Do you think property insurance carriers (home) have been allowed to grow predatory?

[LuvOrlando]

Do you think Home Owners Insurance Companies / property insurance carriers have been allowed to grow predatory?

I keep reading about property insurance carriers that have been pulling out of parts of coverage while taking a nice premium for other less likely liabilities. Now reading about how some property insurance carriers opted out of Fire in California (leaving us the taxpayers on the hook while they get to reap bundles and sidestep risk) after many complaints in Florida (homes) and NY (I think cars) I am starting to wonder if the regulations have just vanished. Whats going on with The NAIC these days? They do not seem to be acting fairly. I wonder, are other people getting a sense of an industry that used to help manage liability turn predatory? For what its worth what I am reading about premium jumps and cancel notices are the main reason I do not want to own right now... whole thing feels shady as hell.

 

[tvguy]

Well, insurance is highly regulated in California. Rate increases need state approval. Profit margins monitored and have to be justified. And the State Insurance Commissioner has issued a freeze for six months on companies cancelling insurance in the fire areas. Some certainly are predatory but I also think some customers abuse the system, and sometimes unanticipated losses like the LA fires happen.

 

[LuvOrlando]

Well, insurance is highly regulated in California. Rate increases need state approval. Profit margins monitored and have to be justified. And the State Insurance Commissioner has issued a freeze for six months on companies cancelling insurance in the fire areas. Some certainly are predatory but I also think some customers abuse the system, and sometimes unanticipated losses like the LA fires happen.

There are regulations but consider how it's been playing out. Wouldn't it make more sense for the carriers to be compelled to participate and share in the more risky parts of the community (with reinsurance and such) as a part of the right to do business in the state or region than to let them just opt out at the peril of the community and the state an the fed? Homeowners are compelled to have carriers by the mortgage companies but how does that make sense if the carriers can opt out and leave homeowners exposed? The insurance industry is a financial industry packaging and managing risk, they shouldn't be able to gather all the premiums without absorbing the risk and being allowed to offload that risk to taxpayers. Seems this is a recipe for disaster while they skip off counting their money.

To me this is a predatory scheme and people running things have gotten pretty good at looking the other way then pretending they didn't know. The more complex the scheme the easier it is to hide it.

 

[LoveDaisy]

Insurance regulation varies greatly by state. These regulations are driven by the political parties running the state and their beliefs about how much regulation is needed. While there are some national requirements it usually takes years for state regulations to move to national and that is usually after many states have already adopted it. California and New York tend to be the leaders and are the states to watch to see what may happen in the future. With the current political change I would expect less regulation and more loopholes to allow for the tax avoidance for the affluent. I work for the leading trade association and research company for the financial services industry. While we don’t do P&C research. We have members who are multi line so I follow the news and regulations.

 

[LuvOrlando]

Insurance regulation varies greatly by state. These regulations are driven by the political parties running the state and their beliefs about how much regulation is needed. While there are some national requirements it usually takes years for state regulations to move to national and that is usually after many states have already adopted it. California and New York tend to be the leaders and are the states to watch to see what may happen in the future. With the current political change I would expect less regulation and more loopholes to allow for the tax avoidance for the affluent. I work for the leading trade association and research company for the financial services industry. While we don’t do P&C research. We have members who are multi line so I follow the news and regulations.

If this is true and both California and NY are leaders I'm more anxious. Policies in these states are very expensive to the point the carriers seem to have created self insurance policies without calling them that and many people are being priced out.

If it is true that Insurance created the middle class and people can't afford insurance, then what will happen to the middle class?

 

[sam_gordon]

If it is true that Insurance created the middle class and people can't afford insurance, then what will happen to the middle class?

Who ever said that insurance created the middle class?

 

[_19disnA]

Homeowner's insurance is sold by private companies who are running a for-profit business. Clearly, in parts of the country where risks are higher, the cost of insurance will also be greater. The money to pay claims doesn't just fall out of the sky, there has to be a pool of reserves that each company manages based on risk/premiums/claims/etc. Some people can deny global warming/climate change is real, but the reality is in places like Florida the number/intensity of major storms is increasing which means the costs associated with these storms is also increasing. If rates don't rise, there won't be sufficient funds to cover future disasters. How much influence the govt should have in this area is probably a topic for a separate forum.

 

[LuvOrlando]

It was repeated over and over in every Insurance class I ever took, I used to work in Insurance in NYC.
The reasoning was this:
It is hard for poor people to save enough to buy things. ( I grew up quite poor so I agree)
The biggest expenses for people are often a home and a car.
Most people in the middle can not afford a total loss of a home or a car.
If these people did not have insurance they would not buy these things because they could not replace them.
Because Insurance replaces things people have the confidence to buy them and spend elsewhere.
This created the middle class.

