[landedgentry]

I'm less concerned about the spying and more concerned about insurance companies arbitrarily non-renewing policies with no recourse for the consumer. Insurance is heavily regulated for good reason, and insurance should be a source of stability instead of anxiety.

[brogrammernot]

Alright, I spent years working and building 0-1 insurance products. Let me peel back some stuff that’s been happening behind the scenes.

Some officials are elected and some are appointed which all depends on the state. Appointed officials are usually more reasonable and elected are not because higher rates = mad voters = re-election chances lower.

For a long time, insurers have struggled to get sufficient rate changes approved. A literal quote for you during Covid was, “Son, I’m looking out my window at downtown {city} and I don’t see many cars on the road. We won’t approve the rate increases.”

This was with actual data of losses increasing due to supply chain disruption of auto parts, labor increases and many more things.

We basically had to write policies and hope for the best despite knowing the data / trend lines forecasting major losses.

Fast-forward and what do you have - major losses by all of these companies - and so these companies have two choices: - Try to get rate approvals - Exit the market or line of insurance

For California, the latter is the better option because at least for auto you cannot use credit, telematics or other very predictive attributes to price the risk. This results in essentially pooled risk which in aggregate drives up rates for all. Simply put, California officials did this to themselves.

For other states, the first option works but the rate increases are now significantly higher because it was near impossible to get any adequate rate increases last few years.

So, the bill has come due and it sucks for everyone as it’s either a) higher prices or b) can’t get insurance (Florida folks for certain types) or c) limited suppliers not being able to get reinsurance to share the risk results in higher rates that customers can’t afford so they go without.

[lm411]

Here in British Columbia, our provincially owned insurer (ICBC) saved significant money because of fewer claims during Covid. They even issued a rebate to most drivers. Though they also noted losing some revenue due to fewer or lower premiums being paid. The amount saved was far greater.

https://assets.ctfassets.net/nnc41duedoho/BNR4qtOTGPJuyQADtK...

I wonder if the difference was largely because of Canada's more strict lock downs. The roads were nearly dead here for quite awhile.

[Scoundreller]

And Canadian auto-parts prices are through the roof anyway. If there's a factory-gate price increase/supply issue, there's room for margin compression instead of raising prices. Maybe?

[lm411]

I'm with you on that 100% Scoundreller.

[trogdor]

Why are insurance rates regulated by the government?

I understand that the state has a strong interest in ensuring that insurance companies are adequately capitalized, but I don’t understand the state interest in directly regulating premium prices. (Or is that not what you are referring to?)

[gumby]

For the same reason credit card interest rates are regulated: there's an asymmetry in bargaining power.

Car prices are not regulated because there are plenty of options for the consumer.

[AnthonyMouse]

If there is such an asymmetry in bargaining power then why do most people pay less than the statutory maximum? If there are multiple insurance companies, how is it not the consumer who has the bargaining power, since they can just take the lowest price?

The actual reason is that some consumers are extremely high risk, the market rate for those consumers is correspondingly extreme, and then they whine to legislators that they're getting ripped off when in fact the rate reflects the risk. And then the company either refuses their business if they're allowed to or raises rates on everybody else to compensate if they're not.

[lazide]

Eh, or without regulation when people switch risk categories due to a loss they get completely screwed because no company will insure them anymore. At which point, there is strong incentive to only claim the most outrageously bad losses, and for people to only actually get insurance if they have real reason to suspect a loss that is non obvious to others.

It’s a market type that is fundamentally messy and prone to abusive behavior by both sides.

[AnthonyMouse]

> Eh, or without regulation when people switch risk categories due to a loss they get completely screwed because no company will insure them anymore.

This only happens when regulations cap premiums, because otherwise there is always a rate at which selling insurance is profitable. Even if you have a 50% risk of a claim (extremely high), you'd still be able to buy $100,000 in insurance for a little over $50,000. Of course, you may not be able to afford this, but then maybe if your risk is that high you should just refrain from engaging in that activity eh?

> At which point, there is strong incentive to only claim the most outrageously bad losses

That's what insurance is for. If you have a 20% chance of losing $100 every year, you don't need to pay $21/year for an insurance policy, you just lose $100 once every five years.

> and for people to only actually get insurance if they have real reason to suspect a loss that is non obvious to others.

The reason to get insurance is if there is a low probability high cost risk, like a house fire. You don't expect it to happen, but it could, and you'd rather pay $1000/year, have it and not need it, than lose the value of your house in the event of a random accident.

[brewdad]

More than that, you can choose to go without a credit card. Insurance is mandatory for most people. Either the law requires it or a lender requires it in order to approve the loan.

Insurance rates are regulated for the same reason most states regulate utility rates. You can’t really opt out and the markets where price regulations have been removed have left most consumers worse off.

[jajko]

Not a good comparison - you can also choose to go without buying a house, its a very US thing to measure success in life with such (massively incorrect) yardstick.

[TylerE]

That’s not really true anymore. Try booking a hotel or a flight without a cc.

