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Ski
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Joined: 28 May 2005
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Ski
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 Mon Sep 04, 2023 3:10 pm |
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"I shall wear white flannel trousers, and walk upon the beach.
I have heard the mermaids singing, each to each."
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Cyclopath
Faster than light
Joined: 20 Mar 2012
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Location: Seattle |
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Cyclopath
Faster than light
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Mon Sep 04, 2023 3:17 pm |
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The whole point of insurance is to pool and spread the risk. Example: auto accident risks are independent from one another, so if you pool the risk of a large population, you get a pretty accurate number on average loss, and that predictability allows the insurance to work.
Big enough natural disaster regime destroyed that business model as the risks are correlated (one hurricane or fire hit ALL the insured) and there is no more predictability and no more spreading the risks. The insurance business model does not work in a climate change world.
This will be the financial ruin of many families in the coming years and decades.
Define unsustainable.
 day_hike_mike, MtnManic
day_hike_mike, MtnManic |
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Cyclopath
Faster than light
Joined: 20 Mar 2012
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Location: Seattle |
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Cyclopath
Faster than light
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Mon Sep 04, 2023 3:29 pm |
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Banks won't lend people money to buy houses they can't insure.
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Chief Joseph
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Joined: 10 Nov 2007
Posts: 7710 | TRs | Pics
Location: Verlot-Priest Lake |
Farmers insurance told me that they will still offer coverage around Priest Lake because there has been no recent significant fire damage claims there, hope that does not change.
In the event that did happen and I lost my home I would probably just buy a motorhome as a primary residence, then if a fire was approaching, just pack up and hit the road. Probably buy a few shipping containers with clearance around them for storage. Adapt and (hopefully) survive.
Go placidly amid the noise and waste, and remember what comfort there may be in owning a piece thereof.
Go placidly amid the noise and waste, and remember what comfort there may be in owning a piece thereof.
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SeanSullivan86
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Joined: 25 Jul 2009
Posts: 681 | TRs | Pics
Location: Seattle, WA |
| Cyclopath wrote: | | The whole point of insurance is to pool and spread the risk. Example: auto accident risks are independent from one another, so if you pool the risk of a large population, you get a pretty accurate number on average loss, and that predictability allows the insurance to work.
Big enough natural disaster regime destroyed that business model as the risks are correlated (one hurricane or fire hit ALL the insured) and there is no more predictability and no more spreading the risks. The insurance business model does not work in a climate change world.
This will be the financial ruin of many families in the coming years and decades.
Define unsustainable. |
Your statements are too exaggerated and absolutist. There has always been higher risks in certain groups and higher premiums for those groups as a result. There has always been the threat of correlated claims due to natural disasters.
If risks are higher, premiums will go up and something has to give.
I do worry that the same thing that gives these companies the ability to survive a natural disaster in one area (a large, diverse portfolio of things they insure) can lead to too much market power and greed on their part due to lack of competition.
If people have legitimately extremely high risk properties, then they should have very high premiums.
Increasing premiums (and dropping coverage) on already insured properties deserves a lot of attention and oversight.
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Randito
Snarky Member
Joined: 27 Jul 2008
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Location: Bellevue at the moment. |
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Randito
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Mon Sep 04, 2023 5:32 pm |
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Insurance rates are based on prior payouts. But conditions have changed , both in terms of the risk of a wildfire and the practice of building houses embedded into forests.
Spreading the cost of insuring houses in the woods to houses in fully urbanized areas isn't very fair. And making the houses in the woods pay at a rate matching the risks is high enough that many people will forego Insurance, making the model unworkable.
If Insurance gets dropped, I wonder how the mortgage holding companies are going deal with a bunch of properties without insurance?
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MtnManic
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Joined: 27 Feb 2008
Posts: 502 | TRs | Pics
Location: Kirkland WA |
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MtnManic
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Mon Sep 04, 2023 6:51 pm |
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| Randito wrote: | | Spreading the cost of insuring houses in the woods to houses in fully urbanized areas isn't very fair. And making the houses in the woods pay at a rate matching the risks is high enough that many people will forego Insurance, making the model unworkable. |
Yup. Not involved in setting rates or assessing risks, etc. but areas at far lessor risk (flood most definitely, earthquake as well) would have to subsidize those at much higher risk - that's why Flood is government provided and in California, earthquake is state funded. One of the very first lessons in insurance is the pool of 100, any one of that 100 may have a fire, so the 100 share the cost. Should 1 person be very likely to flood and the other 99 be at minimal risk, the only way to make it affordable for the 1 is for the other 99 to "contribute" (i.e., pay more) though their risk is minimal.
