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(NPR)   Insurance companies less enthusiastic about their business model after having to pay claims   (npr.org) divider line 80
    More: Obvious, Munich Re, State Farm  
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3375 clicks; posted to Business » on 05 Nov 2012 at 8:38 AM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2012-11-05 01:11:07 PM

Apeboy: All those buyers, realtors, builders and closing attorneys share the blame when it comes to high insurance costs.


Market value of the home has 0 to do with the insurance replacement cost.
 
2012-11-05 01:15:50 PM

swahnhennessy: I can only assume people defending insurance companies make their livelihood through insurance or possibly protection rackets.


Or, you know, actually understand how insurance works.

Do you know how much premium the US property casualty insurance industry earned in 2011? $438 billion.

Do you know how much they paid in claims and other expenses during 2011? $474 billion.

That's a whopping underwriting profit of negative $35 billion!! Modern day robber barons, indeed!
 
2012-11-05 01:19:07 PM

Debeo Summa Credo: eKonk: TheOtherGuy:

I don't even want to know what flood insurance on a barrier island in the North Atlantic would cost. I can't even imagine a company that would quote such a policy when you can only get flood insurance for a hilltop house 5 miles from the nearest koi pond and 7 from the nearest stream worthy of the name in my town from federal insurers... You probably couldn't insure a friggin' blimp hangared in the Sahara against flooding without mortgaging your DNA.

I have no idea what the actual premiums are like, but if I was personally putting my money on the line, a house on a barrier island would have insanely high premiums (or deductibles) or ridiculously low policy limits. There really is no other way (unless you count government subsidies) to stay in business, as barrier islands are guaranteed to flood at some point, and the flooding is always severe due to the lack of high ground and solid bedrock.

Anyway, there is something of a solution to the apparent conflict of interest in insurance - at least in theory. Mutually held insurance is a great business model, as those who stand to profit from not paying claims are the same who benefit by the payment of those claims. Of course, the reality is that if you're a small fish in any pond, you're not going to have much influence, and it's hard to find a company that could provide coverage to only a small pool of small customers and still be counted on to remain solvent when losses start coming in.

Yeah, it's too bad there are no big mutual insurance companies. I've only been able to find little rinky dink mutuals like State Farm.

How are are they supposed to compete against the big mean stockholder owned insurers when they only write $50b in annual premium?


*eyes narrow* Is this that sarcasm thing I've been hearing about?
 
2012-11-05 01:26:57 PM
If any of you insurance people are supposed to be working on my submission, get back to work!
 
2012-11-05 01:29:19 PM

eKonk: Debeo Summa Credo: eKonk: TheOtherGuy:

I don't even want to know what flood insurance on a barrier island in the North Atlantic would cost. I can't even imagine a company that would quote such a policy when you can only get flood insurance for a hilltop house 5 miles from the nearest koi pond and 7 from the nearest stream worthy of the name in my town from federal insurers... You probably couldn't insure a friggin' blimp hangared in the Sahara against flooding without mortgaging your DNA.

I have no idea what the actual premiums are like, but if I was personally putting my money on the line, a house on a barrier island would have insanely high premiums (or deductibles) or ridiculously low policy limits. There really is no other way (unless you count government subsidies) to stay in business, as barrier islands are guaranteed to flood at some point, and the flooding is always severe due to the lack of high ground and solid bedrock.

Anyway, there is something of a solution to the apparent conflict of interest in insurance - at least in theory. Mutually held insurance is a great business model, as those who stand to profit from not paying claims are the same who benefit by the payment of those claims. Of course, the reality is that if you're a small fish in any pond, you're not going to have much influence, and it's hard to find a company that could provide coverage to only a small pool of small customers and still be counted on to remain solvent when losses start coming in.

Yeah, it's too bad there are no big mutual insurance companies. I've only been able to find little rinky dink mutuals like State Farm.

How are are they supposed to compete against the big mean stockholder owned insurers when they only write $50b in annual premium?

*eyes narrow* Is this that sarcasm thing I've been hearing about?


A bit. I agree that mutual insurers make sense are a worthwhile concept, but it's not like they don't exist today.

State Farm is by far the largest pc insurer in the country, Liberty Mutual is third or fourth, and farmers is in the top ten.
 
2012-11-05 01:34:00 PM

MugzyBrown: If any of you insurance people are supposed to be working on my submission, get back to work!


Are you kidding? I'm working my ass off. Sandy is killing me. Had to refill the ink blotter for my "CLAIM DENIED" stamp six times today already.

/oops, I've said too much
 
2012-11-05 01:36:49 PM

Debeo Summa Credo: Are you kidding? I'm working my ass off. Sandy is killing me. Had to refill the ink blotter for my "CLAIM DENIED" stamp six times today already.


