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

dpb

wrote:
In article .com,
says...

....

the percentage of US homes having a full loss annually is far less than
one in a thousand. ...

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 ...
If ... can identify ... and ... develop reliable estimates of the extra risk,
... can implement appropriate surcharges ...

If ... 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.
....

Precisely, and well put. I would have thought the 1 loss/2,000
homeowner-years still somewhat high, but certainly in the realm of
reality. I was only doing the pseudo-actuarial excercise to
demonstrate that while speaking of $100-200k losses sounds absolutely
huge, when spread over the risk pool, there's a lot of revenue
providers who don't have the claims to make up for it. And, granted,
there are many more smaller claims than total losses, but hallerb seems
fixated on the one so I simplified the argument. (Also, note that I
gave them the benefit of assuming 100% "overhead" in the major loss
category in part as knowing there are other claims as well as simply an
estimate of costs associated only w/ payout of total-loss claims) As
you note, the actuarial data are the key thing and having sound data
soundly applied are imperatives to maintaining a healthy position as an
underwriter (and having sufficient assests to "ride out" the inevitable
short-term statistical fluctuations, of course.

).

As to the specific subject risk at hand in the current discussion, I
suspect (although I'll grant I don't have any inside information) that
the situation is a combination of not sufficient solid data that the
particular item itself was a root cause combined with insufficient
losses from claims where the item could have been at fault to make it
come to the forefront in an evaluation of where to put actuarial
research investment and the knowledge that it is a relatively small
fraction of all homes already and that percentage is going down all the
time. Consequently, it is simply not an area that has sufficient long
term payback to the insurance industry to invest in the necessary
effort to develop rate premiums specifically against K&T. So, as you
also note, they resort to either the occasional or regional/local
declining to underwrite or, perhaps, require the inspection that it
meets the grandfathered code requirements.

Still, at least here, it has been far more common for the actual
requirement to be replacing fuse boxes rather than sound K&T wiring in
all the old houses that have been refurbished as part of the local
revitalization project refurbs. Most of these will eventually get
completely rewired as part of a major reconstruction effort, but that
may take the new owner some 10 years or more and what we're doing is
getting first-time homeowners into something they can afford and that
is safe _first_. In order to do this, it makes no sense to put
resources into something that isn't a problem. In some cases, the
condition of the wiring has been so poor as to make that a part of the
mandatory first stage reconstruction to make the house safe for
habitation, but often it has not been.

Anyway, I've said all there is to be said, and more....

As I think I noted elsewhere, it seems that the industry in general
forgot about common-cause in a period of low activity in the SE US and
in a competitive fervor grossly underevaluated true risk from a
catastrophic event. It will take some time for these effects to be
absorbed and a new equilibrium to be achieved. But that type of risk
estimation is totally apart from individual homeowners.