It comes down to: should those at risk of catastrophic loss have to pay far more (and thus many will not purchase that coverage), or should low(er) risks subsidize those choices to keep the risk affordable?
Backpacking: limited to one pack at a time. Cameras: limited to as many as I can carry.
Backpacking: limited to one pack at a time. Cameras: limited to as many as I can carry.
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Pyrites
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Joined: 16 Sep 2014
Posts: 1885 | TRs | Pics
Location: South Sound |
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Pyrites
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Mon Sep 04, 2023 7:11 pm |
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On the industrial side the insurance industry has long had a Highly Protected Risk category for different industries. The idea is that two like sawmills, each with a planing mill and kiln would pay widely different premiums. In reality they cut off risks that refuse to comply with HPR standards.
Keep Calm and Carry On?
Heck No.
Stay Excited and Get Outside!
Keep Calm and Carry On?
Heck No.
Stay Excited and Get Outside!
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jinx'sboy
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Joined: 30 Jul 2008
Posts: 932 | TRs | Pics
Location: on a great circle route |
I fear we are going to end up in place like we have with flood ‘insurance’ - or I guess, now, hurricane and earthquake liability. And that is that the Insurance companies abandon the situation and all, or most, of the liability and cost gets borne by the federal taxpayers, rather than the individual. That doesn’t work very well….
We’ve all seen that idiot on TV - “I’ve been flooded out 3 times….by god, I’ve built back in this exact spot every time!”.
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Cyclopath
Faster than light
Joined: 20 Mar 2012
Posts: 7758 | TRs | Pics
Location: Seattle |
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Cyclopath
Faster than light
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Mon Sep 04, 2023 8:58 pm |
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| SeanSullivan86 wrote: | | There has always been higher risks in certain groups and higher premiums for those groups as a result. There has always been the threat of correlated claims due to natural disasters.
If risks are higher, premiums will go up and something has to give. |
Things risks are different now. That's why insurers are pulling out of these markets.
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Cyclopath
Faster than light
Joined: 20 Mar 2012
Posts: 7758 | TRs | Pics
Location: Seattle |
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Cyclopath
Faster than light
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Tue Sep 05, 2023 10:21 am |
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| jinx'sboy wrote: | | I fear we are going to end up in place like we have with flood ‘insurance’ - or I guess, now, hurricane and earthquake liability. And that is that the Insurance companies abandon the situation and all, or most, of the liability and cost gets borne by the federal taxpayers, rather than the individual. That doesn’t work very well…. |
Climate disasters are getting more common and more destructive, and we've only seen the tip of the iceberg. Every tax dollar won't be enough soon. Fires are getting worse. Storms are getting worse. Floods are getting worse. This is why insurance companies are leaving, because they ran the numbers. Tax payers won't be able to do it either. We, and our children, are in for a lot of self inflicted misery. Ironically the reason we all allowed it is they kept telling us good stewardship is too expensive.
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MtnManic
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Joined: 27 Feb 2008
Posts: 502 | TRs | Pics
Location: Kirkland WA |
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MtnManic
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Wed Sep 06, 2023 5:31 pm |
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(General) You want affordable insurance - lower the risks. Truth is insurance companies cannot BOTH make rates affordable AND provide the coverage desired - make it affordable for catastrophes/expected events, not enough money coming in to pay claims (the purpose of insurance!), make it too expensive, not enough policy holders purchase the coverage and expect the taxpayers or Go Fund Me to make them whole.
Personally I don't want to fund that person flooded out 3x (pre-all this global change, which makes it worse) or those who live right on an earthquake fault line (assuming anyone does). I do want my insurance rates to cover unexpected events like a house fire because -get this - it's not expected.
Backpacking: limited to one pack at a time. Cameras: limited to as many as I can carry.
Cyclopath
Backpacking: limited to one pack at a time. Cameras: limited to as many as I can carry.
