DIYbanter - View Single Post - State Farm Insurance vs knob & tube wiring

In article .com,
says...

OK, assume $200k/loss. It would take 400 policy premiums to make up
the direct loss. Assuming the ancillary costs are 100% of that would
still be under 1000 paid premiums _per annum_ to make up for the
one-time infrequent loss. I don't have data at hand, but I'd venture
the percentage of US homes having a full loss annually is far less than
one in a thousand. (Only to point out things may not be so bleak for
the underwriters as you seem to be trying to make us think... )

The latest statistics I have say that of 100 homeowners, one will have a
total loss over 20 years. So yes, total losses are a very infrequent
risk.

But they're also only a very small part of what insurance ends up paying
for -- there are a lot of $1000 burglary claims and $10000 kitchen fires
for every total loss, and they come out of the same premium pool as
total losses.

If an insurance company can identify particular classes of homes that
are more likely to have losses, and if their actuaries can develop
reliable estimates of the extra risk, they can implement appropriate
surcharges so that lower-risk policyholders aren't subsidising higher-
risk policyholders.

If the insurance company can identify hazards that increase risk, but
can't come up with reliable actuarial estimates of the risk, then it's
hard to develop an appropriate surcharge and get it approved by
insurance regulators. That's where the company tends to either decline
to insure that type of risk or accept it without a surcharge.

--
is Joshua Putnam
http://www.phred.org/~josh/
Braze your own bicycle frames. See
http://www.phred.org/~josh/build/build.html