Ron Paul, the Hamilcar of Presidential Candidates

[DGuller]

Ah. So you'd have to be selling policies to people like me who live halfway up a mountain in order to spread the risk out enough.

If you are a Florida insurance company, there is really no way to sell enough policies to protect against a major hurricane blasting Miami. The insurance companies got hammered when one did--and now the state government has felt the need to step in as many of the insurance companies pulled out. The next major hurricane in Florida is an insurance disaster waiting to happen--though this time it will be the state that takes it on the chin.

Florida is not really an insurance failure, it's an insurance regulation failure.  The reason the state of Florida is in insurance business is because they don't let private insurers charge what they think is an appropriate rate.

[MadImmortalMan]

But why did they leave rather than massively increase the prices? Or would have meant that no-one would have bought the insurance anyway?

Looks like raising the prices wasn't an option, apparently.

[DGuller]

But why did they leave rather than massively increase the prices? Or would have meant that no-one would have bought the insurance anyway?

You can't just increase insurance rates for personal insurance because you think it's necessary.  You need to have the approval of Department of Insurance in most states.  Florida's DOI is one of the most restrictive in what it allows insurance companies to charge.  Private insurers can't really charge what Florida's DOI allows them, or they would risk their rating, so they have to pull out.

[DGuller]

Likewise, tornadoes are pretty common in the US.  There are few places where they don't strike.

That line has already been refuted.  Some areas are more prone to tornadoes than others.  Google Tornado Alley.  Just because everyone can get into a car accident doesn't mean that someone with 10 DUIs in the last 2 years isn't a higher risk.

[Razgovory]

Likewise, tornadoes are pretty common in the US.  There are few places where they don't strike.

That line has already been refuted.  Some areas are more prone to tornadoes than others.  Google Tornado Alley.  Just because everyone can get into a car accident doesn't mean that someone with 10 DUIs in the last 2 years isn't a higher risk.

I know where Tornado alley is, and it's not in Ohio or Indiana.

[DGuller]

Likewise, tornadoes are pretty common in the US.  There are few places where they don't strike.

That line has already been refuted.  Some areas are more prone to tornadoes than others.  Google Tornado Alley.  Just because everyone can get into a car accident doesn't mean that someone with 10 DUIs in the last 2 years isn't a higher risk.

I know where Tornado alley is, and it's not in Ohio or Indiana.

That's just an example that not every place has the same risk.  That's not really what's used in insurance.  The first map in the Wiki article is more representative, and it does include Ohio and Indiana as severe tornado risks.

[Razgovory]

Look Dguller, we can't evacuate the entire central part of the US because to help Insurance premiums.  Somebody is going to have to live there.

[DGuller]

Look Dguller, we can't evacuate the entire central part of the US because to help Insurance premiums.  Somebody is going to have to live there.

I'm not saying that you should evacuate, I'm saying that you should pay for the costs of living in a higher risk area rather than be subsidized by the entire country for it.  That's how economics work.  Sometimes it can't be done by insurance, agreed, but tornado risk has been successfully covered by private insurance for many decades.  It's not exactly like nuclear accident insurance.

[Sheilbh]

I agree with Marty! 

I agree with Marty, Tamas, Guller and Yi

I'd err with Marty's idea of mandatory insurance though.

[Razgovory]

I agree with Marty! 

I agree with Marty, Tamas, Guller and Yi

I'd err with Marty's idea of mandatory insurance though.

You could find better company.

[The Minsky Moment]

We have models now that work at a very fine resolution.  Hurricane models can give you address-level results.  That wasn't in place 20 years ago.

It seems that I stand corrected.

[PJL]

But why did they leave rather than massively increase the prices? Or would have meant that no-one would have bought the insurance anyway?

You can't just increase insurance rates for personal insurance because you think it's necessary.  You need to have the approval of Department of Insurance in most states.  Florida's DOI is one of the most restrictive in what it allows insurance companies to charge.  Private insurers can't really charge what Florida's DOI allows them, or they would risk their rating, so they have to pull out.

So really it's a legal problem there than an economic one. Just get rid of the limits to get the insurers back. Problem solved.

[mongers]

I think part of the problem is the US suffers from continental weather, so whilst here, as I live in a river valley, I may get flooded up to a couple of feet, in America whole counties can get inundated at the same time to sometimes tens of feet. It's a different scale of natural disaster.

Similarly we have 'tornadoes' that sometimes knock down a few chimneys and pull off several roofs, but generally no one dies; in the US these are regulars annual events that routinely kill a couple of dozen and chew up whole sections of small towns. It makes 'sense' for the shared sovereignty of government to deal with these eventualities. 

[DGuller]

But why did they leave rather than massively increase the prices? Or would have meant that no-one would have bought the insurance anyway?

You can't just increase insurance rates for personal insurance because you think it's necessary.  You need to have the approval of Department of Insurance in most states.  Florida's DOI is one of the most restrictive in what it allows insurance companies to charge.  Private insurers can't really charge what Florida's DOI allows them, or they would risk their rating, so they have to pull out.

So really it's a legal problem there than an economic one. Just get rid of the limits to get the insurers back. Problem solved.

More accurately, the problem is political.  If you liberalize the insurance rates, properties on the coast are going to have their rates skyrocket, which would also lead to plunging real estate prices there.  Good luck getting re-elected as a Florida governor when you do that.  It's much easier to have the state government insure all the high risk properties, and hope that you'll be on your next job when Miami gets hit by a hurricane like when it did in 1926.

[Caliga]

I'm not saying that you should evacuate, I'm saying that you should pay for the costs of living in a higher risk area rather than be subsidized by the entire country for it.  That's how economics work.  Sometimes it can't be done by insurance, agreed, but tornado risk has been successfully covered by private insurance for many decades.  It's not exactly like nuclear accident insurance.

I'm not sure you understand how tornadoes work.  Yes, areas like the Ohio Valley are 'higher risk' than say New Jersey because tornadoes are an annual event in the Ohio Valley as opposed to a once-a-decade or less thing in New Jersey.  Even so, a typical tornado doesn't do much damage and doesn't kill anyone.  Even 'monster' tornadoes like the one in Henryville, which did do damage and did kill people, killed maybe a dozen people in a county where 110,000 people live and destroyed maybe three dozen houses out of (I would guess) 40,000 or so.  The media likes to use phrases like "the town is gone" and "the whole town is leveled" but that most certainly did not happen in Henryville, IN, which I know firsthand because as mentioned elsewhere I have a friend who videotaped the tornado and appeared on CNN.  Yet, I keep hearing the term bandied about (even in local media) because I imagine it keeps people glued to the TV.

So I guess what I'd argue is that it's kind of disingenuous to say any location in the United States is a "high risk area" for tornadoes because their path of damage, while possibly quite intense, is extremely narrow in focus.  I don't think it's at all the kind of risk you can compare to say a major earthquake or a colossal hurricane, and should in no way be assessed as a penalty against someone in terms of insurance premium adjustments.  I would guess that no matter where you live in the United States, your chance of losing your house to a tornado is tiny compared to the risk of losing your house to a fire, which obviously could occur anywhere.