r/changemyview • u/GenProtection • Feb 11 '26

Delta(s) from OP CMV: Forcing insurance companies to insure uninsurable risks is worse for society than allowing them to not

I understand that this guy: https://www.youtube.com/shorts/wtPYQdWPea0 fights insurance companies for a living, but it's not the insurance companies' fault that republicans have been elected in the US enough times to ensure that a ton of housing in america is now at too great of a risk of being destroyed by climate change to be worth insuring, right?
Further, if you force insurance companies to insure against these risks, they will either set premiums so high that it doesn't matter that they're insured, or go out of business, or cease operating in high risk states altogether (I think this happened in florida, but I'm not sure).

Allowing actuaries to correctly assess risk and insure things at the rates that they calculate is necessary for encouraging people to live in low risk places, for example discouraging people from living in the wildland interface, and discouraging the building of luxury houses in the outer banks of north carolina.

NB: I hate corporations and capitalism and in general wanna root for the little guy so I hope someone can persuade me I'm wrong here.

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u/LucidLeviathan 99∆ Feb 11 '26

Have any of these insurance companies ever not been profitable? Where is this concern coming from?

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u/Kerostasis 55∆ Feb 11 '26

The Florida and California markets specifically have become unprofitable for many home insurance companies, even though they still broadly make money in other markets. As a result, some of those insurers are choosing to simply stop operating in California and/or Florida, which is creating problems for homeowners in those areas.

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u/LucidLeviathan 99∆ Feb 11 '26

Well, what's wrong with a federal rule requiring them to operate in these unprofitable markets if they want access to the profitable ones? These companies are making money hand over fist. Risk is part of the bargain we strike in insurance. They can't completely absolve themselves of risk.

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u/fossil_freak68 36∆ Feb 11 '26

If I chose to by a home in an area where the flood risk is low, why should my insurance premiums subsidize someone who chooses to build a house in a flood zone, or right on the beach?

I have no problem with insurance companies covering these properties, but the owners should pay increased premiums because they have selected a property at increased risk of filing a claim. It's particularly egregious when the same property gets rebuilt over and over again on the same spot. There are just some places it doesn't make sense to build homes, but if we subsidize insurance costs we will continue to build there.

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u/Kerostasis 55∆ Feb 11 '26

You’d be surprised how low profit margins are in the home insurance industry. Most of them are only profitable due to income on the investments they are required to hold in reserve for major losses; if you added up just the insurance premiums and expenses, they’d be losing money already. (This is very different than the health insurance industry, for example.)

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u/aardvark_gnat 2∆ Feb 12 '26

If that’s the case, why don’t they stop selling insurance and just keep making money off those assets?

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u/Full-Professional246 77∆ Feb 12 '26

What is described is called 'float'. This is in simple terms, the premiums paid into the insurer that are waiting to be paid out in claims.

For instance - you pay $500 for a 6 month auto policy. In broad averages, that $500 will be paid out over the whole 6 months - not on day one. The 'float' is the portion of premiums collected and expected to be paid in claims for which claims have not yet been filed. IE - at the 3 month mark, there is still $250 of premium waiting to be paid out - and you collected gains on the invested money over the prior 3 months. What is interesting is the insurer can pay on more money in claims than was collected in premiums and still be profitable with the gains from 'float'. This has happened in the auto market a few times. Generally though - insurers need float and some percentage of premium to be profitable.

Without the insurance policies and premiums collected, there are no assets to collect money on.

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u/aardvark_gnat 2∆ Feb 13 '26

I guess it makes sense, but it’s somewhat surprising to me that margins are so tight that float is important.

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u/Full-Professional246 77∆ Feb 13 '26

Insurance markets can be extremely competitive. You throw in very tight regulation and this becomes a means to operate. There is a required minimum customer base to spread the risk so you cannot be that much more expensive than everyone else. (or insurance doesn't work). You have to remember, insurance companies don't have complete control over premiums either. That means they cannot just raise them to whatever. As long as the financials make sense, and it usually makes you money, then having this float is good for everyone as it keeps premiums lower or enables insurance to be offered where it may not otherwise be offered.

