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Katrina Insurance, Better Ways To Spend Money

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fatdogs12

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After hearing the news about how much money insurance companies have to spend (they are saying about 25 billion) I kinda wonder if maybe it would have shown the insurance companies larger profits if they were to pay a few billion to shore up levy's and stuff like that ahead of time.

Maybe not but it just seems that would have been much more profitable.

What do you guys think?

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That's an interesting idea. However, I do not think this level of involvement falls within the proper scope of an insurance company's activities. Basically, if all insurance policies were priced adequately and equitably (and they're not, due to excessive regulation), those insureds with the highest potential for loss would pay the highest premiums. This simple fact would provide incentive for insureds to minimize the risk of loss (or mitigate the magnitude of loss when it does occur) by investing in risk control measures such as the one you suggest.

If an insurer is not permitted to price policies based on their actual potential for loss, this leads to inequitable "risk sharing" - where other policy holders pay more than their fair premium to offset those being subsidized. My point is that, if the insurance market were permitted to operate without regulatory interference in pricing policies, the proper incentives for loss control would exist for policyholders and it would therefore not be necessary for the insurance companies to become involved in activity beyond their scope of expertise (e.g., fixing levys, etc)

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It may well be that it would have cost less money--and it would certainly have saved a lot of lives. Unfortunately, maintaining levees has been considered to be "the government's job," but the government officials have, ahem, found their own "better" ways to spend the taxpayers' money.

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I just want to know where our $900 M relief money from the U.N. is. It's a natural disaster! C'mon, folks, don't be "selfish".

*smacks forehead* Wait . . . I forgot . . . we're capable of handling our OWN disaster . . . we're capable of warning our citizens so the death toll isn't in the hundreds of thousands . . .

Next time there's a tsunami, don't come crying to us for help.

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I wonder how long it'll be until somebody in the media announces that "Hurricane Katrina didn't have all bad results. Think of all the jobs that will be created in re-building New Orleans."
According to this commentator, the Charlotte Observer, already had an article along those lines.
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I do not know how predictable the damage was and whether doing something to the levees without the hindsight of knowing what would be hit would have been cost-effective. However, let's assume it was feasible.

Making that assumption, I agree with "BetTheFarm": insurance firms alone cannot attempt such pre-emptive action. If a certain type of risk is lowered, the beneficiary is the insured, not the insurer. The insurer only benefits to the extent that the lower risk was unexpected and the premiums collected assumed a higher risk. Once new judgements are made about lower risks, premiums will be adjusted downward.

So -- again, assuming this is technically feasible -- it is the property owners of New Orleans who should have spent the money to lower their risks. Insurance companies would have a role to play. After all, it is their experts who would have to agree that certain actions would indeed lower the risks and thus lower the premiums required. The insurers would probably also want to inspect such levees (or whatever) periodically, to ensure that there is no change to the level of risk they are assuming.

Insured people and individuals do things all the time to benefit from reduced insurance rates: e.g. installing an alarm, or a sprinkler system. What is different in the New Orleans case is that "the insured" is no single entity, but thousands of city residents and businesses.

This is a classic case where anti free-market economists will claim that a private organization would fail because of "the problem of commons" and "the freeloader problem". Their solution is the the government has to step in. What does this really assume? It assumes: people will not form and contribute to voluntary organizations which they judge to be in their benefit; instead, they need to be forced to part with money (by the government) to achieve the common end. Hmm! another form of government imposed "rationality": people cannot always be rational (a.k.a. agree with the government economist), so we must force them to be so.

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The major media is, of course, being a bunch of jerks. Turn on CNN and you hear cries that the government isn't responding fast enough, and the lack of preparedness (how do you prepare for a storm that picks up and moves casinos?); Turn on Fox, and they're asking reporters how much their gas prices and insurance prices are expected to rise (uh, dude, could you have a little tact and wait until they clear the bodies out of the streets before whining about your wallet?).

On Fox News radio this afternoon they were interviewing people in the region, and one reporter was talking to someone who had lost absolutely everything. The reporter asked "What do think about President Bush sending relief into the area?" to which the person replied something like "Bush!? I heard that son of a b*tch was golfing yesterday!"

Shockingly, Fox quickly cut the feed ...

Edited by synthlord
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I don't see what Bush golfing has to do with anything. All he can do is send aid, but it's not like it takes an extraordinary amount of time to say, "Hey Advisor #1, start allocating funds for aide and schedule a television address."

I've watched Fox's coverage, and it seems to have been decent to me. The Fox Report w/ Shephard Smith hardly mentioned gas prices; it was all about what was going on in the affected areas.

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Mind you, insurance companies do work on the freeloader problem all the time. They form vaious trade associations especially when it comes to insuring workplace safety. It does a whole lot when it comes to helping defer risk. They do alot of education about workplace safety in general that they distribute to non-account holders because they have calculated the value of spreading a general level of knowledge about not doing something stupid at work is worth. They do it when it comes to the securities industry and really any type of insurance. It's the reason you get those corny newsletters from your HR department every payday. Chances are, an insurance carrier actually produced a large part of them and your company just rebrands them like a store brand aspirin.

Actually, all insurance companies do it. But the question is how much do they do? As for doing something like reinforcing the levies, no company in their right mind would even think of it. First off, the liability in the case something went wrong, no matter how rare of a storm/fluke/whatever would be near infinite. Also, the corps of engineers would not like their input. Generally the corps doesn't like people poking their noses in their business.

Anyone with half of a brain knew New Orleans was an accident waiting to happen. Plus, very unlike the tsunami in Asia, this hurricane wasn't a suprise to anyone. People knew darn well in advance. Yes, there are quite a few people who could not afford to leave and that they didn't think to pool their resources and rent vehicles or leave via bus when they heard it was coming was bad.

Mind you, what makes me sick to my stomach is the fact that the federal government will end up bailing out people who didn't get flood insurance. If you live here on the gulf coast, your home owners or apartment renters insurance specifically excludes floods. Generally, depending on where in the floodplane you live you can only get insurance from your uncle sam. Otherwise, it's just another level of insurance that is smart to have. Expensive yes but smart.

But then many people fail to plan for the inevitable. For those people I have absolutely no sympathy. I have always carried flood insurance and a few years ago lost everything I owned during Tropical Storm Allison. I was floored hearing neighbors whine about the city/state/national government doing something for them about fixing their houses and telling me I was "lucky" to have insurance. No, I wasn't. I live in Houston and I know the city lies in a flipping flood plane. That means it will flood and flood like a mad dog.

Of course, just as bad is you know you'll see insurance companies running to the government claiming something like "how could we have planned for this" like they did after 9/11 and then having the taxpayers bail them out. :dough: The only thing worse than us being forced to bail these people out is the fact the morons will use the money to rebuild their places right back in the same dang spot. I've seen it first hand in Houston. People's house get wiped out by floods, they rebuild, and two years later get wiped out again. The vicious cycle of stupidity starts over again...

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