Have you laughed maniacally and twisted your handlebar mustache as well?
 
2012-11-05 01:37:23 PM

MugzyBrown: If any of you insurance people are supposed to be working on my submission, get back to work!


Sorry, sir, not my department, please hold while I send you back to the customer service desk. Thank you for your patience, we appreciate your business.
 
2012-11-05 01:42:22 PM

Debeo Summa Credo:
*eyes narrow* Is this that sarcasm thing I've been hearing about?

A bit. I agree that mutual insurers make sense are a worthwhile concept, but it's not like they don't exist today.

State Farm is by far the largest pc insurer in the country, Liberty Mutual is third or fourth, and farmers is in the top ten.


To be fair, I didn't say there were no large mutual insurers. I just think that, for anyone with a small policy (most homeowners), the experience isn't likely to be much different with a mutual as opposed to a stock company. My personal anecdotes in dealing with both types of insurers seem to bear that out.
 
2012-11-05 01:43:24 PM

MugzyBrown: Apeboy: All those buyers, realtors, builders and closing attorneys share the blame when it comes to high insurance costs.

Market value of the home has 0 to do with the insurance replacement cost.


You are correct.

When you buy a 1 million dollar McMansion that is now worth 250k you don't get to insure for that. Your policy is written on what you paid for it. Insurance on a 1 mil house whether in a high risk area or not is more than 250k one.

The builders that built that house will bill as if they are rebuilding a million dollar house.

The bank will continue to charge your on your million dollar note.

The realtor can't flip your house for two million because suckers are getting fewer and father between because banks have finally tightened lending.

Insurance won't/can't insure your house at current value because you've been paying nothing but interest for the past ten years and haven't even dented the principle.

Collateral damage is done to the person who bought their beach house at a price that a beach house should be purchased at but due to exorbitant, unchecked housing costs their insurance rates have gone through the roof because a bunch of chucklefarks artificially inflated the market.
 
2012-11-05 01:48:24 PM

Apeboy: When you buy a 1 million dollar McMansion that is now worth 250k you don't get to insure for that. Your policy is written on what you paid for it.


No it's not.

It should be written on the estimated cost to rebuild the house and has nothing to do with your purchase price, be it higher or lower.

My homeowners limit is about $100k higher than what I purchased the house for.

It'll cost $175-$225 per sqft to rebuild depending on tons of factors including the materials and zipcode.
 
2012-11-05 01:48:57 PM

eKonk: Debeo Summa Credo:
*eyes narrow* Is this that sarcasm thing I've been hearing about?

A bit. I agree that mutual insurers make sense are a worthwhile concept, but it's not like they don't exist today.

State Farm is by far the largest pc insurer in the country, Liberty Mutual is third or fourth, and farmers is in the top ten.

To be fair, I didn't say there were no large mutual insurers. I just think that, for anyone with a small policy (most homeowners), the experience isn't likely to be much different with a mutual as opposed to a stock company. My personal anecdotes in dealing with both types of insurers seem to bear that out.


Gotcha. My bad, sorry.
 
2012-11-05 01:51:21 PM

eKonk: To be fair, I didn't say there were no large mutual insurers. I just think that, for anyone with a small policy (most homeowners), the experience isn't likely to be much different with a mutual as opposed to a stock company. My personal anecdotes in dealing with both types of insurers seem to bear that out.


This is why I have my homeowners through an independent broker. My car insurance claim for the most part is cut and dry, but if I ever have to file a homeowners claim, I want somebody arguing on my behalf and assisting me.. and I'm an "insurance professional"
 
2012-11-05 01:59:46 PM

MugzyBrown: Apeboy: When you buy a 1 million dollar McMansion that is now worth 250k you don't get to insure for that. Your policy is written on what you paid for it.

No it's not.

It should be written on the estimated cost to rebuild the house and has nothing to do with your purchase price, be it higher or lower.

My homeowners limit is about $100k higher than what I purchased the house for.

It'll cost $175-$225 per sqft to rebuild depending on tons of factors including the materials and zipcode.


I am in violent agreement with you. I just haven't made my point well when it comes to how the artificially inflated housing market has impacted insurance cost to those that didn't pay 3-4 times more than what the house is worth.
 
2012-11-05 03:38:09 PM
They better pay up or The Bishop will get them.

//obscure??
 
2012-11-05 04:00:45 PM
BWaaaahahahah....subby thinks the insurance companies are going to actually pay hurricane damage claims. That's cute



/bitter Louisianian
 
2012-11-05 04:24:36 PM

Apeboy: MugzyBrown: Apeboy: When you buy a 1 million dollar McMansion that is now worth 250k you don't get to insure for that. Your policy is written on what you paid for it.