Now maybe they lied, dunno, I assumed they weren't lying to me but it made sense, still maybe they did lie.

All I know is I am retreating from the owners market in large part because of insurance, I don't trust it. I do not want to buy again because renters insurance is a fraction of homeowners and I endure none of the risk of a homeowner. I read too many stories of $10000 jumps in policies - yikes. Other perks: If the neighbors are awful I can move, if the places starts getting neglected I move, if taxes jump I move, if the neighborhood changes I move, if an industry I don't like moves in I move, even if the place starts to look dated I do not need to update I just move. I would consider owning again if these carriers get a tighter leash.

 

[sam_gordon]

It was repeated over and over in every Insurance class I ever took, I used to work in Insurance in NYC.
The reasoning was this:
It is hard for poor people to save enough to buy things. ( I grew up quite poor so I agree)
The biggest expenses for people are often a home and a car.
Most people in the middle can not afford a total loss of a home or a car.
If these people did not have insurance they would not buy these things because they could not replace them.
Because Insurance replaces things people have the confidence to buy them and spend elsewhere.
This created the middle class.

Who "taught" those insurance classes?

I've never purchased a house or car based on "what happens if I lose it"? I bought it because I felt it was necessary to my circumstances at that time.

There are a lot of moving parts with insurance, and as much as I'd like to blame the companies for all the ills, I can't. As PP said, it sure at least feels like there have been more devastating storms in the last 5-10 years, causing more damage, which of course costs insurance companies more money. And where do they get that money to pay out? From premiums (and I'm guessing some investments). So if they're paying more money, doesn't that mean they need to bring in more money? How are they going to do that? By raising premiums.

Continuing the thought, doesn't it make sense to charge more for people to be more "dangerous" areas? If I decide to get a beach front home in Florida, shouldn't I have to pay more to help mitigate that risk than someone in farmland in Illinois (for example)?

So I understand all that.

Where I think the regulations come in is regarding cancelling policies and how much premiums are allowed to increase. First, and maybe these rules exist somewhere, I think there should be a minimum six month notification to the policy owner that the policy is going to be cancelled.

Second, if a company decides to cancel a policy because of location (ex: "We're going to cancel because your home is in a more dangerous location"), then the company shouldn't be allowed to sell that type of policy anywhere in that state. Yes, I agree that's extreme, but I'm just shooting from the hip.

Third, there should be a limit (10%? 20%? I really don't know) on how much premiums can be raised each year.

 

[_19disnA]

It seems those insurance classes were jumbling cause/effect. ANYONE who finances a car/home MUST have insurance or the lending institution won't provide you the funds. If you are financing that purchase, you can't close on a house or the car dealer won't let you drive off the property without showing proof of insurance. The lending institution (who is also running a business) wants to minimize THEIR risk associated with a total loss of that home/car. Has nothing to do with what the individual person wants/doesn't want.

 

[theMoreDisneytheBetter]

The way the insurance business model works, companies take in premiums that, with some investment gains, are meant to cover the expected payouts. However, reportedly insurers have been paying out $1.09 per $1.00 premiums over the past decade in parts of California, and the insurance commission would not allow them raise premiums enough to cover these expected losses (they are highly regulated). California regulators are also prohibiting them from using more sophisticated models about how to predict expected losses more accurately. With inflation replacement/rebuilding costs are only going up, and with climate change what used to be modeled as 100/500 year old events are coming much more frequently now (so payouts will have to happen more frequently and be much larger than they used to be). A business model where you know that you will lose (more) money every year is just not sustainable, which is why companies are exiting certain markets. In California the “insurer of last resort,” FAIR, will be left insolvent by this catastrophe. Unfortunately that means that ultimately some combination of the (local/state/federal) taxpayers and homeowners will probably be left holding the bag.

 

[tvguy]

There are regulations but consider how it's been playing out. Wouldn't it make more sense for the carriers to be compelled to participate and share in the more risky parts of the community (with reinsurance and such) as a part of the right to do business in the state or region than to let them just opt out at the peril of the community and the state an the fed? Homeowners are compelled to have carriers by the mortgage companies but how does that make sense if the carriers can opt out and leave homeowners exposed? The insurance industry is a financial industry packaging and managing risk, they shouldn't be able to gather all the premiums without absorbing the risk and being allowed to offload that risk to taxpayers. Seems this is a recipe for disaster while they skip off counting their money.

To me this is a predatory scheme and people running things have gotten pretty good at looking the other way then pretending they didn't know. The more complex the scheme the easier it is to hide it.

Watching some of live fire videos this morning, in some cases it is clear the homeowners didn't take the most preliminary steps to protect their homes. No defensible spaces. Should over the long term insurance companies be required to cover higher risk clients without being allowed to charge appropriate rates?

