Insurance companies can now predict the future
PROBLEM SOLVING AT THE INSURANCE COMMISSIONER’S OFFICE-
On this past Tuesday, September 18, 2024, the California Insurance Commissioner met with reporters and discussed a proposed plan for helping to solve the insurance crisis in California. This meeting was the result of the wildfires that have plagued this state, and of the fact that several large Property and Casualty Insurance carriers are having issues with paying out large insurance claims which have exceeded the amount of money they have taken in on the premium payments from the insureds.
ETHICAL PROFIT EVALUATION-
From BlueShield.com, the following is cited to let you know the insurance industry cannot invest in everything they believe is profitable, they in fact are held back until the ethical state of the company is determined. In California, insurance companies are not strictly required to invest only in a business that is deemed to be ethically acceptable. But apparently many insurance companies voluntarily adopt ethical investment practices as part of their corporate or social responsibility.
PART OF THE PROBLEM-
This corporate responsibility issue is part of the reason investments for insurance companies are not making up the slack when heavy losses are incurred. After seeing the way that some insurance companies have functioned in catastrophic situations such as leaving the state and being irresponsible to their policy holders.
It makes me wonder, is it more socially responsible to not invest the funds that would enable you to pay claims when required, or to invest the funds you have available and be able to meet the catastrophic claim payments when you should due to covered losses.
POTENTIAL ANSWERS TO THE PROBLEM-
An important part of the proposed answer to the problem is allowing insurers to use what is referred to as “black boxes.” What the boxes simulate is possible losses from fires in calculating premiums rather that rely on old claims information.
In past years in California and all other states, your past claims history was reviewed to determine your potential for continued coverage, and what the premium should be.
In exchange for that concession, the state insurance industry has agreed to start writing policies again in high-wildfire-risk communities using a formula that requires insurance companies to issue a certain number of policies based on the percentage of the market they control. Under the terms of the formula, for example, if an insurer had a 10% statewide market share, it would have to cover at least 8.5% of homes in high-risk communities.
In the past whenever government has involved itself in setting prices, problems result.
Respectfully submitted,
Norman Lambe
nwlambe@gmail.com