[dan-robertson]

I thought there were also requirements that insurance rates are profitable (in expected value) to prevent some loss-making customer acquisition strategies and to reduce some long-term risks from insurers going bust. I’m not very confident in this claim.

[brogrammernot]

Yes but less so on the rates themselves & rather do you have enough cash to stay alive without going under.

They’re obviously related but less regulatory focus on rates, more on cost of business and that.

Edit: Basically you can run at a loss (most do) for a limited period of time but have to show that you will be liquid on the other side of the losses.

[DSMan195276]

Every state requires you to hold some minimum level of car insurance, mortgages require a level of homeowners insurance, etc. The underlying problem is that it's a significant barrier for people if they get priced out of the market (even if it's for good reason). If you can't afford car insurance or no insurers will offer it to you then you legally cannot drive a car, and in the US that becomes a problem that spirals into bigger problems.

I would say overall there's no good answer to this problem that everybody would be happy with, just maybe one you consider "less bad" than the other ones.

[sokoloff]

While there’s a lot I dislike about the Mass auto insurance rules, the rules for “no insurance company will voluntarily insure you” are pretty friendly to drivers who are otherwise uninsurable.

https://www.mass.gov/info-details/massachusetts-auto-insuran...

[wbl]

If you are such a risk when driving no insurer will touch you, I would like you off the road.

[bobthepanda]

In practice what actually happens is that these people will drive anyways and cause damage before being pulled over, except now they have no insurance and it’s a whole mess.

It is also the theory behind universal healthcare coverage, because people will have medical issues that eventually end them in the ER regardless of coverage status and someone has to get paid for services rendered. And also insurers will literally take any excuse to deny coverage if they can.

[earthling8118]

I'd prefer that nearly all of us were off the road, but in practice we've not built a world that allows such a lifestyle.

[neilv]

Why is basic insurance for ordinary people a for-profit business at all, rather than something the collective (administered by the state) does to soften any misfortune that hits any of its members?

[AnthonyMouse]

Because state insurance programs have perverse incentives. Insurance itself is a moral hazard. You buy insurance and then do something risky you wouldn't otherwise have done because if it goes wrong you're insured. It's also an opportunity for outright fraud. If the book value of your property is higher than its true value, you carry insurance and then set a fire.

Private insurers have the incentive to price this in. If they can predict you're going to be high risk, or uncover evidence of arson, they can charge you higher rates or refuse coverage. For state insurers the cost goes on the taxpayer and if claims are refused for legitimate reasons, the perpetrators go to the media and accuse the state of bankrupting their family. This puts pressure on elected officials to shift the burden of this fraud onto the taxpayer, whereas private insurers would push back because they have a direct financial incentive not to eat the cost of fraud and mispriced risk.

[Kon-Peki]

> Why is basic insurance for ordinary people a for-profit business at all, rather than something the collective...

There are mutual insurance companies [1], including the largest insurance company in the US (State Farm). At the end of every year, if the amount of money left over exceeds the formula they have set, every policyholder gets a refund.

[1] https://en.wikipedia.org/wiki/Mutual_insurance

[toast0]

> At the end of every year, if the amount of money left over exceeds the formula they have set, every policyholder gets a refund.

That's commonly a requirement of regulation too. I've had refunds from car insurance and healthcare insurance because claims were lower than expected.

[tomp]

Mathematically, if you sell insurance at break even, you're guaranteed to go bankrupt - on an infinite time scale, the "spike" of a random walk martingale (this last word means, it doesn't make a profit) will exceed every level, i.e. it will wipe out any amount of collateral / capital / equity the company might have.

https://en.wikipedia.org/wiki/Law_of_the_iterated_logarithm

[cortesoft]

This is why you have re-insurance

https://en.wikipedia.org/wiki/Reinsurance

If the final insurer is the government, you don't have the risk of ruin because you have control of the money printer.

[MajimasEyepatch]

Reinsurance isn’t magic. This helps with one-off losses, but if you’re fundamentally not able to make a profit, they’re not going to cover you, because all you’ve done is shift the negative expected value to them.

[TylerE]

If money printer goes brr… you’re losing, not winning.

[bdjsiqoocwk]

What a bunch of nonsense.

If you believe that in an infinite time scale the spike of a "random walk martingale" will exceed every level, then you also believe that you'll go bankrupt even if you don't sell insurance at break even. Maybe mathematically incorrect, but entirely irrelevant in the real world.

IN ADDITION, the money that insurers make isn't just the underwriting profit but also the investment profit. You you're talking twice as much shit as the average HN commenter.

[tomp]

I don’t ”believe” in math, I can prove it.

If you don’t sell at break even, it’s not a martingale, so the Law doesn’t apply.

[NeoTar]

In some places and markets it is – I believe if you live in British Columbia basic vehicle insurance is done through the province.

https://en.wikipedia.org/wiki/Insurance_Corporation_of_Briti...

[username332211]

If you do that, you must also regulate the sort of vehicles ordinary people can buy and the sort of homes they can own.