No it's not.

It should be written on the estimated cost to rebuild the house and has nothing to do with your purchase price, be it higher or lower.

My homeowners limit is about $100k higher than what I purchased the house for.

It'll cost $175-$225 per sqft to rebuild depending on tons of factors including the materials and zipcode.

I am in violent agreement with you. I just haven't made my point well when it comes to how the artificially inflated housing market has impacted insurance cost to those that didn't pay 3-4 times more than what the house is worth.


I think you did - seems to me like you were both making the same point
 
2012-11-05 04:58:30 PM

MugzyBrown: TheOtherGuy: I've always said that Insurance, as a business / service, is the only fundamentally flawed enterprise in modern capitalism. Its most basic and universal business model is in fundamental conflict with any value it could bring to its customers or the marketplace. Basically, Enlightened Self Interest should mean that the more Value you bring to the market (your customers), the more profit you will make, all other things being equal. Customers will seek out the best value and funnel their revenue to you, over time.

You've always thought like a fool then.

Do you know what insurance provides? Financial stability. Without an insurance company willing to back your $300,000 home in case of a fire, you never get your mortgage.

Without insurance companies a business never gets off the ground.

Who would ever invest $50m addition to build an apartment complex, only to have a welder let a spark go down the wall and burn the whole thing down? Real Claim

Where a worker could forget to tie off his ladder and fall 20 feet to the ground and bankrupt your business? Real claim

Where an old lady could trip on your curb and lose an eye on a piece of rebarb and bankrupt your business? Real claim


Nobody's saying that insurance itself isn't good and valuable. I'm saying that trusting a businessman whose paycheck depends on the difference between premiums and claims to have a policyholder's interest, or that of civilization in general at heart is asking to be disappointed. Having a body that provides insurance is great. Having one that can't accomplish it's primary mission / motivation (maximum profit) without minimizing the value it provides (paying claims) has no capitalist solution I can think of or have heard so far.

All I'm saying is that it does us almost as little good to have such a corrupt, greedy, and worst of all, conflicted industry as to not have it at all. We miss out on much of the benefits you mention because of improper claim denial and industry collusion to set punitive underwriting guidelines. Insurance does need to provide all of those things... and we get very little of it because of the conflict between industry profit and claim payments.

Underwriters and their shareholders don't care one whit about that startup, or apartment complex, or ladder-climbing worker, or tripping grandma. Unlike most business models, it DOES NOT PAY THEM to care, even a little. You can cheat a little in a conventional business, cutting corners and the like, but eventually your customers will find other sources for your good or service who offers better value (better quality and/or lower price). There's no incentive whatsoever for any competing insurance company to provide that value that you defend so vigorously any better than the worst ones - it's a literal race to the bottom. They're in business to provide as little value as they can possibly get away with.

All I'm saying is that's a piss poor way to run an industry. I have to depend on the smallest possible margin of value some businessman decides is appropriate after he writes his own paycheck? Forget it. We deserve better. What other business sees their bottom line infinitely and indefinitely improve with each refusal to actually provide a good or service, with virtually no consequences?
 
2012-11-05 05:15:44 PM

TheOtherGuy: It MUST always screw people, as hard as it can possibly get away with, or go out of business


A) Properly managed insurance companies make money by investing the capital they hold over time, not by failing to pay claims -- they're designed to earn money on the time difference between when you pay premiums and when they pay claims. Just like banks make money on the time difference between when you make deposits and when you demand repayment. There is no fundamental requirement that they deny claims in order to make money.

B) You can make literally this same argument against any capitalist enterprise -- that if they deliver less value than their competitors and charge the same price they're in a position to retain more profit. And you're not wrong, per se. But it's a narrow analysis that doesn't encompass the economics of the situation.
 
2012-11-05 05:35:49 PM

Great Janitor: If you buy, for example, flood insurance and never read it, never take it out of the plastic bag it comes in, and read after you've been flooded out of your home, that flooding is never covered, I have no sympathy for you.


Fark You.

You're the dickbag that told me I was buying insurance for a flood. If I'm buying flood insurance from you and you hide in the fine print that it doesn't cover floods, you are, again, a dickbag and a fraudster. People trust you, and you fark them with a smile on your face.
 
2012-11-05 05:38:05 PM

profplump: TheOtherGuy: It MUST always screw people, as hard as it can possibly get away with, or go out of business

A) Properly managed insurance companies make money by investing the capital they hold over time, not by failing to pay claims -- they're designed to earn money on the time difference between when you pay premiums and when they pay claims. Just like banks make money on the time difference between when you make deposits and when you demand repayment. There is no fundamental requirement that they deny claims in order to make money.

