exception the folks fixated on the notion they're paying the way for someone else fail to grasp, on the most fundamental level, the notion of a public good. There are days where I think it'd be amusing to suspend federal and state law in the Dakotas just to see how long it took before regional warlords took over.
Imagine a world where only the people like you can be insured. Everyone else, “of which there are too many to count,” has to go without insurance because they can’t get approved or the premiums are so insane they can’t afford it. Some of those people may take it to heart and change their behavior, but some will not.
Now imagine one of those uninsured people causes an accident, and you get seriously injured. You sue, but this person is broke as a joke, so you never manage to get anything meaningful back. In fact, you probably wouldn’t even be able to get a lawyer to take your case, since they know they wouldn’t even be able to collect enough to cover their fees. That’s why you “have to pay for every ridiculous idiot.” I suppose could round them all up and put them in camps, and then your premiums would be lower.
Or consider major medical insurance. Before the ACA, in the US, people with pre-existing conditions couldn’t get individual health insurance, or if they did, it was incredibly expensive. These people didn’t necessarily do anything wrong, but their healthcare costs were higher than any individual could reasonably afford. Did they not deserve healthcare?
“When it comes to rate regulations for overall insurance, according to state regulations they should not be excessive in any way. This means that they must be affordable, and are not set too high in relation to insurance claims. Insurance rates should also not be inadequate. This means that they should not be marketed at a rate that is too low. The Insurance rates should also not be discriminatory in any nature, meaning that all insureds are charged similarly for similar coverages. These rate regulations are imposed on insurance companies in order to protect consumers. (Dorfman and Cather)”
Votes are the sort term answer. People are losing their houses in Florida. Mortgages require insurance, and if you insurance goes up thousand a year, and hundreds a month, some people can't afford it, and lose their houses.
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.
Ten-to-one you can go back to when the regulation started and find there was rampant, blatant abuse going on. That’s the usual story behind these kinds of things.
There is a saying that regulations are written in blood.
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.
One key part of the formula omitted is most major insurers while posting underwriting losses in certain markets, etc in 2023 posted annual net profit over $1.0bn. Am I right in thinking these sweeping rate increases and market exits are justified by protection of $250mm+ per quarter net income? If so, then are we right to blame anybody other than the insurers shareholders and owners for this current state? Wouldn’t $25mm per quarter net income be sufficient? Why does runaway profits maxxing have to apply to every market including public good markets like insurance?
Many industries are regulated and have to provide good faith justifications for price increases. The burden of proof is on them, not the service recipient.
I’m not sure you read my post then as it explains I’ve seen first-hand actual loss data because of supply chain & other costs leading to an unprofitable offering being denied by the state without any valid rationale other than “he didn’t see any cars outside his window”.
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.
Value of claims going up while number might be slightly down... Means that outgoing money that is returned to buyers has increased. They are "winning". But house cannot keep losing or they go bankrupt.
i think "most" isn't necessarily right since selection bias applies : ones not making money get delisted from public trading, so don't pull down an average, skewing it.
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.
Insurance in general is more heavily regulated than this. There are a few reasons: because society doesn't want these companies racing to the bottom on price and leaving their customers high and dry when the catastrophe does hit, because society finds insurance pricing based on certain personal aspects, such as race, odious, and because the government mandates some types of coverage and they don't want to let insurers rinse customers that are forced to buy their product.
For all these reasons, insurers typically must justify rate increases.
While it’s certainly accurate insurance is a regulated industry, nothing you listed explains why it’s a good idea to allow government to set or approve rates vs. ameliorating those social concerns through other means.
In the US, it's a requirement of mortgage lenders. This makes it less of a legal requirement and more of a de facto requirement, as most homes are purchased via mortgage in the US.
Hi, This is a very informative post. I am trying to learn more about how the insurance industry works. Would you be open to sharing any resources (websites, books etc) that teach the 0 to 1 of insurance? Or can I DM you with a couple of questions? Thanks!
It is...kind of. But we're talking about severely limiting the ability of insurers to distinguish high risk parties from low risk parties and price accordingly. When the insured parties have limited agency over the risk they present — as with, e.g., health insurance for congenital diseases — this kind of regulation can make sense. But when insured parties can control the risk, such regulation usually makes insurance markets much less efficient. Essentially, it takes away the incentive for insured parties to avoid risky behaviors, creating moral hazard. This is a well-understood mechanism for market failures.