After all, we can't have the community suffer an unsustainable loss because some guy earned too much money and selfishly bought a Camaro.

So, obviously the collective should create a list of cheap and economical cars ordinary people are allowed to buy.

If that doesn't feel right to you, remember, the so called "freedom of choice" is a bourgeois value. Transcend it.

[zen928]

> you must also regulate the sort of vehicles ordinary people can buy and the sort of homes they can own.

Yep, we already do that. Vehicles and houses have to conform to a set of standards that provide security and safety measures for others, e.g. "Street legal" car restrictions, fire hazard safety requirements and building permit regulations and state codes that adhere to city guidelines, etc. Might need to include a few more talking points from the political pundit you're regurgitating views from for a better argument.

[nucleardog]

> If you do that, you must also regulate the sort of vehicles ordinary people can buy and the sort of homes they can own.

There are two provinces in Canada (British Columbia and Saskatchewan, since 1973 and 1945 respectively) who have a crown insurance corporation and require everyone purchase insurance through the government.

Neither of them force everyone to drive a Lada.

[cortesoft]

Even if the government ran the insurance program, you wouldn't be forced to charge everyone the same amount for their insurance. The Camaro driver could pay more for their coverage.

[nichohel]

Also, fraud.

[devoutsalsa]

“When it comes to rate regulations for overall insurance, according to state regulations they should not be excessive in any way. This means that they must be affordable, and are not set too high in relation to insurance claims. Insurance rates should also not be inadequate. This means that they should not be marketed at a rate that is too low. The Insurance rates should also not be discriminatory in any nature, meaning that all insureds are charged similarly for similar coverages. These rate regulations are imposed on insurance companies in order to protect consumers. (Dorfman and Cather)”

Source: https://www.lawteacher.net/free-law-essays/judicial-law/gove...

[username332211]

There are votes in it.

Or, to be precise, the benefits are concrete go to precise groups of people, the costs are abstract and diffuse. Same thing as protective tariffs.

[_tom_]

Votes are the sort term answer. People are losing their houses in Florida. Mortgages require insurance, and if you insurance goes up thousand a year, and hundreds a month, some people can't afford it, and lose their houses.

Longer term, this is bad for a society in general, and politicians do know this.

There are all sorts of potential societal consequences to people losing homes that cost the society (us!) money (homelessness, vandalism, entire neighborhoods going the way of Detroit suburbs, and much, much more). Society doesn't want this to happen.

[brogrammernot]

Premiums is what I’m referencing, yeah.

So, it’s a complex thing but the state has a vested interest in drivers being insured because of state / federal funding for roads, infrastructure and all of that.

The original intent was to stop humans from being greedy assholes and to provide a stick for when they messed up. Without the states involvement, insurance would likely go the way of used auto with “buy here pay here” lots which is a net negative for the state & society as a whole.

They want to make sure that “fair” prices are set so that there isn’t an overly disproportionate amount of people who need the insurance not having insurance. In reality, the less risky drivers do for all intents and purposes help off-set the cost of the more risky people but all of that is hidden in the premium logic.

At the end of the day, what has happened though is the state’s regulatory group overstepping their bounds (in my opinion) and ignoring good faith proposals with data showing why rate increases are needed which leads to situations we’re in now.

Having been in that world (I left it) I can honestly say there has to be some regulations or regulatory body because a lot of these folks spend so much time looking at numbers (actuarial science in general) they forget the fact there are humans behind those numbers.

[bdjsiqoocwk]

> Why are insurance rates regulated by the government?

Why wouldn't they be?

The only reason why you might believe they shouldn't be is if you fell for the "free market knows all" nonsense.

[everybodyknows]

> state interest in directly regulating premium prices

The state interest stems from the political interests of elected officials. See comment above by @broprogrammernot.

[vundercind]

Ten-to-one you can go back to when the regulation started and find there was rampant, blatant abuse going on. That’s the usual story behind these kinds of things.

[jfengel]

There is a saying that regulations are written in blood.

They may not have been well designed, or they may not wear well. But most of the time they are put in place because somebody got badly hurt, one way or another.

Industry could usually design itself better regulation. But unless it finds a way to mutually enforce compliance, the task will fall to government.

[PrairieFire]

One key part of the formula omitted is most major insurers while posting underwriting losses in certain markets, etc in 2023 posted annual net profit over $1.0bn. Am I right in thinking these sweeping rate increases and market exits are justified by protection of $250mm+ per quarter net income? If so, then are we right to blame anybody other than the insurers shareholders and owners for this current state? Wouldn’t $25mm per quarter net income be sufficient? Why does runaway profits maxxing have to apply to every market including public good markets like insurance?

[jjtheblunt]

I’m not seeing you motivate or justify the rate increases.

[margalabargala]

What I saw was "supply chain got more expensive so $/claim went up and is outpacing premiums".

[HeatrayEnjoyer]

Many industries are regulated and have to provide good faith justifications for price increases. The burden of proof is on them, not the service recipient.