B) You can make literally this same argument against any capitalist enterprise -- that if they deliver less value than their competitors and charge the same price they're in a position to retain more profit. And you're not wrong, per se. But it's a narrow analysis that doesn't encompass the economics of the situation.


So much this, can't believe I didn't see something along these lines posted earlier. Do you all think Insurance just takes in premiums, holds them, then pays out from that pot, doing its best to not let too much out?
 
2012-11-05 07:11:38 PM
The really stupid thing about this is that they insure themselves against "disasters" through a place like Lloyd's. So if the numbers break a certain threshold, they don't pay either.
 
2012-11-05 07:30:40 PM

Apeboy: MugzyBrown: Apeboy: When you buy a 1 million dollar McMansion that is now worth 250k you don't get to insure for that. Your policy is written on what you paid for it.

No it's not.

It should be written on the estimated cost to rebuild the house and has nothing to do with your purchase price, be it higher or lower.

My homeowners limit is about $100k higher than what I purchased the house for.

It'll cost $175-$225 per sqft to rebuild depending on tons of factors including the materials and zipcode.

I am in violent agreement with you. I just haven't made my point well when it comes to how the artificially inflated housing market has impacted insurance cost to those that didn't pay 3-4 times more than what the house is worth.


I hope you have nothing to do with the property and casuality insurance industry. Your homeowner's policy is based on the cost it would be to rebuild your house back to the way it was if it were declared a total loss, not the price you paid for the property.
 
2012-11-05 07:50:56 PM
From TFA "Everybody wants to know: 'Tell me the answer. You know, over the next five years, how many hurricanes will we have, what will they look like, how will much they cost. And when will the occur?'

You're an idiot, get out of my office Mr. Romney.
 
2012-11-05 08:13:54 PM

dustman81:

I hope you have nothing to do with the property and casuality insurance industry. Your homeowner's policy is based on the cost it would be to rebuild your house back to the way it was if it were declared a total loss, not the price you paid for the property.


I agree with you too, but, the cost to rebuild your house has been artificially inflated due to runaway housing cost from start to finish.

A homeowner buys one of two identical houses for sale on the same street for 1k. The owner gets insurance on the new hut.

A year later the second 1k house sells for 10k because the entire housing market from builder, bank to realtor has spun out if control. The owner that bought the second house gets insurance but his premium is significantly higher because cost to repair/replace is higher. Not just because of this chucklefark but all the other chucklefarks that bought over priced McHuts in the swamp and other new developments popping up all over because everyone thinks they need or deserve a 7 room spec McHut.

The first homeowner now has their insurance rates increase year after year at a abnormal rate because the baseline for rebuilding the same house has been artificially and abnormally raised by all the chucklefarks who are now underwater in their mortgages because now the party is over.

Now throw in a storm or two with hundreds if not thousands of houses that need to be repaired or rebuilt and what little difference that was left in premiums between the first homeowner and the chucklefark are gone forever because now all the new premiums are being written on the new, inflated cost to repair.
 
2012-11-05 08:33:54 PM

inglixthemad: The really stupid thing about this is that they insure themselves against "disasters" through a place like Lloyd's. So if the numbers break a certain threshold, they don't pay either.


If "they" don't pay either, I wonder how Lloyd's stays in business...

It's certainly true that insurance companies spread out the financial risks they take on, whether by reinsurance, shared programs (you and I will both pay for a portion of a loss above the deductible) or layered programs (I'll pay the first $X of a loss, you pay anything above $X but less than $Y, and Bob will pay above $Y), or all at once. But it's a financial industry, so everyone involved gets a cut. There's no way to do it without paying.
 
2012-11-05 09:45:27 PM

MugzyBrown: This being said, you have to try to stop further damage where possible. If a tree puts a hole in your roof and 4 days later it rains and causes water damage, that may not be covered. You should have had a tarp put onto your roof.


What if you were in a mandatory evacuation area and have not been allowed back in? Or the house is surrounded by broken gas mains? Or the peninsula you lived on is now an island?
 
2012-11-05 09:50:38 PM

pciszek: What if you were in a mandatory evacuation area and have not been allowed back in? Or the house is surrounded by broken gas mains? Or the peninsula you lived on is now an island?


If you're prevented from mitigating damage due to law or ordinance the insurer has little wiggle room.
 
2012-11-05 11:51:39 PM
Well, there's plenty of room in the ice cream biz since Baskin Robbins stopped making ice cream to focus on its core work in store franchising and brand diversification.
 
2012-11-07 07:33:04 AM
What the fark is wrong with your morons? Businesses never pay taxes. We pay their taxes. FFS
 
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