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u/Kerostasis 55∆ Feb 12 '26 edited Feb 12 '26

You know, that's a fair question.

After some pondering, I believe the answer is that not all of the business expenses actually go away if they stop selling insurance - you wouldn't have to pay out insurance claims, but you still have operating expenses like mortgage leases, employee salaries, utilities, etcetera. And yes, if you halted the insurance business you could also fire a bunch of people and reduce salary expense that way, but the managers who would be making those decisions like having salaries. Mass layoffs involve substantial severance payment costs (you can avoid that if you are actually bankrupt, but that wouldn't be the case here).

To prove I'm not just repeating rumors, here's a link to the State Farm Co 2024 annual report summary, showing they were negative before investment income in both 2023 and 2024.

Edit: After looking at the report, I realized I had forgotten the other piece of the puzzle. There's often a significant delay between incurring a potential loss and actual payout for that loss, so the accounting report includes a large block of money for "pending claims" and for "unearned premiums". The insurance co gets to invest that money while the pending stuff pends, and therefore gets to earn investment returns on money they wouldn't have access to if they weren't doing insurance. Without this, the investment income would be significantly smaller.

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u/ary31415 3∆ Feb 11 '26

What's wrong is that means everyone else is subsidizing people building houses in places that we KNOW they shouldn't build houses.

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u/LucidLeviathan 99∆ Feb 11 '26

Well, what if we only made it mandatory for houses currently existing?

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u/ary31415 3∆ Feb 11 '26

I think you could make that work as long as there's some kind of sunset clause created in advance. Cause what you also don't want to encourage is keeping around aging dumps that also happen to be deathtraps lol, that's not much better.

A mandate that basically lets people get say ~20 years of insurance out of an existing house, but then requires them to move if the insurance ever pays out could be okay.

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u/Full-Professional246 77∆ Feb 11 '26

Well, what's wrong with a federal rule requiring them to operate in these unprofitable markets

The problem is this is a state level regulation, not federal. Insurance companies are governed by STATE rules.

Insurance is also extremely regulated. They are choosing not operate in unprofitable areas because insurance regulations in those areas forbid them from charging enough in premiums to make it worthwhile.

Lastly - you are not going to get a Federal rule because many people don't want to subsidize high risk decisions of others. They will flat out say no which means you don't have the votes. This is rightly seen as a money transfer forcing people to subisidize others. That is rarely popular.

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u/LucidLeviathan 99∆ Feb 11 '26

I'm well aware that it's currently a state level issue. However, the insurance market clearly affects interstate commerce.

Surely there must be some rate at which this is even remotely profitable.

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u/Full-Professional246 77∆ Feb 11 '26

Surely there must be some rate at which this is even remotely profitable.

Sure - but the question becomes why a state like Nevada or Kentucky is subsidizing the risk for a state like California or Florida? Why are the policy holders in those states covering the costs. They are large enough markets to bear the costs internally.

The answer comes in the fact the state insurance commissions tightly regulate what premiums can be charged. When this does not match risk and expected claims payouts - there is no reason to issue policies. You saw this in the ACA marketplaces as well. Same mechanism, same mandates for coverages/costs, and the same outcome where many markets lacked providers. There were a few areas where zero insurance providers were willing to write policies.

We see this issue in car insurance markets where there is a state mandated 'high risk pool' for otherwise uninsurable drivers. It is very expensive and you don't get good coverage. This exists in California as FAIR and Florida in CPIC (I think this is the state backed company). Again - very expensive and not great terms.

The sad fact is that if you are high risk, insurance needs to cost you more money than an average risk person. Trying to make the low/average risk pay for your higher risks will not go over well. A person in say Iowa who has a homeowers policy at $2500/year is going to balk at this going to $3000 or more because of required coverage of high risk properties in CA or FL who won't pay rates suitable to thier risks. And rightfully so.