[brogrammernot]

I’m not sure you read my post then as it explains I’ve seen first-hand actual loss data because of supply chain & other costs leading to an unprofitable offering being denied by the state without any valid rationale other than “he didn’t see any cars outside his window”.

The point is that regulators have not been allowing rate increases with good faith justifications for years and now that they see their actions have caused companies to pull out they’re pointing the finger at the companies when it’s their poor judgment for years coming to fruition.

[HeatrayEnjoyer]

>“he didn’t see any cars outside his window”.

Whether this even happened is questionable. Regardless, we trust government regulators to operate in good faith 10x more than private sector corporations.

[Ekaros]

Value of claims going up while number might be slightly down... Means that outgoing money that is returned to buyers has increased. They are "winning". But house cannot keep losing or they go bankrupt.

[lokar]

The insurance companies are loosing money. Rates have to go up.

[wolverine876]

Or cut expenses, educate the insured on safer behavior, ...

[HDThoreaun]

or pull out of the market...

[epolanski]

And not just a bit. Insurances have lost money for most of the last 5/6 years.

[bagels]

They are not all losing money.

[stalfosknight]

And yet there's seems to always been enough money for stock buybacks and disgustingly excessive executive compensation.

[jjtheblunt]

In insurance companies?

[stalfosknight]

In most publicly traded for-profit organizations.

[rufus_foreman]

I'm seeing it: "This was with actual data of losses increasing due to supply chain disruption of auto parts, labor increases and many more things."

[twoodfin]

Why should any seller have to justify their prices? Just don’t buy their policy, buy someone else’s.

[cool_dude85]

Insurance in general is more heavily regulated than this. There are a few reasons: because society doesn't want these companies racing to the bottom on price and leaving their customers high and dry when the catastrophe does hit, because society finds insurance pricing based on certain personal aspects, such as race, odious, and because the government mandates some types of coverage and they don't want to let insurers rinse customers that are forced to buy their product.

For all these reasons, insurers typically must justify rate increases.

[twoodfin]

While it’s certainly accurate insurance is a regulated industry, nothing you listed explains why it’s a good idea to allow government to set or approve rates vs. ameliorating those social concerns through other means.

[20after4]

Because insurance isn't optional. If the law demands insurance then the law must assure equal access to the legally mandated insurance.

[wolverine876]

> This results in essentially pooled risk which in aggregate drives up rates for all.

For all? I'd think it reduces rates for some and increases it for others.

[Vic-Bhatia]

Hi, This is a very informative post. I am trying to learn more about how the insurance industry works. Would you be open to sharing any resources (websites, books etc) that teach the 0 to 1 of insurance? Or can I DM you with a couple of questions? Thanks!

[brogrammernot]

Yeah, sure shoot me a DM and when I’m back later at my computer I have some.

I didn’t deal much on commercial insurance btw, I have _some_ awareness of that.

[kchoudhu]

> supply chain disruption, labor increases

All of these things have either reduced or stabilized over the last two years, but prices seem to keep going up. Strange!

[myself248]

I thought risk pooling was the point?

[baronswindle]

It is...kind of. But we're talking about severely limiting the ability of insurers to distinguish high risk parties from low risk parties and price accordingly. When the insured parties have limited agency over the risk they present — as with, e.g., health insurance for congenital diseases — this kind of regulation can make sense. But when insured parties can control the risk, such regulation usually makes insurance markets much less efficient. Essentially, it takes away the incentive for insured parties to avoid risky behaviors, creating moral hazard. This is a well-understood mechanism for market failures.

[jeffbee]

We already have this problem with car insurance in California. In the 1980s, at the tail end of a long series of stupid initiative ballot measures, Californians wrote down that there are only 2 strata of risk: good drivers, and everyone else. "Good Driver" is defined as a person who has had a license for 3 years without killing or injuring anyone. Because of this, California is the only American state where the law requires that a middle-aged person who drives a base model Honda Fit, and a 19-year-old with a Dodge Hellcat who miraculously hasn't killed anyone, yet, that we know of, both get the same "discount". And consequently it is unlawful here to offer those telematics systems that charge less to good drivers and more to bad ones.

[brogrammernot]

Yup, I hated reviewing California based book of business.

Everyone is upset their rate is going up but the issue is lack of ability to use predictive underwriting because of what you said and more.

[spopejoy]

I think it needs to also be acknowledged that insurance itself is a moral hazard. Focusing on the "efficiency" and moral hazards of only the insureds is an incomplete analysis.

Insurance is a for-profit enterprise and as an expert told me, "the goal of insurance companies is to not pay claims". It essentially wants to be passive income at the end of the day.

Modern capitalism runs on insurance but should it? Health insurance is a great example: it shouldn't exist, and is unnecessary in single-payer systems. Car insurance is another example, where you can argue that insurance is locked-in to hide the fact that cars are systematically unsafe. Note how you don't need insurance to ride the subway.

