Villains of Insurance

So the folks down under are in a spot of bother and insurers are starting to pay up.

I’ve never been one to shy away from a bit of armchair theorizing in this space, but there’s sausage being made here, folks, so it’s worth zooming in to see if all’s working as I’d expect.

Clearly a disaster? check

Insurers paying? check

Reinsurers paying? check

And the regular folk? What do they think about all this?

I’m sent to this article, which makes a few points:

1. Insurable loss is smaller than ‘economic loss’

2. Governments shouldn’t buy insurance because they should be able to “manage the risk within their own budget”

3. Insurers have been struggling to make their margins recently

4. Insurers should have ‘costed in’ this disaster (unless less than “1-in-100” year event)

5. Poorer people live in flood zones and will opt out of higher premiums

6. The government should pay for insurance because the government zoned these places in the first instance

A few doozies in there. Less charitable bloggers would revel in the logical inconsistencies (#3 vs #4) and sloppy thinking (#6) here.

Instead, I shall mock caricatures of the sides of this debate.


Subconscious Thoughts: I pay premium and don’t read/understand my policy. I am crap at evaluating tail risk so I never actually thought I’d have to suffer the consequences of living in a flood zone. I’m also crap at comparing large magnitudes so I don’t understand why a company with ‘billions of dollars’ can’t pay $400,000 to 2 or 3 million people to rebuild their lives, stay solvent and renew my policy without a fuss.

When I do submit my claim I think I might try to squeeze out a few extra bucks and get ahead on the deal; after all, you’ve got ‘billions of dollars’ and I ‘work hard every day’. And, regardless of how my choices have affected this outcome, I’m firmly invested in the ‘victim’ mindset here because I know people are nicer to victims. Politicians especially like to appear magnanimous to us victims. Watch your ass!


Subconscious Thoughts: This business was horribly underpriced and I’m on the edge of a knife, here. If only those muppets at XYZ company hadn’t gone after our customers we wouldn’t have had to cut our rates by 30% to keep them.

The last few times, I was able to earn my way out after jacking up rates, but if I get downgraded, I’m belly-up. Maybe I should forego that expensive backup reinsurance cover and bet the house on no more disasters this year. What month is it again?

Maybe there are some loopholes in my policies. If I can string out the payments for a while I’ll be able to earn my way through. I hope someone else gets downgraded and pulls out; that way, rates will really skyrocket and we’ll make a killing. The problem is, as soon as some competition shows up I’d rather take the pipe than actually innovate a bit and make money the hard way.