[TowerTalk] Insurance for Tower

[Jim Lux]

On 11/27/13 4:55 PM, Kimo Chun wrote:
> I don't recall the details of what part of my homeowners policy covered my
> tower failure around 2000, but they covered all material and estimated labor


On aspect, not specific to Kimo's anecdote, is that experience with 
insurance companies before 2007 may not be relevant today.

The market and banking system anomalies hit insurance companies hard. 
In school you learn about the idealized scheme where the sum of all the 
premiums collected from all policy is slightly more than the sum of all 
the loss payouts for the year.

However, in reality, what happens is that the money that is paid in, and 
not yet used to settle claims, is invested in various speculative 
instruments ranging from T-bills/T-bonds to Credit Default Swaps and 
other exotic investments.  In "good times" the profits from these 
investments allows the insurance company to charge lower premiums for a 
given loss experience (e.g. they only need to collect enough that 
premiums+investment profits is > loss payouts).

AIG, for instance, was making money hand over fist by taking the counter 
side to mortgage defaults: e.g. they were betting that the mortgages 
wouldn't default, and they could collect premiums and never payout. 
This allowed them to offer very competitive rates in their other lines 
of business.  OOps, that didn't work so well when the laws of 
probability went against them.

So, now, insurance companies in general have to charge higher premiums: 
the investment income isn't there, the loss payouts are still there, so 
premiums have to go up.  Or, they can manage the future loss payouts.

And the latter is being manifested in a variety of ways:
Here in Southern California, it is becoming VERY hard to get new 
policies written on existing houses, because large swathes of 
subdivisions are now deemed "high fire risk"; essentially you draw a 
boundary some X hundred feet from the boundary to undeveloped land, an 
everything in there is in the hazard zone.  Whether they are or aren't 
in real life is irrelevant  (There are lots of cases where the concern 
is legitimate.. urban/wildland interface is a big problem).  The problem 
is that anything that triggers a re-evaluation is a potential cause for 
your insurance going away.

I think this is similar to the problem in Florida with hurricanes.  The 
big players have decided it's not worth it to insure houses in FL any more.