The Coalition of the Swilling

Makes one wonder if it wouldn't be wiser to set aside an amount equivilent to a premium payment in a bank account that you don't touch unless there is some sort of problem that you would otherwise use the homeowner's insurance.

But I've never been one to understand insurance... medical insurance (and car insurance for that matter) always feels like a bet against myself.

My premiums AND my deductible have gone up every single year for the almost 12 years we've been here. We opted for the 2% deductible over the $500 and $1000 deductibles because our premiums are plenty high enough and it seemed prudent at the time. Setting aside money like KG suggests is a great idea always but not everyone can do that. So far, All State and State Farm (Louisiana's biggest insurers, too) have said they will not raise rates significantly. The really sad thing about all of this is that many responsible, insured citizens are fighting tooth and nail with their insurance companies and with FEMA to become whole again whilst some irresponsible, uninsured citizens, who didn't have a pot to pi$$ in before Katrina, are getting substantial cash settlements from FEMA, the Feds, or the State.

Who needs insurance? Just wait for the disaster and your fellow taxpayers will give you money for free!

Waiting for the plane to return to the cesspool of New Orleans, some despicable people in front of me were going on and on about how FEMA wasn't doing more. Ingrates. I can't believe that people can actually complain about free money. I wanted to reach over and smack them. Besides, they were cutting in line.

KG - I've heard tales of people who refused to buy insurance for just that reason; gambling was a sin in their eyes and they weren't interested.

I wouldn't go so far to call it gambling - in a real wager you pay out to the winners, not the losers. It's just shared risk: pool one's resources to help out in case disaster strikes one of the people. Communities used to do this all the time without requiring companies to profit off of their money.

The companies are the problem, not the concept. I'm not one for a lot of state regulation but in this case it's hard to argue against it, because when a policyholder has a claim his rates suddenly tend to rise - even though the company agreed to insure against that risk for this price before whatever happened. Oh, because "your risk went up." How, exactly? It's this systemic malfeasance that requires governments to meddle in the market.

Well, it's not like I have a problem with gambling, er, I mean, I don't think it's wrong. But depending on how you look at it, it is a wager where they're paying the winner. You bet the house (the insurance company) that something bad will happen to you. If you get paid, it's because something bad happened to you.

There is, I'm sure, some better way of setting up the system. I just don't know what it is at the moment. Perhaps something similar to a health savings account...

even though the company agreed to insure against that risk for this price before whatever happened.

Oh, aMEN, Brother 'Fly! I'll lay my hands on the dashboard for that one.

KG -you are not betting against yourself, you are betting against everyone else insured by your company.

Here's a quote by Meep, who works in the industry:

I don't think the guy even talks about the level of regulation that insurance companies face. The insurance industry is one of the few industries that I agree needs to be regulated by the government, but not because they might set their prices too high -- it's because they could try to set their premiums too low. The primary purpose of insurance regulation is making sure insurance companies stay solvent so they can pay off legitimate claims; it's too easy to undercut other companies on price if you intend to take the money and run before any sizeable claims are made (cf the Anglo-Bengalee Mutual Assurance Company in Martin Chuzzlewit). The most vulnerable types of insurance to insolvency are ones where claims are infrequent but huge (like various liability policies. And the companies that had property insurance on the World Trade Center.) The companies may be collecting premiums for years before having to make a claim, and you've got to make sure that claims reserves are building up in safe investments, rather than getting doled out to execs and shareholders. Even mutual insurance companies have to be careful (where policyholders = shareholders) -- you can't have one set of policyholders accruing benefits too fast, being subsidized by a different bloc of policyholders. This is why actuaries get paid so much (and yes, actuaries can be sued for malpractice) -- part of our job is to set prices/reserves to assure reasonable solvency.

You've got to make sure that the companies accumulate sufficient reserves in the case of large, sporadic claim events, which is dependent on the frequency and severity distribution of claims as well as the investment performance of reserves. Life insurance (my biz) is a little more predictable than property/casualty/liability insurance (what's being discussed in the article), but we still have to think about catastrophes like a pandemic and the like. And we've got to keep money in rather liquid, safe (and low-yielding) investments to cover some of these possibilities. And you've got to realize that "catastrophe" is dependent on the insurance product.

I didn't hear Florida policy holders complaining that their policies were set too low in the years leading to Ivan, or that they should be increased to beef up reserves in case of mulitple hits, so there is plenty of blame to go around.

