[seanharper]

I don't think that's a fair characterization of how pricing works in homeowners insurance. Every time you want to change prices, you need to justify the price change to the regulator using the actuarial math. The regulator's own actuaries review the actuarial math and, if they don't agree, will not change allow the rate change.

One of the hardest things about insurance is figuring out the probabilities of very unlikely events. Hurricane Andrew was a moderately large storm that directly hit three major population centers - Miami, Ft. Myers and New Orleans. That circumstance is infrequent enough that modeling it statistically leaves a wide range of uncertainty.

I would think about insurance as more of a smoothing mechanism of inherently uncertain outcomes. When something happens that's unexpected and causes a larger loss, that is typically recouped by the industry over a few years of higher rates. That way the industry is still absorbing volatility, which is valuable to their customers, but doesn't require that they be 100% correct about the probabilities of infrequent events.

[303uru]

This is right, there's a lot of regulatory capture and cronyism, so it's far from perfect, but the real story is that actuarial tables are not keeping up with 500 year events becoming 50 year events and 100 year becoming 2-5 year events. The pace of change and severity of events is unprecedented and no one can figure out how to keep profits rolling.