 

[theMoreDisneytheBetter]

Third, there should be a limit (10%? 20%? I really don't know) on how much premiums can be raised each year.

The problem with this logic is that there are 2 factors at play here: the size of each payout and the number of payouts that will have to be made. Lets say that the insurance company expects to pay out $100,000 per claim and will have 1,000 claims per year (numbers are made up obviously). Then the premiums charged will need to cover at least 100,000 * 1,000 or $100mn of expected losses. Now if the expected payout jumps to $150,000 per claim because of inflation (or, in the case of car insurance, repair costs have gone up in part as the complexity of the systems in the cars themselves increase) and the number of claims triples due to climate change, suddenly they need premiums to cover $150,000*3,000, or $450mn. Regulators do limit the size of the premium increases, but if the math stops working there is no way the companies will stay in that market.

Does that make sense?

 

[sam_gordon]

The problem with this logic is that there are 2 factors at play here: the size of each payout and the number of payouts that will have to be made. Lets say that the insurance company expects to pay out $100,000 per claim and will have 1,000 claims per year (numbers are made up obviously). Then the premiums charged will need to cover at least 100,000 * 1,000 or $100mn of expected losses. Now if the expected payout jumps to $150,000 per claim because of inflation (or, in the case of car insurance, repair costs have gone up in part as the complexity of the systems in the cars themselves increase) and the number of claims triples due to climate change, suddenly they need premiums to cover $150,000*3,000, or $450mn. Regulators do limit the size of the premium increases, but if the math stops working there is no way the companies will stay in that market.

Does that make sense?

Makes total sense. But the flip side is what prevents companies from doubling, tripling, quadrupling(?), the premiums (if not more)? Personally, I don't think that's right either.

 

[Mackenzie Click-Mickelson]

It was repeated over and over in every Insurance class I ever took, I used to work in Insurance in NYC.
The reasoning was this:
It is hard for poor people to save enough to buy things. ( I grew up quite poor so I agree)
The biggest expenses for people are often a home and a car.
Most people in the middle can not afford a total loss of a home or a car.
If these people did not have insurance they would not buy these things because they could not replace them.
Because Insurance replaces things people have the confidence to buy them and spend elsewhere.
This created the middle class.

Now maybe they lied, dunno, I assumed they weren't lying to me but it made sense, still maybe they did lie.

All I know is I am retreating from the owners market in large part because of insurance, I don't trust it. I do not want to buy again because renters insurance is a fraction of homeowners and I endure none of the risk of a homeowner. I read too many stories of $10000 jumps in policies - yikes. Other perks: If the neighbors are awful I can move, if the places starts getting neglected I move, if taxes jump I move, if the neighborhood changes I move, if an industry I don't like moves in I move, even if the place starts to look dated I do not need to update I just move. I would consider owning again if these carriers get a tighter leash.

I don't know who taught you those things or when you were taught but boy this sounds very off.

 

[theMoreDisneytheBetter]

Makes total sense. But the flip side is what prevents companies from doubling, tripling, quadrupling(?), the premiums (if not more)? Personally, I don't think that's right either.

Regulators. Companies have to make their case and the regulators decide what to allow. But if the companies don’t think they can make a reasonable return based on their expected losses they will leave. That’s what we are seeing now.

 

[NaptownMom]

One majorly underappreciated aspect is how much repair costs have gone up, both for houses and cars. It makes every loss event so much more expensive, they have to be more selective about what they will insure.

 

[LuvOrlando]

I don't know who taught you those things or when you were taught but boy this sounds very off.

Maybe, but it made sense to me, still does.

Do you own a home or car and can you afford a full loss? Are you willing to take that on? Some people can and do, if you own a home by the water in Delaware I think it is, once it is paid off you can opt out of insurance, I have known people who did this. I think auto coverage is also opt in or opt out in New Hampshire.

I don't yet see a reason to change my acceptance of this point of view. I understand other people don't agree but they don't say why it isn't applicable.

 

[Cannot_Wait_4Disney]

I think the Dis needs train wreck insurance.

 

[Mackenzie Click-Mickelson]

Maybe, but it made sense to me, still does.

Do you own a home or car and can you afford a full loss? Are you willing to take that on? Some people can and do, if you own a home by the water in Delaware I think it is, once it is paid off you can opt out of insurance, I have known people who did this. I think auto coverage is also opt in or opt out in New Hampshire.

I don't yet see a reason to change my acceptance of this point of view. I understand other people don't agree but they don't say why it isn't applicable.

Yeah my apologies but you're not making the most sense here as it relates to how the middle class got started. I still stand by my comment, not sure who or when you were taught this in a so-called insurance class.