The point is, insurance exists to make rich people richer off of risks that could be addressed socially in other ways. When we see that entire states are losing home insurance because of other systematic problems like climate change we should look at the system itself. Maybe making profit off of people's unavoidable risk isn't a great idea.

EDIT: in response to parent, my point is that focusing on the ills of regulators harming efficiency needs to account for the impossible job regulators have in the first place, which is making an unfair system (insurance) fair.

[tptacek]

You want to risk pool a specific cohort of people. You want the pool to be as large as possible without masking clear adverse indicators. For instance, from an example downthread: you probably don't want to pool people with trampolines in with everybody else. Most people don't have trampolines. To an insurer, the sole function of a trampoline is to generate lawsuits. If you pool trampoliners together with everybody else, you necessarily raise everybody's rates to subsidize trampoline lawsuits. Better to factor the trampolines out and price them directly.

[ska]

Risk pooling is fundamental to insurance, but not all pools are the same.

The observation is that if you aren't able to discriminate at all or subdivide the pools, the only response is to up the average rate to cover the aggregate risk as best you can estimate it. This gets tricky if your ability to change rates is constrained, also.

These things are always in fundamental tension, and also in tension with privacy. It's not an easy problem.

[brogrammernot]

Yup, exactly.

Even worse for the consumer is that insurance rules say you have to “offer” insurance in the state to get your license.

Well, you don’t want to drop your license but really don’t want to have a bunch of policies. What do you do?

You make it impossibly difficult to get insurance. I’m not going to name names but a lot of insurance companies in California are doing this.

No online applications, have to call in, have to fax in or mail paperwork required and so on…

[michael1999]

That sounds like informal underwriting. If you are forbidden by law from better underwriting, then selecting by conscientiousness is a sensible proxy.

[hilux]

Yup - I have experienced this trying to buy health insurance (pre-Obamacare) in California.

I was very confused until I realized they were doing exactly what you said.

[ls612]

In extreme cases forcing too much pooling can cause market failure. The intuition is that the least risky customers decline to purchase (much) insurance, making the average risk higher, increasing prices, making more people decline insurance, in a vicious cycle. It’s fundamentally similar to Akerlof’s market for lemons.

[brogrammernot]

This is always a fun topic for me.

If everybody is sharing all the risk that’s the same thing (obviously I’m being simplistic) as them underwriting the risk themselves.

[lazide]

They’re opposites though?

Someone underwriting their own risk might as well not have actual insurance, as they’re just on the hook for actual damages correct?

So if they get sued for $1M, then they are on the hook for $1M (as an individual).

If everyone is sharing the risk, then everyone is on the hook for $1M/number of people.

So the individual that gets sued for $1M in a large state, might only be on the hook for a couple cents for their own lawsuit. Though they’d also be in the hook to the same degree for some other asshole getting sued.

Which is why insurance creates moral hazard (for things someone can control), and reduces catastrophic damage to individuals (for things someone cannot control).

[AnthonyMouse]

> I thought risk pooling was the point?

The point is pooling unpredictable risk. You don't know ahead of time if your house is going to flood. You do know ahead of time if your house is on a flood plane. Therefore, people with houses on a flood plane pay more for flood insurance.

The alternative is that low risk customers can't get insurance because they'd have to pay the same as high risk customers and that isn't worth it. Additionally, then people build tons of houses in extremely high risk areas because they can buy insurance for the same price as someone not doing something stupid, which is a moral hazard. Existing regulations have already caused this to happen in many cases.

[Terr_]

> The point is pooling unpredictable risk.

This is important point about knowledge which I feel leads towards another kind of hazard: Which party is capable of predicting risk and how that information asymmetry may be exploited.

We already spend a lot of time thinking about one direction, where the insured hides a pre-existing condition or their nefarious plan to commit arson, or whatever.

But what about the other direction? What about when the insurer has tools and relationships to determine something but doesn't tell the insured?

That might either be because there's not enough competitive pressure to make them lower the premium, or perhaps they raised the premium to cover the higher risk but refuse to disclose exactly what the risk is or how they determined it.

[AnthonyMouse]

That is the problem solved by competition. If insurers know that your risk is below average then they'll want your business and therefore want to underbid other insurers in order to get it. But so will the other insurers, until your premium comes down to reflect your risk. This works even if you don't know your own risk because all you have to do is pick the most attractive price.

Of course, if you don't have enough competition that doesn't work, but then your problem is that you don't have enough competition. Which, especially in insurance markets, is generally caused by regulatory barriers.

[zamfi]

> is on a flood plane.

You mean like this one? https://www.yahoo.com/news/united-airlines-flight-diverted-t...

…I’ll see myself out.

[brogrammernot]

It is through reinsurance mechanisms and the way you build the portfolio.

If you can’t use predictive attributes, many not allowed in California, you’re not going to get reinsurance interest because you can’t really balance the risk across different risk types for drivers.

So the end result is the customer pays more, despite their driving record being clean, because that’s the only way to manage through the risk.

[stalfosknight]

And yet there's seems to always been enough money for stock buybacks and disgustingly excessive executive compensation.

