Tuesday, August 14, 2007

Sure you're covered?...

Unlike subsidized crop insurance which doesn't have to make actuarial sense since the government throws in $4-5B per year, the home insurance industry has to turn a buck. And guess how they are doing it?
Tunnell joined thousands of people in the U.S. who already knew a secret about the insurance industry: When there's a disaster, the companies homeowners count on to protect them from financial ruin routinely pay less than what policies promise.

Insurers often pay 30-60 percent of the cost of rebuilding a damaged home -- even when carriers assure homeowners they're fully covered, thousands of complaints with state insurance departments and civil court cases show.

Paying out less to victims of catastrophes has helped produce record profits. In the past 12 years, insurance company net income has soared -- even in the wake of Hurricane Katrina, the worst natural disaster in U.S. history. [More of a long but unsettling article]

I think computer technology is enabling insurers to find ingenious ways to maximize profits. The "good hands" may catch you, but maybe not as gently as before the pressure to generate returns took over.

The entire insurance industry is finding clever ways to pass risk off to somebody else. But perversely, it also means standing the risk by yourself - self-insuring - has a huge return.

For instance, how many of the crop-revenue policies that looked like a slam dunk last spring will pay off this year? At $40+ per acre that is a significant profit increase if you did not buy in.

Anyhoo, I 'm asking my agent about how payouts are going for my company.

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