[scarab92]

Profit caps in general are a bad idea, and should only be considered in a near complete absence of competition.

In insurance the problem is even worse, because you can’t compute what a reasonable profit cap is. Because of tail risks, you often see insurance companies making a profit of $1b each year for 30 years, then suffering a loss of $40b. Looked at during the typical year you might conclude the profits are excessive, but over a long term it might become apparent that the average profit is actually zero or even negative.

As is often the case, more competition and better competition policy is the solution.

[throwup238]

Except they end up paying most of that out in stock buybacks and dividends each year, then the state has to bale them out for tens of billion after 40 years anyway, either directly by taking on the liabilities or by bailing out the homeowners after the insurance company goes bankrupt.

Insurance is an industry with great cashflow. They should be able to keep any profits they make off of investing the premiums, but not the premiums themselves. The incentives just do not line up, they siphon off the money and scream about over regulation before they need to get bailed out.

[refurb]

Do you have an example of the government bailing out an insurance company that couldn’t pay claims?

Or an insurance company that went bankrupt?

Insurance companies are already highly regulated (especially in CA). There are regulations around how much money has to be held in reserves to pay claims. There are regulations around what investments can hold reserves in.

Hell in CA, there are regulations around how premiums can actually increase and a mechanism for returning “excess premiums” back to policy holders.

In fact those regulations are one of the reasons insurers are leaving CA. They can’t increase premiums sufficiently to cover risk.

You can read all about them: https://www.insurance.ca.gov/01-consumers/130-laws-regs-hear...

[daveguy]

> Or an insurance company that went bankrupt?

Yes. There were 6 insurance companies that went bankrupt in Florida in 2022. I am surprised you didn't know insurance companies go bankrupt all the time due to mismanagement.

https://news.climate.columbia.edu/2022/11/03/with-climate-im...

Insurance should not be used as a profit source. It is antithetical to the purpose of insurance.

[refurb]

Those are tiny state insurance companies. I was thinking large national ones.

Regardless, the Florida examples are eligible for FIGA insurance that covers claims that insolvent insurer can’t.