[Analemma_]

I'm not usually a "actually this is the fault of regulation" sort of person, but in this case it really is the fault of regulation. A bunch of states have laws saying premiums can't rise more than X% in a year, or can't rise at all without the approval of the state insurance commissioner. If circumstances have changed (e.g. wildfire or hurricane risk is now worse than we thought, and also labor market tightness and inflation means repairing/rebuilding is much more expensive) such that the insurance company can't insure you profitably without a rate hike they're forbidden to do, then of course they're going to drop your policy.

[danielmarkbruce]

No one, including companies, should not be forced into contracts they don't want to enter into.

In practice, you are going to find they are never arbitrarily doing it. They are doing it because the price no longer covers the cost of providing the insurance. Just like when I decide the price of X isn't worth it anymore, I stop doing the transaction. The reasonable response would be to increase the price, but in some situations it's not possible due to regulation.

[j45]

Except when those companies have lobbied to create laws to make the use of their industry mandatory.

[toast0]

Car insurance isn't mandatory; proof of financial responsibility is. In California, you can get a compliant insurance policy, deposit $35k with the DMV, setup a compliant $35k bond, or a self-insurance certificate which requires a larger deposit and is really for commercial motor vehicle carriers. I don't think it's unreasonable to require means to pay for damages when operating a motor vehicle; it doesn't take much to cause damages well in excess of California's deposit amount; washington state requires $60k.

For home insurance, usually it's a mortgage requirement, which is not by law. In condominiums, the community may require it of individual owners, and then it's not really law either.

[tptacek]

Side note here on how ludicrous it is that you can substitute a $35,000 bond for a real insurance policy, given the likelihood that any driver is going to cause losses far in excess of $35,000.

[toast0]

Minimum insurance in California only covers the same $35,000. $15,000 for injuries to one person, $30,000 for injuries to multiple people, and $5,000 for property damage.

It's completely insufficient, but it's not nothing. A reasonable person would carry much more insurance.

[creato]

The 35k bond doesn’t preclude getting sued for an unbounded amount. Presumably the idea is that a 35k bond demonstrates you have more available in case of a judgment.

That said, that seems like a risky idea in a world full of LLCs, trusts, etc.

[dragonwriter]

No. it demonstrates exactly the same minimum ability to pay as the alternative minimum deposit or insurance coverage, which are also $35k.

[tptacek]

Not having any insurance coverage at all doesn't preclude you from getting sued for an unbounded amount.

[dragonwriter]

$35,000 is also the minimum liability coverage ($30,000 for death or injury to multiple people plus $5,000 for property damage.)

In either the bond, deposit, or liability insurance scenario, the responsible party remains on the hook for whatever is not covered in advance.

[j45]

Fair, but there are lots of places, like Canada which require some types of insurance by law.

[toast0]

I'm unfamiliar with Canadian law, can you provide an example jurisdiction and required coverage?

[cldellow]

In Ontario, the Compulsory Automobile Insurance Act [1] requires that all owners/lessees of vehicles take out insurance policies. The Insurance Act [2] sets out that the minimum amount should be $200,000.

$200,000 is a much better floor than, for example, Ohio's $25,000. An Ohioan friend was injured by a motorist who had the minimum coverage. Her care cost more than that. The motorist who caused the injuries didn't have a lot of assets and she was unable to recover the excess from the motorist.

Still, there are some perhaps unintended downsides. Canadian rental car companies, as the owners of the vehicles, are obliged to provide $200,000 insurance as part of every contract. As a result, it seems there's not much market for them to sell excess liability insurance, and none do that I'm aware of. I, as someone who has plenty of assets to lose if I injured someone, would happily buy a higher liability insurance. Doubly so when I rent a car to travel to the US, since the terms of the contract are often "the rental car company will provide the minimum insurance required in the jurisdiction where the claim is incurred".

[1]: https://www.ontario.ca/laws/statute/90c25 [2]: https://www.ontario.ca/laws/statute/90i08

[halostatue]

https://duckduckgo.com/?q=ontario+minimum+automobile+insuran...

https://www.ontario.ca/document/official-mto-drivers-handboo...

https://www.ibc.ca/insurance-basics/auto/types-of-auto-cover...

For the US:

https://www.forbes.com/advisor/car-insurance/minimum-require...

[j45]

The links below beat me to it.

Auto insurance is mandatory, and it can be government run, or private.

Other areas of insurance can be indirectly required, say one side of renting, etc. Effectively lenders can set the conditions they desire.

[Analemma_]

I could be wrong, but I don't think there are any states where you are required by law to have home insurance. The issue is that banks won't underwrite a mortgage for an uninsured house, because without insurance it's a completely unsecured asset whose value would go to zero at any time. (And if a bank won't write a new mortgage for it, the value drops dramatically even if it's already paid off, because now the potential market is limited to cash-only buyers for a risky asset)

You're free to go without insurance on a house that you own, but so long as the bank owns it, they're going to make insurance mandatory, and that has nothing to do with lobbying.

