A Sucker Bet
March 21st, 2007 by POLIMOM
From the comments on a NOLA post this weekend:
In the mean time, half the state is losing their insurance. Mine got canceled this week…because I’d held it for under three years.
I could feel wisps of steam starting to waft from my ears when I read that. That’s a reason to cancel someone’s policy???? Is that legal?
Evidently, M (the commenter) had merely received her letter before Da Po’ Boy:
Today’s insurance company frustration post was inspired by this letter I received from my agent, caps and italics in original letter:
AFTER MUCH DELIBERATION AND ALONG WITH MANY OTHER MAJOR INSURANCE COMPANIES, ******** ******** HAS FOUND IT NECESSARY TO EXERCISE A REGULATION THAT ALLOWS INSURANCE COMPANIES TO NON-RENEW ANY EXISTING HOMEOWNER POLICY THAT HAS BEEN IN FORCE THREE YEARS OR LESS.
When I received this letter, I had held the policy for two years and 10 months.
I do appreciate the candor expressed in the letter, however:
THE COMPANY FEELS THAT THIS WILL ALLOW THEM TO REDUCE THEIR PROPERTY EXPOSURE IN SOUTHERN LOUISIANA, WHICH THEY FEEL WILL ALLOW THEM TO CONTINUE TO OPERATE IN OUR STATE.
What The Company means by that, of course, is they’ll “continue to operate” right up until something happens elsewhere — which it inevitably will — at which time the poor sucker homeowner foolish enough to file a claim will either be cancelled, or his/her rates will rise beyond reach.
* * * * *
Polimom usually thinks of insurance as hedging a bet.
We buy it because loss or major damage to the asset we’re covering — whether auto, health, or property — will wipe us out. We also know that this asset’s number will eventually come up. It might be tomorrow, or two years from now, or twenty — but one day, it will happen.
One can only throw the dice so many times before hitting snake eyes… and that’s true for the insurance companies, also. They have an advantage, though: they can take their cards off the table and go elsewhere. They hedge their bets by refusing to play the game any more.
That’s not an option for most people. Back to the comments:
I have a friend whose insurance was upped $5000 at her renewal this year.
That’s one heck of a raise. How much would you be willing to give up to sit at this table, knowing you may ante up indefinitely, but will be permanently barrred from play the first time you call? Me — I have no problem seeing why folks might choose to sit this rigged game out.
* * * * *
This magical little game of “pay us indefinitely, but don’t expect to be able to use the insurance or you’ll lose your coverage” is what’s behind numbers like these (from the Galveston County Daily News, via Da Po Boy, my emphasis):
State Farm Insurance, the nation’s largest insurer, recently said profits climbed 65 percent to $5.3 billion, up from $3.2 billion the year before, even after paying claims for Katrina and Rita.
Allstate earlier reported 2006 earnings rose to a record $5 billion.
In 2005, the premium-loss ratio averaged a healthy 57 percent — that is companies kept 57 cents of every premium dollar collected, according to the state.
So — let’s make a bet. I’m willing to wager that next year, the insurance companies — having off-loaded all identifiable risk in an industry that’s theoretically all about managing risk — will again post stupendous profits.
Any takers?
(Cross-post from Polimom Says)
This entry was posted on Wednesday, March 21st, 2007 at 11:12 am and is filed under Hurricane Katrina, Corporations, State Politics, Weather, Environment, Money/Finance, Economy, Business. Both comments and pings are currently closed.
