New Orleans Levee Breached

[billvon 3,120]

>If it were really up to the insurance companies to pay out if
>something happened, they would certainly lose out more often
>than not.

Google "actuarial tables." Believe it or not, insurance companies have figured this out, and thus charge very high rates for disaster-prone areas. You can always get insurance from someone, although your local State Farm insurance company may decline to insure you for whatever reason.

Let's say you set up an insurance company, and someone wanted to insure their $100,000 house near New Orleans, in an area not destroyed by the latest hurricane. They were willing to pay $10,000 a year for insurance. Would you accept their money?

>As is really works now, the gov't pays for the reconstruction and loss
>for major events such as a hurricane, not like a small windstorm.

As I said above, the government should NOT step in. Insurance companies are intended to be, and should be, on their own. The result is that premiums in dangerous areas will be higher, and that's fine.

[NtheSeaOrSky 0]

Quote

Let's say you set up an insurance company

I would obviously be clinically insane
But seriously, I see what you are saying. But why would someone want to pay $10,000/year in insurance when they can pay $0 and get the same thing? Again I am not talking about theft,etc. only major occurances.

The company I used to work for had several 'executives' who had property on the barrier islands in NC. Many of their 'exectuive' friends also had property...houses, planes, boats, etc. None of them carried insurance because there was 'no need to waste their money'. Last year Hatteras island hit by hurricane and houses gone. They get money for the house and its contents (which of course was high since no one removed those thousand dollar paitings, etc.)They lost no money and we bought them a furnished house.

I agree, pay the higher premiums if they will insure you, but the insurance companies should be held responsible. But then again, they (the ins co.s) could just seek bankruptcy right?

Life is not fair and there are no guarantees...

[billvon 3,120]

>But why would someone want to pay $10,000/year in insurance
>when they can pay $0 and get the same thing?

Exactly - many will not want to. But some mortgage companies require you to, so that may be a reason. Of course, with enough money you don't need a mortgage either.

>I agree, pay the higher premiums if they will insure you, but the
> insurance companies should be held responsible.

I agree there!

>But then again, they (the ins co.s) could just seek bankruptcy right?

Unfortunately, yes. Us americans are sort of writing the book on fiscal irresponsibility lately.

[StreetScooby 5]

Insurance products, and security derivative products, (which are _insurance_ products) need to be priced in a current market. How much do I charge now?

Companies that price insurance products have very smart, imaginative, people who can see more than 1, 2, ..., etc. paths. For each path, there's alot of math to do if you try and come up with a reasonable cost basis 20 years out in the future (future value). Even worse, you then need to ratio that value back to today (present value).

For each path, "insurance pricers" come up with a current dollar value. To say it another way, its output - input for each path, then they convert everything to oranges and compare the size.

It's far from precise.

We are all engines of karma

[StreetScooby 5]

> >But why would someone want to pay $10,000/year
>> in insurancewhen they can pay $0 and get the
>> same thing?

This happens only in a perfect world. No one lives in a perfect world.

>Exactly - many will not want to. But some mortgage >companies require you to, so that may be a reason. Of >course, with enough money you don't need a mortgage >either.

The reason you pay "mortgage insurance", which ends (only if you ask) when you own 20% equity in your house based upon your cost basis at time of purchase, is required because a non-trivial number of people in the US default on their mortgage. FNMA, GNMA, FHLMC are required by law to cover the defaults, to promote liquidity in the Mortgage Backed Securities market place.

We are all engines of karma