We already have this problem with car insurance in California. In the 1980s, at the tail end of a long series of stupid initiative ballot measures, Californians wrote down that there are only 2 strata of risk: good drivers, and everyone else. "Good Driver" is defined as a person who has had a license for 3 years without killing or injuring anyone. Because of this, California is the only American state where the law requires that a middle-aged person who drives a base model Honda Fit, and a 19-year-old with a Dodge Hellcat who miraculously hasn't killed anyone, yet, that we know of, both get the same "discount". And consequently it is unlawful here to offer those telematics systems that charge less to good drivers and more to bad ones.
I think it needs to also be acknowledged that insurance itself is a moral hazard. Focusing on the "efficiency" and moral hazards of only the insureds is an incomplete analysis.
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.
You want to risk pool a specific cohort of people. You want the pool to be as large as possible without masking clear adverse indicators. For instance, from an example downthread: you probably don't want to pool people with trampolines in with everybody else. Most people don't have trampolines. To an insurer, the sole function of a trampoline is to generate lawsuits. If you pool trampoliners together with everybody else, you necessarily raise everybody's rates to subsidize trampoline lawsuits. Better to factor the trampolines out and price them directly.
Risk pooling is fundamental to insurance, but not all pools are the same.
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.
In extreme cases forcing too much pooling can cause market failure. The intuition is that the least risky customers decline to purchase (much) insurance, making the average risk higher, increasing prices, making more people decline insurance, in a vicious cycle. It’s fundamentally similar to Akerlof’s market for lemons.
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).
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.
That is the problem solved by competition. If insurers know that your risk is below average then they'll want your business and therefore want to underbid other insurers in order to get it. But so will the other insurers, until your premium comes down to reflect your risk. This works even if you don't know your own risk because all you have to do is pick the most attractive price.
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.
It is through reinsurance mechanisms and the way you build the portfolio.
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.
Yes, insurance companies should sometimes lose money on business that they expected to be profitable. But they shouldn’t be writing business that they expect to be unprofitable a priori. Many states and lines of business are firmly in the second category right now due to overzealous insurance regulators.
Then maybe they should have worked with customers proactively to prune trees and set up fire exclusion zones or fire resistant exteriors instead of sitting on their laurels raking it in.
Seconded. Also let’s require PG&E (the company that set the fires) to actually follow the maintenance and safety schedules they repeatedly promise to follow and repeatedly fail to follow.
They are not wrong. Insurance with perfect info ceases to ne any form of a recognizable social good. In fact, it just becomes indistinguishable from a sanctioned form of populational segregation, instead of the pull-a-long stick-with-carrot through which risk is mitigated against long tail events through active propagation of best practices as a condition of coverage.
Insurance companies should be exposed to the same level of risk as anyone else, which includes having things boow up in your face if you mismanage your float.
Their comment didn’t add anything to the conversation, contrasted with yours I’m sure you can see the difference.
I agree with your commentary, my point was that they’re (insurance companies) unable to use the information they learn or newer predictive elements to help avoid the mismanagement.
Arbitrary decisions by these elected or appointed officials, as I have seen first-hand, ignoring the reality that if they aren’t able to off-set that risk it comes at great cost to the company first and their constituents later as a knock-on effect results in the only way to not have it “blow up in their face” by removing services.
So to your point, the lack of ability of control rates in a more reasonable fashion (I’m not pro no regulations btw) actually results in the same thing you’ve pointed out above - the ones who need the insurance the most can no longer get it or cannot get adequate coverage.
Insurance with perfect info would be an amazing social good. If they could say "you can build a house there, but it will burn down in a forest fire 15 years from now", we could make an informed decision on if we want to build that house.
That's not insurance then. The whole point of insurance is shared risk in circumstances where perfect information is not available but a reasonable calculation of risk for the cohort is.
If losses reach the point where it's irrational to invest in insurance businesses versus other competing business propositions, insurers exit the market, and the boo-hoo is on you. You can moralize your way out of cuts in profits, but you can't moralize your way out of sustained losses.
I'm not usually a "actually this is the fault of regulation" sort of person, but in this case it really is the fault of regulation. A bunch of states have laws saying premiums can't rise more than X% in a year, or can't rise at all without the approval of the state insurance commissioner. If circumstances have changed (e.g. wildfire or hurricane risk is now worse than we thought, and also labor market tightness and inflation means repairing/rebuilding is much more expensive) such that the insurance company can't insure you profitably without a rate hike they're forbidden to do, then of course they're going to drop your policy.
No one, including companies, should not be forced into contracts they don't want to enter into.
