[merrywhether]

Yeah, the solution isn’t divorcing risk (as communicated by cost) from reality. If the concern is usurious insurance rates, that’s where things like profit caps and other regulations come in. Society should want people to have fair insurance rates but not necessarily cheap rates.

[Analemma_]

Profit caps are a bad idea in general, but they are an especially terrible fit for companies insuring against tail risks, because you need to eke out a small profit for years or decades to hedge against the black swans with massive costs. The 2017 and 2018 wildfires wiped out _25 years_ of insurance company profits, for example: if you had said in 2013, "hey, these guys have made 20 straight years of profits, we need caps to control costs", you'd have left them insolvent against the fires.

This is all a moot point though: you cannot force companies to offer insurance. If regulations prevent them from offering policies at a profit, they just leave. Which is exactly what is happening in California (and Florida): every company is bailing out and refusing to renew policies.

[merrywhether]

It’s all in the nuance. Currently the insurance companies have too much moral hazard, as they are able to extract profits during the “good” years (like AllState’s recent $3B stock buyback) and then deny or default during disasters. An extractive profit cap could allow companies to take in more than they spent and save it to prepare for major catastrophes. They wouldn’t have to simply disperse these funds back to policy holders or something. I’m sure that idea would need more refinement, but my overall point was that our regulations should directly target the incentives we actually care about. And we have to rely more on regulation in these situations because the market can’t properly price the risk of companies disappearing during major payout events.

I’d really argue that for-profit insurance companies are a bad idea in general, but that’s a higher-level debate. There’s an interesting idea where governments handle all disaster-related insurance handling but are then also able to have a more comprehensive approach to management (though that’d be hard to trust in the current US political climate).

[cyberax]

> The 2017 and 2018 wildfires wiped out _25 years_ of insurance company profits

Money spent to repay loans or to make reserves are not profits.

[daveguy]

Profit caps are not the same as disallowing profit. They make sure insurance payouts are fair given the insurance premiums. Distributing "profits" back to shareholders to the point that the insurance company cannot honor policies is a disingenuous use of funds for an insurance company. You seem to think profit cap = no profit, which is not the case. It means the profit ROI cannot take precedence over the insured ROI.

[Ekaros]

Shouldn't competition take care of usurious rates in relatively free and working market? That is people will move to cheaper offerings which likely are close to real price.

[brewdad]

In a market with high uncertainty, more companies are likely to abandon it than hope that their actuaries get the numbers exactly right.