I'll note that there's nothing at all redistributive about sneaking a trampoline onto your property, too.
Further, I'll note that working class people also take pride in their houses and pay to keep them up, and they too are being asked to subsidize people who are getting rate breaks from false assessments.
Later
My municipality will make an interest-free loan of up to $25,000 to cover the kinds of property repairs we're discussing, if you're income-qualified (ie: not too rich to just pay to replace your own roof).
That said whether the regulators are effective in keeping costs down is a different issue. But my not-very-deep understanding is that risks are rising, e.g. large wildfires in the US West, and increased hurricane frequency and strength on the Gulf Coast, and the only way to deal with that for the insurers is to raise prices, or drop customers - sometimes to the point of abandoning the market altogether. This sounds like another piece in that trend.
I guarantee you income is correlated with state of home repair. If insurance companies can more easily access state of repair, lower income individuals will end up paying more than they did previously.
Regardless of whether that is fair, it is a change from the status quo, and it’s obvious why some people would consider that problematic.
Just don’t get insurance and nothing of yours will pay for anything belonging to anybody else.
Every new data point partitions the statistical population size into two smaller parts, each with their own larger variance (ie the insurance company's risk). The insurance company could statistically combine the risk from each partition into the same original, but it's more likely they'll focus on the higher independent risk figures and raise premiums an outsized amount to cover each individually. And this effect is going to be more pronounced the more lopsided the partition is, leading to similar monoculture incentives as we see in the mortgage/housing bubble. For example, I'd bet there's somewhat of a correlation between insurance claims and whether a house is painted beige.
That is how rates can go up even when the extra data is fundamentally sound. But there can also be just enough extra information to be damning, but not enough to exonerate. For example after the "Do you have a trampoline" question, is there a follow up of "Do you let guests use it" ? Or perhaps a more formal "opt out of all liability coverage for the trampoline" ? Likely not.
Then of course there are places where the model is irrelevant or even outright wrong, because the thing being singled out seems like it rocks the boat. Like the driver surveillance devices that penalize focused acceleration due to perceived association with racing, when it's much more likely that the driver is actually paying attention to driving. Or penalizing people for going over the posted speed limit, when it's actually safer to go the prevailing speed of the road.
Elaborating on my second criticism - let's say someone has a trampoline but never has guests at their house. The insurance company asks about the first condition, but doesn't ask about the second condition. If the customer lies about having a trampoline, it's likely that they are actually still being subsidized by their neighbors as their overall risk of liability claims is much lower.
And I've actually got to wonder if lying about having a trampoline is technically even fraud. Are home insurance companies legally obligated to pay/defend liability claims stemming from things you lied about? If not, then it would seem there is no fraud (unless you also lie for the claim) - the claim can just be denied, and liability coverage isn't relied upon by a mortgage.
In fact your price will propably increase since more overhead needs to be allocated to fewer customers.
That's exactly what insurance is. The whole premise is that they will dip into other people's payments to pay you if you ever encounter a covered issue. If insurance only ever paid you back some fraction X of your own contributions, why would you ever buy it? It would make infinitely more sense to deposit whatever you would have paid to insurance in a high yield savings account.
If a group of ten people all have a one in one-thousand per year chance of a million-dollar loss each year, then their annual premium will be:
10 x 0.001 x $1,000,000 = $10,000 (plus some administrative overhead and assuming a very basic risk model)
It has nothing to do with who is rich and who is poor or making anyone come out ahead of their own losses.
More importantly, each person in this group has a different chance of a million-dollar loss each year, and it's important if you're going to write a policy to get that chance as accurate as possible.
Some members of the pool have a 1-in-1000 chance per year, others have a 1-in-10 chance.
An efficient insurance market assess who has what risk, and offers premium commensurate with risk. If you're one of the 1-in-10 people you pay more.
