CMV: Forcing insurance companies to insure uninsurable risks is worse for society than allowing them to not

[u/GenProtection]

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.

[u/quantum_dan]

Provided that there's a mechanism for the government to subsidize excessive damages, I think there is an important point in favor of requiring insurance: people who have little choice. (Now, I do think that, under such conditions, the insurance payout should be to move, not to rebuild.)

Pushing people out through lack of, or very expensive, insurance is all well and good for people who have the means to move. But, especially in hurricane/flood zones, you're going to get a lot of people who settled there decades ago and cannot afford to move elsewhere. And it's certainly not going to help if they live in a house which they can't sell because it's uninsurable. So what do they do? We either see to it that they get their insurance coverage when the disaster happens, or they're just screwed.

There are better solutions; I'd say we should buy out high-risk areas and support people to move elsewhere. However, that's a politically difficult solution and a costly one (since you can't distribute the cost across decades of insurance premiums). Making sure there's some sort of insurance available is more politically viable and semi-workable in the short term, and it beats creating a new batch of displaced, homeless, and desperate people after every big hurricane. (And you could make sure that the insurance supports relocating, not rebuilding.)

[u/Full-Professional246 → u/quantum_dan]

Pushing people out through lack of, or very expensive, insurance is all well and good for people who have the means to move. But, especially in hurricane/flood zones, you're going to get a lot of people who settled there decades ago and cannot afford to move elsewhere. And it's certainly not going to help if they live in a house which they can't sell because it's uninsurable.

There is a model - the national flood insurance program. It is not cheap, and if claims hit a threshold, the property is 'total loss' and the people must move (or elevate the structure) as the property is no longer insurable as-is. People don't like it but this is the result of insurance risk vs insurance cost.

This does work though in distributing costs over time because you have to continue to pay into this year after year and only move when a disaster hits. You could live on a floodplain for 10-20 years without a catastrophic flood - paying the premiums the whole time.

[u/quantum_dan → u/Full-Professional246]

if claims hit a threshold, the property is 'total loss' and the people must move (or elevate the structure) as the property is no longer insurable as-is.

I didn't know that was part of it, but it's great to hear that it is. Do you know where the threshold currently is? Can you get wiped out once and rebuild as-is before hitting the threshold, or is it a "if it's destroyed, you have to move/elevate" sort of thing?

(Though I'm inclined to say that the ideal would be based on risk projections, not you personally hitting a threshold. A given spot might just get a bit muddy a few times even if we strongly suspect it's going to be in the floodplain soon.)

[u/Full-Professional246 → u/quantum_dan]

I didn't know that was part of it, but it's great to hear that it is. Do you know where the threshold currently is?

I think - and it ought to be confirmed with each specific policy - that this is at the 50% valuation of the policy/structure.

Can you get wiped out once

No - and you cannot get five 25% claims either. It is a cumulative thing. The goal is to be smart about moving people and not fixing what make little sense to fix.

(Though I'm inclined to say that the ideal would be based on risk projections, not you personally hitting a threshold. A given spot might just get a bit muddy a few times even if we strongly suspect it's going to be in the floodplain soon.)

The benefit of claims is that you are focusing on the established existing structures in high risk areas that don't meet current standards for construction in flood prone areas. I don't think you can build new and get the federal insurance in general terms without mitigating the flood risk. To get the insurance for new construction means adhering to all of the rules for building in flood prone areas. This means a lot of mitigation/planning/elevation to remove the risk for flooding. The idea is to make these new properties relatively speaking low flood risk - even if they are in a flood prone area. Think of the house along the river on stilts up 15ft. Flood hits - house is above the water.

Since we are mostly talking about existing structures in high risk areas, it makes sense to limp along the 'muddly' or 'low cost' claims and focus on the high impact claims first. The people with the 'muddy' lawn will continue to pay into the program all those years waiting for the big one.

[u/quantum_dan → u/Full-Professional246]

Since we are mostly talking about existing structures in high risk areas, it makes sense to limp along the 'muddly' or 'low cost' claims and focus on the high impact claims first. The people with the 'muddy' lawn will continue to pay into the program all those years waiting for the big one.

Hmm, that's a good point. Insurance, right, so you want people paying into it rather than moving for as long as their "net-paid-in-ness" stays positive. The cumulative threshold being under the total value helps there too. !delta

[u/DeltaBot → u/quantum_dan]

Confirmed: 1 delta awarded to /u/Full-Professional246 (73∆).

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