Insurance For Free

Monday, September 19, 2005
There are jokes about how backwards and parts of the South are. The attorney general of Mississippi isn't helping matters. Friday, he filed suit against five insurance agencies seeking to invalidate provisions of homeowner policies that exclude coverage for water damage.

I can't believe how stupid and idiotic this suit is. One of the proper roles of government in a Capitalistic society is to enforce contracts. Two people make a voluntary agreement, neither should be allowed to break it on a whim. Yet the attorney general wants to turn that tenet on its ear and just tell the insurance companies they need to pay for damage explicitly excluded on the policy.

Don't get me wrong. I feel bad for the people in the Gulf. But that does not mean that insurance agencies should be obligated to pay for claims they did not collect premiums to cover.

Let me give you a quick insurance lesson. Insurance is gambling. You are making a bet that you will have some sort of calamitous event where you will need money that you don't have. You agree to pay small money over time so that MAYBE you will collect a large sum somewhere down the road.

Insurance companies pay, and pay well, people called actuaries whose job is to evaluate risk. They determine how likely an insurance company will have to pay out and then calculate the amount of premiums the insurer needs to collect in order to make a profit. Yes people, a profit. An insurance company wants to make money, not help you out. Evil I know. But think about it. To do this, an insurance company has to take in more in premiums than it pays out in claims. That means, most of the time, people actually pay in more money than they collect. You could do just as well saving that money on your own and investing it wisely than you could by paying an insurance company your monthly premium.

You can't change the rules mid game. It would be like going to Vegas and playing poker. You get a great hand, a Full House, and make bets the entire game knowing you have a great hand. At the end of the game you lay down your cards and believe you beat your neighbor, who has the next highest hand, a straight. As you go to collect your chips, the house informs you that no, indeed for this particular hand, a straight beats a flush, you lose.

In the long run, this would kill the Mississippi economy. Why? If you are an insurer, or really any business, and you know Mississippi is favorable to just rewriting contracts whenever the political climate favors it, what do you do? You don't do business in the state. Now, instead of being able to get home insurance that will cover you in events other than floods, you get NO insurance. Or, at the very least, you get very expensive insurance because there is so little competition among insurers, since most will not take the risk their contract will be invalidated. It isn't just an insurance problem. All businesses will worry that at some point, Mississippi will just turn around and change the rules. It isn't a climate people can profit in. You wouldn't go back to that poker table after they changed the rules on you would you?

Why not just make the insurance companies pay EVERYONE, regardless if they have a claim or not? I mean, who cares if they didn't have a contract before? These people need help, and we all know that need trumps rights.


susan said...

I was thinking the same when I heard about that. Ridiculous! No one will ever get insurance again if they can just sue after a disaster to get the property replaced. I feel bad they lost everything and I donated money to help them out but the insurance contract needs to be honored.

I also heard another person explaining that if the state wins and the insurance companies have to pay, they will go bankrupt and then some people won't get paid at all - and that might be the people who actually had flood insurance.

Kat said...

on the other end of the spectrum, insurance companies won't even insure your home in florida... i think it's government regulated there because they're hanging out in the ocean like sitting ducks.