A risk pool combines resources to pay out for losses that are otherwise individually unaffordable by each member of the pool. It is explicitly not a mechanism - nor is the intent to - have members with wildly different risk exposure pay the same premium. In fact the only way it can sustainably function is if each member's risk level is accurately gauged to some level of precision.
There are risk pools where the intent is to subsidize higher-risk members, where we believe that such subsidy is a social good - health insurance for example is one of those things.
But I don't see a good argument that home insurance is, or should be, one of these types of risk pools.
But that's not what would happen. You would still have insurance because what we really have is 8 billion people in the world (or 300 million in America or 10 million in your state or 1 million in your city or 500 in your neighborhood/village) and each person in that group of people derives some utility from other people in that group not having to pay full price for their broken roof, whether that's because when you go talk to your neighbor he's not complaining about his roof all day or because your neighbor is your doctor and you want him in the hospital instead of running around trying to fix his roof all day or sitting at home wet because he can't afford it. The total amount of that utility multiplied by how much money the entire group makes might be less or more than the price of roofs for everyone in that group.
So it's both. You're trying to discover the network of people (or create/convince that network, sometimes by threat of violence in the case of government-mandated insurance) in whose interest it is to redistribute their wealth to a given person.
Another poster here, Scoundreller, recently responded to one of my comments on another topic with this insight:
> The funny thing about insurance is that as it becomes perfect at assessing risk, it becomes worthless.
> Oh, you’re about to have a $x claim this year, your premium is $x + y% admin fee.
> Just self insure and save yourself the y%.
There's likely a point where the more accurately priced a policy is the less worthwhile that policy is to purchase, which really wouldn't be a good thing for the insurance industry. The use of aerial photography probably isn't enough to put them over that threshold, but the closer they get, the less attractive their offerings will be. Considering that the insurance companies mentioned in the article have billions in revenue and assets I'm not sure they have a compelling need to resort to this level of surveillance in order to make good money. None of them appear to be going broke due to rogue trampolines anyway.
Yes, if you could 100% guarantee that someone was going to have a $Y valued claim, their premium would fairly be 100% of $Y at least in order to allow for their contribution to the risk pool. Problem is, you cannot 100% predict the future, and there is no model capable of doing so, nor will there likely ever be. Nor can you predict that any other insured risk might not materialise in the meantime.
More to the point, it fundamentally misunderstands what insurance is and how it works, not least the commercial considerations involved. If there is a 100% risk of risk X materialising, the insurer won't rate your premium at the cost of risk X; it will simply exclude risk X from your policy and rate your premium based on all the other myriad risks that might arise that year in an attempt to win your business and collect premium for what, to them, is a better bet.
This already happens, incidentally; travel insurance policies will exclude pre-existing conditions or recurrences of previous illnesses as a matter of course, because if someone (e.g.) has cancer, the odds of them needing to claim on their policy - and as such draw down from the pool more than they paid in premium - skyrocket.
Which makes it odd that there are people who can't get insurance at all because of one factor like a tree or a roof. Instead of these companies (rightly or not) excluding those risks they're just dropping the customers or refusing to insure them.
> Problem is, you cannot 100% predict the future, and there is no model capable of doing so, nor will there likely ever be.
As insurance companies get more data about you from constant surveillance and data brokers it's possible for them to assume things with far more certainty. Worse, they don't seem to care too much about accuracy either. Your health insurance could cost you more next year because data shows more people in your zip code are spending more time in fast food drive thru lanes. People have had their DNA leaked! Predicting the future (accurately or not) is getting easier every day.
> This already happens, incidentally; travel insurance policies will exclude pre-existing conditions or recurrences of previous illnesses as a matter of course
I think that's reasonable for things that nearly certain to happen. It's easy to exclude cancer in a travel insurance policy and still provide some value. It's a lot less likely when it comes to something like flood insurance where your house either floods or it doesn't, although there are certainly houses in places that flood so regularly that they shouldn't be insurable at all and no one should live there. There's a balance that's difficult to strike because the incentive is for insurers to drop anyone who has any real risk.