That's what the regulators should have been doing, and there is a legitimate complaint that these current increases should have been made gradually over the last 10 years with proper regulation. It's part and parcel of the general human stupid behavior of assuming that because something has not happened in living memory, that it can't happen. However, now that everyone's noses have been rubbed in the ugly truth, there is an obligation to increase rates to make sure that these companies stay solvent, and to not set a bad precident of insurers not paying off all of their obligations.

But handing money through FEMA to people too stupid to even buy insurance is interfering with the Darwinian and market mechanisms that keep the human race progressing, rather than regressing.

That second paragraph, beginning with "You've got to make sure" should be italicized - it's Meep's, not mine (I don't work in insurance). Preview is my friend, I know.

John - sometimes you need a new set of tags for a new paragraph. I've done it too.

John - sometimes you need a new set of tags for a new paragraph. I've done it too.

Ms. Sister - thanks for the kind words! Between this and the temper thing, we're sharing wavelength today...

(?!! I shall have to shut that mind meld down immeedjetly!!)

As for complaining their policies premiums were too low, that's a canard. I don't set my risk factor, those I'm asking to insure me against harm do. And thus I pay accordingly. (I may bitch, but I still pay...)
As for reserves, that's what the State of Florida forced all insurance companies doing business in the state to have post-Andrew ~ a disaster reserve strictly for Florida. So many insurance companies went out of business/left that the state requires them to be fully funded in case of an Ivan or a Jean or a Charlie. (And I don't believe there were any company failures associated with the 2005 Florida adventure season. They may have left the state like Nationwide, but didn't go 'under'.) They also set up the Citizen's Insurance Company (for better or worse ~ mostly worse, but at least they were attempting to do something.) to provide at least some sort of succor for those who were incapable of obtaining insurance through any other channels. (And CA is going to have a hard time with 'earthquake' insurance without anything happening lately.)

So THERE, John.

PLUS, there's nifty little thing all the big guys do to insure themselves against catastrophic losses called "re-insurance". That $850 million Nationwide lost?

The figures are net of reinsurance recoveries, from the Florida Hurricane Catastrophe Fund.

"As for complaining their policies premiums were too low, that's a canard. I don't set my risk factor, those I'm asking to insure me against harm do."

That's what I mean about lax regulatory oversight, here. And you (meaning everyone in FL)do bear some responsibility in a caveat emptor sort of way.

What I'm saying is that an awful lot of neo-Floridians who moved down there and saw premiums not much in excess of what they were paying back in Jersey and on Long Island should have said "what's up?", but they were happy to take advantage of the lax oversight. I know if I moved to the FL coast and my insurance premiums didn't triple, I'd be asking why, and double and triple checking out my coverage.

That's a lot to ask of a private citizen, John. Very few people can read an insurance policy cover to cover and understand all of it. They talk to their agent and they expect and hope the agent understands their needs and finds an appropriate policy for them. Most people trust their agent. I get hit on all of the time to change policies. All they can offer me is a savings on my premiums. I trust my agent. I've made and received fair claims every time it was necessary. What I pay is worth the extra $200 or so.

Rob, it's a lot to ask, but being an adult requires that you look at things like that carefully. I'm really sympathetic to the natives who never had any experience with other states, but for those who moved down there and are now complaining, it does not take a rocket scientist to figure out that FL is higher risk for disasters than the Northeast, and that correspondingly, the premiums and deductibles should be higher. Much higher.

There is an optimum risk-adjusted level of development and population for the Gulf states, and subsidized flood insurance and a run of good luck, hurricaine-wise, have over-populated that area. We're in a really painful re-adjustment period.

I and many others can and do look at and listen to things carefully, John, especially things that affect us. That's great advice, in fact. However, at some point, you have to trust the agent, the doctor, the lawyer, the engineer, or the professional in whatever field.

I know if I moved to the FL coast and my insurance premiums didn't triple, I'd be asking why, and double and triple checking out my coverage.

NOW, maybe. But the double, triple, quadruple checking people do during the winter ~ like us and those I know ~ means NOTHING when the event finally happens and you're desperate and they've got you by the technical term gonads. Ebola dealt with this dealing with insurance types when selling replacements for destroyed sunrooms. Just ask those folks sitting in that house in Radioblogger's photo. I'll bet they knew just what they were covered for...or so they thought.

