On 5/27/2012 5:31 PM, Frank J Warner wrote:
....

Bottom line is that the insurance companies can't cover catastrophic
losses. It's NOT like your house catches on fire and they have to build
a new chateau for you and yours. That's small change for them (although
your future premiums will skyrocket). They have to rebuild your entire
block, your entire town, your entire region.

It's like a casino. They took the bet. They lost the bet. They should
pay when they lose, even if you end up owning the casino when it's all
over. Now they're hedging their bets because they like that cash
machine.
....

A) +1 w/ the observation that it isn't so much "can't" as it is "can't
at single-loss actuarial rates".

B) They're not "hedging a bet" they're adjusting the odds to reflect
actual risk for widespread events. If "you end up owing the casino"
there's no benefit--they're bankrupt and all you've got is the return of
what assets there were which clearly wouldn't have been sufficient to
cover the losses or they wouldn't have the problem...

In reality, the spate of hurricanes the precipitated the insurance
problems in the SE US was a result of them not adequately addressing the
first point above. As hard as it is to believe they could be so
oblivious to the realities, actuarial rates had been set on very similar
models as those used for individual homes and had not adequately
addressed the "common-mode failure" factor of large-scale events and the
exponential growth in total value in the coastal regions over a period
of years.

It's a reflection of changing to meet the real risk and higher potential
payouts that are the root cause. It's not clear to me whether the state
mandates help or hurt more in terms of actual coverages offered--I tend
to think likely it's counterproductive in that companies will simply
choose to not accept the risk rather than face excessive regulatory burdens.

There's severe weather here but it's much more isolated in general altho
when a large metro area gets a direct hit like Joplin did last year it
can add up pretty good. Still, it doesn't cover anything like the area
nor have the tremendous flood damage potential of a major hurricane.
So, rates here aren't terribly affected by the tornado risk.

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