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PaperclipPerfector  8mo ago (text post)   3775 thread views

Small-Scale Question Sunday for August 27, 2023

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I'm seeing articles about insurance companies withdrawing from Florida and California because of wild fires. Why are they exiting the market entirely instead of just raising prices to account for the higher risk?

The government stops them from raising prices.

Insurance companies are just like us: They buy insurance! When insurance companies buy it, it’s called “reinsurance.”

The cost of reinsurance has risen dramatically, and State Farm cited “a challenging reinsurance market” as one of the reasons it decided to stop selling new home insurance policies in California.

When insurance companies explain their costs to the insurance department as part of the process for justifying their prices, they aren’t allowed to include the cost of reinsurance. The department hasn’t historically permitted it, Soller said, because it doesn’t regulate reinsurance.

“What are insurers supposed to do when, on the one hand, the Department of Insurance is telling them ‘maintain your solvency’ and then, on the other hand, when their costs go up, you can’t charge for it?” said Frazier.

I didn't know that, sounds like a classic case of price controls causing an artificial shortage.

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