Homeowners' Insurance?

[pulpsmack]

Very ill-informed opionion (though I recognize it is your opinion). Insurance on your home is simply a transfer of risk. Let's walk through this;
Most companies that have a large book of homeowners insurance are running a combined ratio of more than 100% That means for every $100 that comes in the front door in premiums, more than $100 goes back out in claim payments and loss adjusting expenses. If that is thievery, they are some very stupid thieves.

... which then suggests

1. those numbers are actually false (as no insurance company would do business at anything less than a profitable rate); or

2. that the miniscule payouts on homeowners' claims are more than absorbed by their premiums collected on Flood/Fire/Disaster, etc. insurance, which remains considerably lucrative.

I would go one step further to suggest that the ones who are typically paying the 100% or 100%+ ratios are those who only offer these "unprofitable" policies to customers of their rather profitable policies.

Also, your model makes quite a few unqualified assumptions. The first and most obvious is that there will in fact be the loss-triggering event that makes the premium worthwhile in the first place. This is pure risk assessment/speculation, or as I like to call it, "legalized gambling" (for those who reside in non-gaming states). We all concede this assumption and are/are not willing to play based on the likelihood of the risk and the magnitude of the loss.

The second, more important assumption is the payment of the policy itself. Your model assumes that the insurance company will honor its commitment. The expectation is that the "gray" is the uncertainty of the disaster, the black is that I absolutely pay my premiums on time, and the white is the insurance company absolutely covers the disaster as advertised. The reality is that the black is you pay, and everything else is gray. If the insurance company can call the damage to your hurricane-damaged home "uncovered flood damage," they will. If too many people suffer the same effects, they may not be willing/able to cover the losses in your area. Delays, legal battles, settlements, compromises, and more uncertainty all cloud the insurance industry's commitments.

I am not the ideal guy to lock horns on the subject because frankly, many more know the ins and outs better than I. I am sure that those proponents of insurance are probably in a better place having it than not, and I have no blanket that covers all companies/policies with respect to glorification or villification. I simply wish to point out that the insurance issue is far hazier (in general) than its proponents tend to color it, though it may be far more valuable to many with it (haziness and all) than without it.

My knee-jerk side would outlaw it within hours of my despotism fantasy however, because necessary evil or not, I think it's become a cancer of society.

 

[LACamper]

Pulpsmack, I work for one of the major insurance companies. I can tell you that Paladin is on target. There's a reason none of the major insurance carriers are writing new policies in SE LA... They make a profit on auto and life insurance, not homeowners. They also used to be able to invest the premium and earn a decent amount of interest, but not any more. Construction cost has skyrocketed since Katrina and has not decreased (roofing was $125 pre Katrina, its still over $200 in my area. Premiums have not doubled...). Its a lot more complicated than I'm making it, but believe me, homeowners insurance is a bargain.
In your fantasy world, how do people buy houses? I guess everyone rents until they can pay cash for a house? No homeowners insurance, no mortgages. Would you lend money on an uninsured home? Would they make payments on a home that burned down?

 

[Paladin]

Pulpsmack, I work for one of the major insurance companies. I can tell you that Paladin is on target. There's a reason none of the major insurance carriers are writing new policies in SE LA... They make a profit on auto and life insurance, not homeowners. They also used to be able to invest the premium and earn a decent amount of interest, but not any more. Construction cost has skyrocketed since Katrina and has not decreased (roofing was $125 pre Katrina, its still over $200 in my area. Premiums have not doubled...). Its a lot more complicated than I'm making it, but believe me, homeowners insurance is a bargain.
In your fantasy world, how do people buy houses? I guess everyone rents until they can pay cash for a house? No homeowners insurance, no mortgages. Would you lend money on an uninsured home? Would they make payments on a home that burned down?

It is nice to have some help. His wailing is all ill informed crap. For example "1. those numbers are actually false (as no insurance company would do business at anything less than a profitable rate);" He can check Best Insurance Guide to see that he is not just wrong, but very wrong.

From 2006 to 2010 the homeowners loss ratio in Louisiana was 113.3%. That is "pure loss ratio" meaning strictly claims paid out vs. premiums taken in. No adjustment for loss underwriting expenses (attorneys, adjusters, etc.).

He can claim that homeowners is profitable, but let us see some data. My guess is this "information" is coming from "his gut". Not very persuasive.Regardless, some things are just too sophisticated for some people. Methinks we found such an example.

By the way, I am Vice President of the largest insurance agency in Wisconsin, and we are one of the largest agencies in the US. I have a real goodunderstanding of how this works. Not everyone does. Obviously.

 

[pulpsmack]

lol. I think I qualified my remarks well enough. I never claimed my base of knowledge on the subect to be superior to yours or anyone else's. Frankly the "battle" chosen on my part was unfortunate because I don't have a real dog in the fight against homeowners (particularly when considering the other policies to pick on). Forall the puffing and posturing, I notice a suspicious lack of commentary regarding mypoint 2, however.

Either way, I've gotten better making concessions and retaining my marbles regarding the internet (arguing). Hey, if I made an attempt address one tenth of your idiocy on this board regarding my field (you in the general sense, BTW), I'd have the worst full time job imaginable. Thanks for the info re SE LA. If nothing else, it was food for thought.

 

[LACamper]

Not a problem. Actually, I don't blame him. I'm not sure of your background, but there's been so much insurance fraud in LA its not surprising that people don't trust us or believe us. Not to mention 3 of our prior ins commissioners were serving concurrent prison terms...