Cyclopath
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Randito
Snarky Member
Joined: 27 Jul 2008
Posts: 9514 | TRs | Pics
Location: Bellevue at the moment. |
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Randito
Snarky Member
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Wed Sep 06, 2023 6:02 pm |
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Of course there is another place where all those premiums are going besides into a reserve pool for bad years
https://www.miamiherald.com/news/business/article269821747.html
| Quote: | | Some Florida insurance CEO’s earned huge salaries in hurricane-free years BY LAWRENCE MOWER HERALD/TIMES TALLAHASSEE BUREAU UPDATED DECEMBER 12, 2022 5:06 PM Florida Gov. DeSantis announces legislative special session on property insurance Florida Gov. Ron DeSantis announced on April 18, 2022 that the Florida Legislature will be called back for a second special session in May to discuss property insurance. , State Farm’s CEO earned $13.3 million overseeing America’s largest property insurance company. That same year at Tampa-based Heritage Insurance Holdings, one of numerous small Florida-based homeowners insurance companies, its CEO made $27.3 million — despite overseeing 0.3% of the number of policies and accounts of State Farm. Florida-based insurance companies have been going out of business the last few years or raising rates by double digits. Industry groups and Gov. Ron DeSantis have blamed excessive litigation, and Republican legislators are poised this week to limit the incentives to sue insurers. But state lawmakers have largely ignored an issue that has been directly blamed for numerous past company failures — and allowed some executives to make eye-popping sums of money over the last decade, when companies were wildly profitable thanks to years without a storm. Between 2014 and 2018, the CEO for Fort Lauderdale-based Universal Insurance Holdings made between $14 million and $25 million each year, corporate filings show. The company has reduced its policies in Florida over the last year. At St. Petersburg-based United Insurance Holdings, whose insurance arm fell under state supervision last week, the company awarded millions of dollars in stock dividends, most of which went to company officers and directors, even while its profits shrank, according to corporate filings. The payouts are legal under Florida law — and necessary, some say. While insurance companies in Florida are closely regulated, with caps on payouts and profits, their parent and sister companies are largely unregulated. That makes the small domestic companies that dominate Florida’s market more lucrative to investors. State regulators have long been aware of the dangers of out-sized arrangements between insurers and their sister and parent companies. Large payouts to executives were at the heart of the biggest insurer collapse in the state’s history: the 2008 failure of the Tampa-based Poe Insurance Group, which left Floridians on the hook paying roughly $850 million in outstanding claims from the 2004 and 2005 storms. The state sued to recoup $143.5 million in dividends the company paid to owners and their family members between 2004 and 2005. Since then, excessive payouts have been a consistent theme among the graveyard of companies that have failed. Financial autopsies on companies that went insolvent between 2011 and 2018 have repeatedly blamed high salaries and fees to affiliated companies. In one case, the autopsy said one insurer’s officers were “stripping [their] company of cash.” How much such payouts could be to blame for the current wave of failures — seven companies in the last year — is unknown. In 2020, when Florida’s insurance industry began deteriorating after 12 years without a named hurricane hitting the state, the Office of Insurance Regulation launched a review of dozens of domestic insurers and their affiliates.. The office has not released the results because the review is ongoing and the responses are confidential under state law, an office spokesperson said. State lawmakers are considering this week expanding regulators’ ability to examine affiliate companies but only after hurricanes. Legislators’ special session begins Monday. Doug Quinn, executive director of the watchdog American Policyholder Association, said his group has done its own research on executive compensation. Florida’s history of failures indicates the state’s current policies aren’t working, he said. “If I pick a state and I say, ‘We’re going to allow you to come in and start a business and bilk people out of premiums,’ Yes, you’ll attract a lot of people to start insurance companies,” he said. LESSONS FROM POE Between 2004 and 2005, Florida was struck by eight hurricanes, the worst stretch in modern history. Florida’s insurance market was devastated. Since 1992′s Hurricane Andrew, the state has relied on dozens of small, Florida-based insurance companies to insure most homes. At the time, the largest was the Poe Insurance Group, created by former Tampa Mayor Bill Poe, which oversaw three different insurers and about 320,000 homeowners’ policies. The 2004 and 2005 storms were devastating to the bottom lines of these firms, which saw $2.5 billion in losses. By 2006, all three companies were insolvent, and the state levied a 2% assessment on every Floridian’s insurance policy to pay out the companies’ $850 million in outstanding claims. When state regulators took over the companies, they discovered that each one had entered into an agreement