[marcosdumay]

> whose value would go to zero at any time

No, it wouldn't. It would go down to the value of the land (where a construction is permitted).

Nowadays, that's often more than 90% of the price.

[robocat]

> value of the land

Only very approximately - it depends on contextual situation.

We had a ton of uninsurable "as-is" houses after the Christchurch Earthquake. Prices for those houses dropped massively because without a mortgage you only get cash bidders so demand was relatively low compared with supply. The price someone is willing to pay for an as-is property depends on many factors, and it can easily be below land valuation.

Firstly desperate or naive sellers would accept well below the land value. You assume that that there are enough buyers to compete. There were not enough buyers shortly after the quake because not enough had cash so there were very cheap properties. Plus you were buying risk too - you simply couldn't price correctly because there were too many unknowns - when whole suburbs are uninhabitable a new construction is irrelevant. The city population dropped significantly.

You could offer below land value on some properties because you are also purchasing a liability e.g. the council required some houses to be demolished & removed (demolition costs were tens of thousands - and demo companies were busy as fuck).

You might pay a lot more than land value:

• Some places could still be rented (uninsurable is not uninhabitable) so potential income mattered.

• Many places just needed work done - sometimes not much - but often a new foundation e.g. lift house and put in new foundation. New foundations had to be compliant with earthquake strengthening rules so usually very very expensive. The as-is homes were often sold by the insurance companies because they were uneconomic to fix.

I advise everyone to be very careful buying property in suburbs or cities where all houses have common/correlated risks of an event - floods - fire - etcetera. Insurance premiums will rise until it is unaffordable - then all houses will not maintain value. Disclosure: I do live in a flood prone suburb but I can afford to self-insure and most people cannot do that.

Even worse: insurance did not cover the financial losses for many people in the Christchurch Earthquake. Especially small businesses. Then again - many other people ended up with huge payouts and were financially much better off. However even then money is usually a poor substitute for emotional costs.

[positr0n]

Woah, where can you buy a house that 90% of the money you spend is land? Is that even true in expensive downtown US cities like SF and NYC?

Construction is pretty expensive too.

[marcosdumay]

My home has pretty much 80% of its value as land. And it's not in a anormally expensive location in my city.

[epolanski]

You are not wrong at all.

Home insurance isn't mandatory, but refinancing your mortgage is impossibile without one.

[upofadown]

This sort of opportunity to find a rationale for cancelling an individual insurance policy will inevitably by used for evil. See: Insurance Redlining.

[reactordev]

Or you thought cancelling cable was hard now…

[nradov]

In some states it's the heavy regulation which is causing policy non-renewals. When governments fix prices below the market rate that inevitably leads to shortages.

It's a stressful situation for many property owners. They may not realize the impact that recent high inflation has had on repair costs, especially when prices tend to spike up higher after major disasters.

[colechristensen]

I don’t think insurance companies should be forced to protect you from your own outsized risk taking at a government capped price.

[epolanski]

Nobody can be forced to insure you if they don't want to. I learned that on CNBC the other day, here's the segment talking about the state of home insurance in US.

https://www.youtube.com/watch?v=xw8fpEpwMzA

[VHRanger]

Thats exactly the problem with insurance.

If I have any sort of risk mitigation (file backup, fire alarms, spare tire, a generator, whatever) I can test that it works periodically. So I know I'm actually safe for the event.

For insurance, you can't know what bullshit they'll come up with to deny a claim when the time comes for it.

You're left with having paid for the insurance all that time for nothing! Much better to have put that money in a piggy bank instead.

[treflop]

I’ve known plenty of people who had legitimate accidents not of their own fault where insurance made them more than whole, and they would have not been able to afford the replacement if they had simply been saving for the same amount of time.

If you actually feel like you could recoup of the cost of paying for insurance by instead keeping the money in a piggy bank, you are buying too much insurance. There’s a sweet spot for insurance and overpaying for too little insurance is a you-problem.

[FireBeyond]

> I’ve known plenty of people who had legitimate accidents not of their own fault where insurance made them more than whole

And I know plenty of people myself, who had legitimate accidents not of their own fault who were left $10-15K out of pocket after insurance and settlements.

Let's start with a car that was two years old, I owed $22K on. Car was totaled and most of the comps from the insurer was $25-28K. Oh good, says I. And then they find one 150 miles away that is $13,500. This drags the value down to about $20K. While there's obviously something wrong with this entry, "Doesn't say salvage title in the ad, so it's a valid comp".

It takes them over a month to figure this out, all the while they have me in a rental, and then try to tell me that they're only covering one week of rental coverage. Had to threaten to sue to get compensation for my injured wrist/arm (which was hyperextended when the airbag went off as I was holding the steering wheel).

I still ended up losing out on $6K 'equity' in my car, having to come up with another downpayment, and months of calls from various medical providers who were having a hard time getting my insurer to pay their bills.

For another driver who ran a stop sign, t-boned me, and whose insurance had admitted 100% liability within 48 hours.

