mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Friday, September 16, 2005

Good politics makes for bad business...

The AG of Mississppi has found a way get money to rebuild Mississippi - sue insurance companies to make sure they pay for water-related hurricane damage.

One little problem - insurance policies don't cover damage due to flooding. In fact, my understanding is that insurance companies can't even sell flood insurance - it's only sold by the Feds, specifically FEMA.

The AG has come up with a politically great plan - after all, nobody likes insurance companies, and in a dispute between a homeowner who lost everything and a big evil insurance company, public perception is going to side with the homeowner.

But this undermines the whole insurance industry. Insurance is based on assuming risk by trying to figure out what the risk is, how many people you have subject to that risk, and coming up with an amount that covers the likely damage and makes you a profit. If you estimate wrong, you lose money.

But if your contract is not valid - if you are forced after the fact to cover things that you had no reason to budget for covering, because your contract specifically said you wouldn't cover it, and now you have to, you are going to lose a huge amount of money. And when insurance companies lose money, that means higher rates for everyone else, and the possibility that some customers will end up screwed - that the insurance they paid for will be backed by an insurance company that has no assets left.

Contracts are the basis of insurance, as well as pretty much our entire capitalist system. What the AG seeks to do is invalidate a contract because he doesn't like the results.

But what if everyone did that? What if a government could say that the contract that gave you ownership of your house is invalid because the public would rather see someone else owning it?

Oh, wait, they already did. It's called Kelo v. New London

In the interests of full disclosure, Mad Anthony spent two summers while in college as a temp in the mailrooms of an auto claims office run by a major insurance company whose name rhymes with "rate starm". While the occasional decision seemed unfair, most of the claim reps we had were honest, hardworking, and sympathetic - including one who delivered a check after work to an insured, despite the fact that he had yelled at her over the phone a number of times. We also had insureds who did things like traded their cars for crack, crashed their car into a house while being chased by the police, and set their car on fire because they were behind in the payments. So I tend to be a little more sympathetic to those big evil insurance companies than most.


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