with a sister company in January 2004. The sister company, called Poe Insurance Managers, provided policy issuance and underwriting services for the three insurance companies in exchange for fees of anywhere between 22.5% to 26.5% of the insurers’ gross written premiums. The profits of Poe Insurance Managers were then distributed to shareholders through dividends — and they were considerable. Between 2004 and 2005, it paid $143.5 million to company shareholders, even though the company was in dire financial condition. Poe himself collected $25 million. Once the money moves from the insurance company to the affiliate, it’s no longer available to pay claims. In 2008, the state sued to recoup the money, claiming it was “an intentional and financially reckless scheme to drain and divert the assets of the Insolvent Insurers for the sole purpose of eliminating their own potential financial exposure and increasing their personal wealth.” Poe denied the claims and said the family put in over $70 million to try to save the companies. Although Poe’s collapse was the largest insurance company failure in Florida history, state lawmakers did not enhance their scrutiny of companies affiliated with insurers. These affiliates can still charge the insurance company up to $25 per policy, as well as a percentage fee for providing services to the insurer. That fee, commonly between 20% and 30% and approved by regulators, is often tied to policyholder rates. When rates go up, so does the fee. Large insurers usually have their own in-house employees write policies and provide underwriting. Others might pay an independent third-party company for the services. Florida’s market is instead dominated by insurance companies that pay their affiliated companies for the work, said Jack Nicholson, who led Florida’s Hurricane Catastrophe Fund for decades. Experts also say there’s a reason why many Florida insurance companies are set up like this. After Hurricane Andrew, national insurance companies dramatically reduced their risk in Florida, especially along the coast. State regulators and lawmakers encouraged new, Florida-based insurance companies to operate, but those companies needed to raise tens of millions of dollars to get off the ground. “How do you incentivize investors to do something like that?” said Florida State University College of Business professor Chuck Nyce. “That’s why you see that structure in Florida.” A LONG-RUNNING TREND An insurance company’s relationship with its affiliated companies can turn a loss into a profit, the Sarasota Herald-Tribune found during its 2011 Pulitzer Prize-winning series on Florida’s insurance market. Homeowners Choice Inc., reported 2009 losses of $650,000 for the regulated insurance company and a 2009 profit of $11 million for the holding company, the newspaper found. That was in part because the insurance company paid an affiliated management firm $24 million for management services that cost $15.4 million. In 2008 alone, investors and executives moved a collective $1.9 billion in policyholder money out of Florida insurers to their affiliated companies, the newspaper found. Since Poe’s collapse, state regulators have repeatedly tied insurance company failures to excessive or unusual payouts to affiliated companies, state reports show: ▪ After the 2009 failure of First Commercial Insurance Co. and one of its affiliates, auditors wrote that its “officers appear to have been stripping the company of cash.” ▪ Magnolia Insurance Co. existed for two years and still managed to pay out more than $1 million in dividends to its investors, which included current and former officers of the company, auditors wrote. ▪ At Seminole Casualty Insurance Co., which mostly offered automobile coverage, auditors cited “excessive and unreasonable” fees paid to “related parties” for its 2011 demise. ▪ After the 2011 failure of Aequicap Insurance Co., auditors noted the company “paid commissions, claims servicing, and management fees to various related parties,” but the company didn’t keep enough records for auditors to know if the agreements should have been approved by state regulators. ▪ After Homewise Insurance Co. and one of its affiliates went insolvent in 2011, auditors wrote that in both cases, the fault “appears to be the result of an excessive outflow of cash from the company to Homewise Management Company,” its parent company. ▪ During the final years at workers’ compensation underwriter Insurance Company of the Americas, the company funded “questionable payments to other … companies,” auditors wrote. It folded in 2018. ▪ At Sunshine State Insurance Co., auditors found the company was paying affiliates for “overlapping services,” including some that were not approved by state regulators, before its 2014 collapse. Under state law, the Department of Financial Services is required to report the causes behind each insurance company’s insolvency. None of these reports about the seven companies that have gone insolvent for the last two years have been released. When an insurance company fails, it falls into receivership with the department. Agency spokesperson Devin Galetta said that under state law, the department can’t release an insolvency report until “the end of the lifetime of the estate.” The estates can last five to seven years, he said. Of the reports for the companies that have gone insolvent between 2008 and 2018, none cite litigation as a reason for the companies’ demise. BIG PAYDAYS Some of the companies that are now struggling awarded big