As for subsidized flood insurance, you can only get that if you're in a 'flood plain', not a five hundred year flood plain or an 'Act of God'/build an ark flood plain, which is what most of these disasters encompass. And it's only payable if the second floor of your house is destroyed. So if the first floor is flooded, but the second intact, you are sh*t out of luck collecting. Then there's the fight about storm surge. The wind you were covered for drove it into your house, but 'it' was a flood, so you're screwed. And if by some miracle you were covered for BOTH, they will duke it out between companies to get the other guy to pay, while counting on you being worn down and desperate to the point of saying "I'll take anything". Once they sign a check they're done with you, even if accepted under duress.

Oh, it's bad. As nationally known lawyers here who are owners of million dollar homes found out, it doesn't matter if you're Fred Levin or Fannie Mae. What you signed and paid for all those years undergoes an amazing transformation at crunch time. And we haven't even begun to address the concept of 'The Adjuster" (cue: dah dah dah DUMMMM)

It's probably fairly hard for most folks to get a feel for what their premiums ought to 'be' because, for the most part, the property values are lower in the south than up north. As Rob said, you have to trust your agent to some extent.

Absolutely right, Mr Bingley. Market experts might know what premiums "should be" but the average Joe has no way of knowing that. If someone offered me full coverage with no deductible for $200 per year, I'd be suspicious. That's the rub. The premiums were never so out of kilter that they would fall in the too good to be true category. A lot of people were un-insured or under-insured by choice (Chose to take the chance) or necessity (Couldn't afford it). I have some sympathy for the latter but not for the former. However, a lot of people wanted to be and thought they were properly insured and are only finding out now that they weren't. How does one get properly insured without becoming an expert in the field? The only way I know is to find an agent that makes sense, that talks straight, and that answers your questions. The part of being an adult is being able to distinguish those you can trust from those you can't. I found a good agent when I was 25 and I've been with him ever since, thick and thin. I know people who drop one insurance company and go to another whenever they can find a cheaper rate. They have no relationship whatsoever. They saved some money but they're paying it back with interest now.

Mr. B., you and Rob raise some good points. But if I were moving down there, I'd use a sliding scale to determine what I think I should be paying: if I had a $300,000 home in Jersey (living in the poorhouse, I think), and paid $5000 per year in insurance, and moved to a $150,000 house in FL, I'd expect the premiums to be the same, or even as high as $7000, as I would expect the risk of catastrophic loss in FL to be 2-3 times higher than in NJ. Anything else would make me very suspicious, and I'd be asking what each clause meant in the insurance contract, and be asking what exactly would get replaced in the event of a loss.

Even if the average person can't understand the legalese in the contract, they have a responsibility not to sign anything that they have not gone through line by line.

But complaining now that rates are going up by 80% is a complaint for the regulators. Knowingly or not, they policyholders have been getting a bit of a free ride, and now is the time to adjust. Hopefully this will slow the influx of outsiders into these regions, as it's not good national policy to have population centers even as big as we have now in those areas.

Now Allstate does deserve a lot of guff for suddenly realizing that they are overexposed in the Gulf and in CA. Where were their actuaries?

"I'd be asking what each clause meant in the insurance contract, and be asking what exactly would get replaced in the event of a loss."

I guarantee that many people did exactly that, John, and were still misinformed and/or lied to. Besides, is New Jersey the gold standard in insurance? When I get my quote in Bush, LA, should I check on a comparable rate in Hoboken to make sure I'm paying enough? I'm not really quibbling with any of your points. They're all valid. My point is that this insurance mess is not all on the citizen/consumer.

Oh, Rob, I hope that I did not give the impression that all, or even most of the responsibility was with the policy holder. My mental model for this is:

60%*Insurer+30%*regulator+10%*policyholder = A mess

Like I said, I've lived in enough different places (5 states in 3 regions of the country) to know that a premium is out of whack, but my cousins down in GA and VA who have moved maybe 10 miles from their home have no such background - they have to trust their agents. But an awful lot of people doing the screaming down in FL are snowbirds, many of them reasonably savvy, who should have known better.

And if you were lied to by an agent, I've got no problem distributing FEMA money. It's the deliberately under-insured that need to suck it up.

I think I objected a little bit to people complaining that their premiums were going up by 80%. That's a big bite, and I can understand that they see it as adding insult to injury, but the premiums have been too low, and we need to readjust. I think that artificailly low premiums have been one factor that's been leading to over-development on the Gulf Coast, and it's time that the big developers (and the smaller owners) faced that fact.