[ametrau]

Well technically you were paying for their obligation to pay for you. Which is a real thing of value.

[bvan]

You assume it’s bullshit. Difference.

[dmoy]

Do you live in CA? In recent years that's the majority of arbitrary cancellations I've heard about - companies pulling entirely out of CA.

[hn_throwaway_99]

I 100% agree with landedgentry. I don't really have any problem with insurers using drone photos - anyone can take drone photos of anyone else's property - and I'm not really a fan of the article calling it "spying" to imply some special kind of nefarious behavior.

But I do think the total bullshit is that companies are just using it to come up with essentially fake reasons to drop customers:

> Cindy Picos was dropped by her home insurer last month. The reason: aerial photos of her roof, which her insurer refused to let her see. ... Her insurer said its images showed her roof had “lived its life expectancy.” Picos paid for an independent inspection that found the roof had another 10 years of life. Her insurer declined to reconsider its decision.

I also don't have a problem if an insurer decides to leave a state entirely - that decision is essentially saying the state has made it impossible for them to adequately price risk, and that's something the state should fix if so desired.

But these BS cancellation reasons seem like a case of insurers wanting to have their cake and eat it too. I'm not very familiar with state-by-state insurance law, but I'm assuming they have to come up with some reason to drop a homeowner that already has a policy, so this looks like they're trying to find BS reasons to just drop potentially less profitable parts of their portfolio.

[overstay8930]

Independent inspectors almost always say what whoever is paying them wants to hear (see: Florida). 10 years left on a roof usually means the next large wind storm will take it out, they’re not paid to look for that.

[hn_throwaway_99]

But independent inspectors usually generate a report that explains at least some of their rationale. Even if it is biased, it can at least be scrutinized.

That is in sharp contrast to the insurance company that is supposedly making their determination based on drone photos that they won't even let their clients see.

[overstay8930]

If multiple insurance companies say you need a new roof, you need a new roof. Full stop. There’s no justification necessary.

[hn_throwaway_99]

Quite literally, what are you talking about? There were no "multiple insurance companies", there was a single insurance company that dropped the policy holder quoted in the article.

Besides, the article quotes from insurance company agents that directly refutes what you are saying: "Brink, who worked for Farmers in Michigan, said some customers were dropped based on aerial images that were two or three years old. One person wasn’t renewed because of a roof, despite its being brand new."

Full stop. (I just like how people think that adding "full stop" to their comments somehow makes their position unassailable or something...)

[halfcat]

Why aren’t insurance companies required to operate like market makers in the equities markets, where they’re free to choose the price they’re offering, but must offer a price in the market they’re in?

If the roof needs replacing (in the insurance company’s view) then charge whatever the rate is that covers that and still makes them a profit. Don’t just deny coverage.

[rybosworld]

If you ever look at the options chain on a thinly traded equity, you'll notice small volume and very large bid/ask spreads. Sometimes the bid/ask spread is so large that it looks like a computer glitch.

The primary insurance market is even more illiquid than thinly traded options.

[overstay8930]

They will just charge the customer the price of a new roof, there’s no point in what you’re asking for.

[bluejekyll]

Similar reports are coming out of Florida. Generally, it seems the industry is pulling away from higher risk to climate change issues from larger storms or fire risk.

[tfehring]

There’s a saying in the insurance industry, there’s no such thing as a bad risk, only insufficient premium. Natural catastrophe risk is definitely increasing, but the insurance industry can handle that. The fundamental issue is that regulators in many states (including CA and FL) won’t let insurers charge enough to compensate for that risk.

[rufus_foreman]

That's not the issue in Florida. The issue in Florida is that "although Florida only accounts for 9 percent of the country’s home insurance claims, it is home to 79 percent of the country’s home insurance lawsuits".

That's from https://www.bankrate.com/insurance/homeowners-insurance/flor..., which explains how the roofing scams work in that state. The legislature is working on it.

[howard941]

The legislature already worked on it. It had its way with it, totally. Despite the "work" that was done rates have skyrocketed. We're so deregulated there's no room for any additional work that doesn't break down the front door and walk out with stuff

What's actually happening in Florida is the insurance companies are Janus entities. One part is an insurance company that's subject to rate regulation and the other part is a consulting firm that gets paid large sums of money from the regulated company and that's where all the profits live.

[HDThoreaun]

What do you expect when the market collapses and most suppliers leave? Of course everyone else will raise their prices. Now Florida needs to wait for insurers to come back and competition will happen.

[dmoy]

Yea I think that is exactly correct

[otteromkram]

But, profits.

How else are execs going to pay for that third vacation home?

[dylan604]

Does that third vacation home get spied on from the sky as well?

[reactordev]

I’m sure it does but he knows Bob and Bob can just flip a bit in a database to make it “compliant”.

[Waterluvian]

Can’t really force people to do business like that…

What you can do, which the U.S. already does, is government-run insurance, socializing the losses among a population. Flood insurance, for example.