payouts to their CEOs during Florida’s storm-free years. When Heritage Insurance Cos. was starting up in 2013, the state-run Citizens Property Insurance Board of Governors made the unusual decision to pay the company up to $52 million to take out policies. Republican lawmakers raised concerns about the deal, and questions revolved around the $110,000 the company donated to then-Gov. Rick Scott’s campaign account, the Palm Beach Post reported at the time. The company became highly profitable. In 2015, the CEO of Heritage’s parent company, Bruce Lucas, was awarded more than $11 million in cash and another $16 million in stock. That same year, Heritage’s insurance company asked Florida regulators for permission to raise rates on some customers by up to 25%, the Palm Beach Post reported. (In 2015, he sold nearly $19 million in stock, according to federal filings.) Lucas’ wife, who was also a director of Heritage’s insurance company with a $150,000 salary, was also paid as a $400-per-hour consultant in 2017, earning an additional $440,000 that year, corporate filings show. Since Lucas left, the company has reported steady losses and is limiting its exposure in Florida. In 2017, Universal’s CEO, Sean Downes, was the highest-paid property and casualty insurance company executive in the nation, according to an analysis by S&P Global Market Intelligence. At $19.3 million, Downes was paid more than the CEOs of Allstate ($17.1 million), Travelers ($14.8 million) and Progressive ($9.3 million). Between 2013 and 2019, Downes earned between $9 million and $25 million each year, federal filings show. Universal, Florida’s largest domestic insurer with about 872,000 policies, has shed about 100,000 policies in the state over the last year, although it remains healthier than most other domestic insurers. Since 2019, the company’s executive compensation has changed considerably, Chief Strategy Officer Arash Soleimani said in a statement. “Since that time, we have meaningfully restructured and reduced executive compensation, including major reductions to salaries, cash bonuses and equity grants,” Soleimani said, adding that over 90% of its shareholders voted in favor of the compensation plan at its most recent meeting. CEOs at other domestic companies routinely made over $1 million, and family members also benefited, public filings show. At United Insurance Holdings, the parent company of United Property & Casualty, which fell under state supervision last week after heavy losses, CEO Daniel Peed regularly earned more than $4 million a year in stock dividends. (The quarterly dividend payments ended in this year’s second quarter.) The executive compensation at the companies has fallen sharply in the last few years, and executives who didn’t sell their company stock have lost millions of dollars in net worth, noted Paul Handerhan, president of the consumer-oriented Federal Association for Insurance Reform, based in Fort Lauderdale. The current CEO of Universal, for example, reported $3.5 million in compensation last year. “When we had no storms, all the insurance companies were making money, and they were all making great income,” Handerhan said. “From 2017 on, all their executive compensation has taken a nosedive.” Last year, state lawmakers — at the urging of regulators — allowed for more oversight of sister and parent companies of insurance providers. The Office of Insurance Regulation said that it “routinely reviews” the agreements between insurers and affiliates. In 2010, the office ordered Southern Oak Insurance to reduce the commissions it was paying to one of its affiliates. In its 2020 request for information to insurance companies, the agency asked them to disclose how much money their affiliates made from providing their services, about any physical office space insurers gave to their affiliates without charge, and about any loans the insurers received and from whom. Legislation introduced for this week’s special session would allow state regulators to examine insurers after hurricanes if they have “made significant payments” to their affiliate companies in the storm’s aftermath. Otherwise, lawmakers are proposing to leave insurers’ affiliates untouched. This story was originally published December 11, 2022, 7:00 AM. |
trestle
trestle |
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Cyclopath
Faster than light
Joined: 20 Mar 2012
Posts: 7758 | TRs | Pics
Location: Seattle |
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Cyclopath
Faster than light
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Wed Sep 06, 2023 6:16 pm |
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CEOs making big salaries? That's unheard of and very surprising!
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Randito
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Joined: 27 Jul 2008
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Location: Bellevue at the moment. |
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Randito
Snarky Member
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Wed Sep 06, 2023 6:21 pm |
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| Cyclopath wrote: | | CEOs making big salaries? That's unheard of and very surprising! |
CEO salaries have exploded since the Reagan tax cuts. So when insurance companies drop coverage of customers and use the excuse that payouts to customers are the reason, they aren't really telling the whole story.
trestle, fourteen410
trestle, fourteen410 |
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