How Hurricanes Beat The Insurance Companies
Have you ever tried to predict a hurricane? Ever watched the meteorologists on television try
? It's frustrating at best and completely insanely impossible at worst.Yet insurance providers have to try. Otherwise, they wouldn't know how much to charge for hurricane insurance.
Insurance Companies Use Computer Models to Try to Predict Hurricanes
In order to try to get a useable number so that they can decide 1) if they should provide you with hurricane coverage, and 2) how much they should charge you for hurricane coverage, insurers use extremely complex computer models. These models feed off of scientifically gathered data about weather systems, climate patterns, and ocean currents.
Since literally trillions of dollars are riding on it, you'd bet these computer models would be pretty accurate, huh?
You'd be wrong.
Computer models are almost never accurate
There are several problems with the way insurers do things:
1.The data fed into the computer is incomplete and inaccurate
2.Scientists only have 50 years of history to use
3.The models are best at spitting out a range, not a single number
4.Insurers are not objective when choosing models
Insurers are concerned about 1 thing only: profit. They need a single number, not a range. When they are deciding on a model to choose, insurers tend to choose the model that gives them the highest number. Why? The higher the number, the higher the premiums they charge you, and the higher their profits are.
Garbage In, Gospel Out
This whole thing has become a kind of crisis because of something called the "garbage in, gospel out" attitude.
Insurers feed the computer models with bad data, and they put their complete trust in the number that comes out. It's a recipe for financial disaster.
Who ends up paying for it? The insurance executives? Of course not. It's you, the consumer.
To make it worse, 90% of insurance companies use the same 3 computer models. This means that the consequences are widespread and deep-seeded.
Why don't state governments regulate this better?
Offshore ownership is the answer. The company that gives you your hurricane insurance policy does not actually own the risk. They sell it to a company operating outside of the United States. This makes it impossible for states to regulate your hurricane insurance effectively.
On top of that, most hurricane states tend to be governed by conservative politicians. They generally aren't very strong on insurance industry regulation. This is especially true in Florida, where only one official has any say over how hurricane insurance is regulated.
These offshore firms play a big part in determining the prices.
Hurricanes are just the start
Across the US, so called "catastrophe models" like this are being used for new home insurance factors:
-human greed
-government failings
-tampering
The biggest problem is that there are no good alternatives to using these computer models. That's why they are also used for:
-Tornados
-Tsunamis
-Earthquakes
How you can save on Hurricane Insurance
To get your home insurance premiums down, make sure your home is hurricane-proof. Install storm glass and reinforce weak areas of the house.
Better yet, move away from coastal areas where hurricane coverage for home insurance is so expensive.
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