Quote:
Originally Posted by Rainger99
People are complaining about insurance costs going up. However, insurance is merely spreading the risk of losses over a large number of people. The chance of a single home burning down in a year is quite slim so insurance companies can sell home insurance to everyone in a city and use the premiums from those whose homes are not burned down to compensate the few policy holders whose homes are burned down. That is how it works in theory.
However, I am not sure if that works in the case of catastrophic losses such as hurricanes that hit thousands of homes and businesses. Hurricane Ian caused about $100 billion in damages in Florida. The population in Florida is about 21 million people and the average household is about 2.5 people. If you divide $100 billion by 21 million, that is about $4700 a person. If you multiply that by the number of households, each household would have to pay $11,750 just to pay for Ian.
Ian is a bit of an exception since Florida doesn't get an Ian every year. However, Florida gets hit with a hurricane about once every two years and seems to get hit with a major hurricane at least once a decade. Irma cost about $30 billion in 2017.
I am not an underwriter or an actuary but I don't see how people in Florida can pay enough insurance to cover their losses. Hopefully, there are some insurance people on this board that may have solutions.
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I believe that what the insurance industry really wants is the ability to require mandatory mediation for claims without letting policy holders go to court. Lawsuits in court cost insurance companies billions of dollars. Lawyers advertise on billboards and television that they can get you big money for your pain and suffering, so people sign up. Sometimes insurance companies fight the suit, but often they decide that it’s cheaper to settle, even for a lot of money. With the roof replacements, what happened is that lawyers threatened to sue if the replacement wasn’t covered, and insurance companies decided replacing the roof might cost $15,000, and fighting in court might cost the company $25,000 and take a year per case. They did what was cheaper and just raised our prices. A mediator might deny most of those roof claims.
Of course, lawyers in Florida have a lot of lobbyists talking to legislators, who know where their bread is buttered. The result is that they get to keep suing insurance companies, a few people get jackpots, and the rest of us pay more and more to insurance companies. Chances are (wild guess), if you weren’t allowed to sue insurance companies, your insurance would drop by a third.
Also, the cost to insurance companies for hurricanes is spread nationwide. It’s not just Florida insurance companies. And then the insurance companies also buy into re-insurance pools that are nationwide and help them cover the cost.