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.
Car insurance isn't mandatory; proof of financial responsibility is. In California, you can get a compliant insurance policy, deposit $35k with the DMV, setup a compliant $35k bond, or a self-insurance certificate which requires a larger deposit and is really for commercial motor vehicle carriers. I don't think it's unreasonable to require means to pay for damages when operating a motor vehicle; it doesn't take much to cause damages well in excess of California's deposit amount; washington state requires $60k.
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.
Side note here on how ludicrous it is that you can substitute a $35,000 bond for a real insurance policy, given the likelihood that any driver is going to cause losses far in excess of $35,000.
Minimum insurance in California only covers the same $35,000. $15,000 for injuries to one person, $30,000 for injuries to multiple people, and $5,000 for property damage.
It's completely insufficient, but it's not nothing. A reasonable person would carry much more insurance.
The 35k bond doesn’t preclude getting sued for an unbounded amount. Presumably the idea is that a 35k bond demonstrates you have more available in case of a judgment.
That said, that seems like a risky idea in a world full of LLCs, trusts, etc.
In Ontario, the Compulsory Automobile Insurance Act [1] requires that all owners/lessees of vehicles take out insurance policies. The Insurance Act [2] sets out that the minimum amount should be $200,000.
$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".
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.
I could be wrong, but I don't think there are any states where you are required by law to have home insurance. The issue is that banks won't underwrite a mortgage for an uninsured house, because without insurance it's a completely unsecured asset whose value would go to zero at any time. (And if a bank won't write a new mortgage for it, the value drops dramatically even if it's already paid off, because now the potential market is limited to cash-only buyers for a risky asset)
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.
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.
In some states it's the heavy regulation which is causing policy non-renewals. When governments fix prices below the market rate that inevitably leads to shortages.
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.
Nobody can be forced to insure you if they don't want to. I learned that on CNBC the other day, here's the segment talking about the state of home insurance in US.
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.
I’ve known plenty of people who had legitimate accidents not of their own fault where insurance made them more than whole, and they would have not been able to afford the replacement if they had simply been saving for the same amount of time.
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.
> I’ve known plenty of people who had legitimate accidents not of their own fault where insurance made them more than whole
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.
I 100% agree with landedgentry. I don't really have any problem with insurers using drone photos - anyone can take drone photos of anyone else's property - and I'm not really a fan of the article calling it "spying" to imply some special kind of nefarious behavior.
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.
Independent inspectors almost always say what whoever is paying them wants to hear (see: Florida). 10 years left on a roof usually means the next large wind storm will take it out, they’re not paid to look for that.
But independent inspectors usually generate a report that explains at least some of their rationale. Even if it is biased, it can at least be scrutinized.
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.
Quite literally, what are you talking about? There were no "multiple insurance companies", there was a single insurance company that dropped the policy holder quoted in the article.
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...)
I’m not sure why you’re sherry picking the article, it very clearly says multiple insurance companies are doing this, and you claim this is some sort of bad thing that would stop someone from getting insurance.
Your logic is completely falling apart, that’s why you’re confused.
Why aren’t insurance companies required to operate like market makers in the equities markets, where they’re free to choose the price they’re offering, but must offer a price in the market they’re in?
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.
If you ever look at the options chain on a thinly traded equity, you'll notice small volume and very large bid/ask spreads. Sometimes the bid/ask spread is so large that it looks like a computer glitch.
The primary insurance market is even more illiquid than thinly traded options.
Similar reports are coming out of Florida. Generally, it seems the industry is pulling away from higher risk to climate change issues from larger storms or fire risk.
There’s a saying in the insurance industry, there’s no such thing as a bad risk, only insufficient premium. Natural catastrophe risk is definitely increasing, but the insurance industry can handle that. The fundamental issue is that regulators in many states (including CA and FL) won’t let insurers charge enough to compensate for that risk.
That's not the issue in Florida. The issue in Florida is that "although Florida only accounts for 9 percent of the country’s home insurance claims, it is home to 79 percent of the country’s home insurance lawsuits".
The legislature already worked on it. It had its way with it, totally. Despite the "work" that was done rates have skyrocketed. We're so deregulated there's no room for any additional work that doesn't break down the front door and walk out with stuff
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.
What do you expect when the market collapses and most suppliers leave? Of course everyone else will raise their prices. Now Florida needs to wait for insurers to come back and competition will happen.
When a mail piece gets stuck or lost, there's no way to get help. USPS staff is generally unhelpful. It's a disaster.