It doesn’t take a Nobel Prize winner to explain high insurance prices on the Gulf Coast

At first, I thought this story might be intended as a joke.  Unfortunately, it appears that was not the  goal, which is a pity, because it would have worked better that way.

8 Comments

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8 Responses to It doesn’t take a Nobel Prize winner to explain high insurance prices on the Gulf Coast

  1. Jason Barney

    The story reads in part:
    If … people could see what their insurers were asked to pay versus what they actually paid, policyholders would have the information to make informed choices, therefore forcing insurance companies to compete for business based on how well they fulfill contracts with customers.
    *** *** ***
    If I asked my insurer to pay $300K for my demolished house but I let my policy lapse and was offered $0, would that bare statistic offer consumers useful information? Or, under a perhaps more common scenario that I suffered a $30K contents loss but had only $20K in coverage, so was paid only 2/3 of what I asked my insurer to pay–does that mean the insurer did poorly in “fulfil[ing] contracts” with its policyholders?
    It does appear their theory leaves much to be desired.

  2. Cato

    Or perhaps a very real Katrina scenario: $300,000 homeowners coverage but only $ 15,428 paid. Insurance is sold like a product [company web pages even refer to policies as products], but adjusted like a contract. By the industry’s own figures, in Mississippi it has paid over 350,000 homeowner claims totaling $ 5.4 Billion. Do the math – that’s a generous $15,428 per claim.

  3. doug

    Cato, your assumption on average payout fails to take into consideration that many people filed for claims that were minor and just over their deductible. Not everyone effected by the hurricanes had total losses. Some just had inland wind damage to their roofs only or maybe a limb fell on some guttering. If they had a 2% hurricane deductible the payout might only be $100 or $200 over the deductibe. There are thousands of people out there filing claims for amounts just over their deductibles. Your sarcasm about the “generosity” of insurance companies doesn’t hold water

  4. Cato states: “By the industry’s own figures, in Mississippi it has paid over 350,000 homeowner claims totaling $ 5.4 Billion. Do the math – that’s a generous $15,428 per claim.”
    I’m trying to determine just what that proves, or what point is being made here. Taking the mean of dollars/claim certainly doesn’t prove that claims were adjusted either properly or improperly.

  5. Cato

    The point is we do not have meaningful data as to what the industry is doing. It only speaks of aggregate amounts and total claims paid. It would help to know how much was claimed to compare with the amount paid.Then a consumer might have a clue as to a company’s payout as a percentage of claim. Break it down. If there are in fact thousands of people out there filing claims for for just over their deductibles , hand out the data. I suspect that if ,in fact , the industry were paying out a high percentage of the amounts claimed,Robert Hartwig would have been bragging about it.

  6. richard

    You seem to assume that payments being a large percentage of amounts claims is by definition a good thing. That assumes that the amounts claimed are in fact an accurate reflection of the covered loss. That has not been my experience. The claims presented tend to include non-covered items, inflated amounts, inadequate consideration of depreciation where actual cash value is the basis for coverage etc. In short, if the payment is significantly less than what was claimed all you know is the insured didn’t get what he wanted. You don’t know whether he got what he was entitled to under the policy.

  7. Cato

    Payments being a large percentage of amounts claimed is by definition a good thing for a consumer. Knowlege of such history may lead a policyholder to choose one Insurer over another.This discussion began in response to David’s comments about the application to insurance of a Nobel winning theory to explain why markets don’t perform efficiently when competition isn’t really free, or when consumers aren’t well informed and when transactions take place under special institutional arrangements. My point is that more useful data in the public domain would be a good thing. There is enough spin in the world as there is. Don’t tell me what percentage of claims you’ve closed[whatever that means] or how much in the aggregate you have paid. Give me useful data. By the way I certainly do not assume that the amounts paid accurately the covered loss.

  8. Radikul

    There is a more radical way of assessing an insurer’s “good” or “bad” handling of claims….it is as old as the republic. It’s called capitalism. If a company is “bad” about paying claims, they usually aren’t around very long because someone will tell others they were screwed by an insurer faster than they will tell someone how happy they were with a settlement. It is simple human nature and economics 101. There are more than enough companies to provide coverage and thus prevent the “monopoly” idea about why a company gets so big (read Allstate, State Farm, Farmers, etc.) Simply put, you dont get that big by ripping off customers (unless someone wants to publicly state that consumers aren’t smart enough to know better.)