 

[Paladin]

Forall the puffing and posturing, I notice a suspicious lack of commentary regarding mypoint 2, however.

You said "...2. that the miniscule payouts on homeowners' claims are more than absorbed by their premiums collected on Flood/Fire/Disaster, etc. insurance, which remains considerably lucrative."

I did not respond because I was tired of typing. Actually, this point is basically the same point you made in #1, that is that insurance companies make a lot of money on homeowners insurance. I am pretty sure I proved you wrong when I responded to #1. However, to be fair, I am sure some companies do make money on homeowners insurance...some years in some places. It is not impossible. However, they have to be ready to eat it big time when something bad happens. I have a small resort on the Wolf River in Northern Wisconsin insured. They pay about $5,000 a year for their property insurance. Then on June 7, 2007 a tornado came through and wiped them out. $800,000 in property damage. Granted, not homeowners, but it takes a lot of $5,000 accounts to get that back. And that is the essence of insurance, transfer of risk. The owners of the resort assumed the risk of a devastating tornado the second they took ownership of the property. They wisely offloaded it to someone else and paid a small fee ($5,000 year) for the peace of mind. Within hours of the tornado leaving, I was on my way up there (4 hours from me) as was the disaster team from West Bend Insurance. They had money in hand the next day to fund the salvage and rehab operation. The claim took over a year to close completely, because it was big and complex. Suffice to say, had they decided to save the $5,000 and bank it for an emergency instead of buying insurance, they would not be in business today.

Most small business owners can't take that kind of hit. Most homeowners could not afford to replace their house in the event of a total loss either.

Unless you are really rich, insurance is simply a sound and effective strategy to mitigate the risk you already have.l

As to insurance and gambling...let me disabuse you of that parallel right now. Roulette is gambling. You bet $X on red or black and if you win, they pay you. If you lose, you pay them. That is not what insurance is. With roulette, you have no risk of loss unless you voluntarily enter the game. I can stand there and watch all day and I will never lose any money. Because I did not enter the game. But, you see, when they bought the property, the took on risk whether that wanted to or not. If it burned down, or was blown
down, they would be out all their money and more (mortgage). Since the risk came with the purchase and they could not eliminate the risk, they mitigated it. Simple.

I realize this is more than you want to know. But, sometimes being informed helps your argument.

 

[LACamper]

Oh, I don't know, I do see a parallel between insurance and gambling. If you don't buy it, you're gambling for sure. You're putting $150,000 or so on the fact that your home won't burn down or be destroyed by a storm and rolling the dice. If you win, great you saved $2K. If you loose, you're out $150,000. The odds are in your favor, but you're taking a big risk.

One other reason insurance has gotten so expensive is that people feel that they have it, it must be used at every opportunity. People now expect us to cover everything that could possibly go wrong with your home. Minor plumbing issues (what idiot decided to put a hot water heater in the attic!?!), ceiling spots from a missing shingle, etc. Worst is that people expect their insurance company to pay for their evacuation in case of a storm even if they have no damage. They're driving up the rates and then complaining about it.

 

[nany2204]

I don't know, I do see a parallel between insurance and gambling

 

[03protege]

Oh, I don't know, I do see a parallel between insurance and gambling. If you don't buy it, you're gambling for sure. You're putting $150,000 or so on the fact that your home won't burn down or be destroyed by a storm and rolling the dice. If you win, great you saved $2K. If you loose, you're out $150,000. The odds are in your favor, but you're taking a big risk.

One other reason insurance has gotten so expensive is that people feel that they have it, it must be used at every opportunity. People now expect us to cover everything that could possibly go wrong with your home. Minor plumbing issues (what idiot decided to put a hot water heater in the attic!?!), ceiling spots from a missing shingle, etc. Worst is that people expect their insurance company to pay for their evacuation in case of a storm even if they have no damage. They're driving up the rates and then complaining about it.

It's hardly fair to say that you only save $2k by not having insurance, unless that is a one time fee for your duration of ownership.

I do not think insurance companies are doing anything evil but I can't seem to wrap my brain around the fact they our choosing to operate at a loss. Unless life and auto is so profitable it's worth having home just to try and draw in the business.

About people choosing to make claims on maintenance, why wouldn't the insurance company refuse to cover this? Could it be more beneficial to have a few make claims and charge everyone a higher rate than vice versa?

 

[Black Zulu]

You will need to schedule each firearm and pay a premium to insure them. Same with jewelry, list them all, have appraised, get info to agent, he will send you a nice bill for the premium. Get a good safe........

 

[LACamper]

Protege, don't forget even denying a claim costs lots of money. An adjuster has to go out and write an estimate. There are probably a half dozen clerical types that have to handle it. If they deny and you fight then management has to get involved and that adds even more to the cost. If someone sues then the insurance company has to pay its attorneys to fight the suit. Many people know the insurance companies find it cheaper to pay a claim than go to court.
Also, many people just don't understand and fight a claim over pure ignorance. They think something went wrong in the home, its the insurance company's problem. I get that all the time with broken sewer pipes and AC compressors. They're not always covered, it depends on what damaged them.

 

[Frogman]

I have a policy from a private insurance company in MD that covers my guns, knives, and sports collectibles. There are some restrictions like a safe, alarm system ,etc. Not really expensive for the amount I have to insure. You never know,though, until you have a claim. Anybody had one on this type of insurance?