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 Posted: Mon Oct 05, 2009 10:49 am Post subject: Overpriced insurance coverage |
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Is it true that whatever insurance we get in the market is generally overpriced?
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Clivedixon
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| Posted: Mon Oct 05, 2009 11:45 am Post subject: |
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That depends on your perspective, and the risk.
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Lori
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| Posted: Mon Oct 05, 2009 1:26 pm Post subject: |
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| If it's all "over-priced", what would the normal price be? There are still thousands of carriers competing for business, especially now. That pretty much insures a lower/fair price. |
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tcope
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| Posted: Tue Oct 06, 2009 2:33 am Post subject: |
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What exactly is "overpriced?"
I first of all have to agree that it's a matter of perspective. What's overpriced to one may not be to another, but that's obvious.
Insurance is a risk-sharing mechanism. It's meant to spread the risk of many through a pooling mentality. Similar exposures are lumped together into what are called "homogeneous exposure units." These exposures share similar tendencies and characteristics. For example, 16-20 year-old single male drivers. The similar characteristic they share is that they mostly suck when it comes to driving. 
Insurers, in part, use the idea of homogeneous exposures and the law of large numbers to set their rates. Additionally, what's happened in the past is likely to happen in the future in terms of loss exposure.
What does this all mean? It means that in insurance, you generally deserve what you pay (for). Lousy drivers with terrible credit have horrible insurance rates. Good drivers with good credit have good insurance rates. What's the big deal?
When you say overpriced, I tend to think of something that a person pays in excess of an item's value, either actual or perceived. The price of insurance may suck...until you get into that at-fault accident where you hit the kid on the bike or you need that life-saving surgery or your house burns down.
So, in that sense, when I think of my three kids driving around like semi-lucid idiots, I think that my insurance is a bargain. Even though I've never had to use it with the kids...ya never know.
InsTeacher 
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InsTeacher
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| Posted: Tue Oct 06, 2009 10:43 am Post subject: |
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great post ins teacher !
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Lori
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| Posted: Tue Oct 06, 2009 11:16 am Post subject: |
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Hi Teacher, you've touched an insurer's way of collecting facts from the past and then planning for the future when it comes to loss exposures. I'd also think that this idea gets affected by unforeseen facts like inflation, natural disturbances, global downturns etc. What do you think?
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Pinkfloydfan
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| Posted: Wed Oct 07, 2009 1:23 am Post subject: |
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| Quote: | | Hi Teacher, you've touched an insurer's way of collecting facts from the past and then planning for the future when it comes to loss exposures. I'd also think that this idea gets affected by unforeseen facts like inflation, natural disturbances, global downturns etc. What do you think? |
While an insurer does use the past to predict the future, that concept can only go so far. In terms of things like inflation, many policies have built-in inflation protection meant to make sure the policy keeps up with changes in the cost of living, etc. Homeowner's policies regularly build this into renewal policies, life insurance policies can have a rider attached that increases the amount of coverage based on inflationary statistics, etc.
When considering things like natural occurrences, such as floods, hurricanes and the like, insurers know how to price coverage for these exposures, but they can't "predict" when they'll occur. The only known constant is that they will occur, but when and where is the mystery.
Regarding economic markets and associated downturns. You won't see an insurance company put a product on "sale" in the traditional sense. Not because they wouldn't, but because state rule prohibits the practice. Think about what kind of insanity would result if a carrier announced a "weekend special" on car insurance.  Are insurers affected by economic downturns? Absolutely. It's pretty well agreed that losses go up when the economy goes down; all you have to do is look at the numbers. Loss ratios tend to explode and have a direct correlation with the economy, especially in P&C arenas.
Can insurers raise their rates? Only with state approval and only if the carrier can meet certain metrics.
InsTeacher
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InsTeacher
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| Posted: Sat Oct 10, 2009 7:14 am Post subject: |
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When it comes to attaching life insurance riders based on inflationary stats, do you mean it happens without the insured even asking for it? Or is it upon requests from the policyholders that the carrier makes the necessary changes?
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Pinkfloydfan
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| Posted: Sat Oct 10, 2009 3:16 pm Post subject: |
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| Quote: | | When it comes to attaching life insurance riders based on inflationary stats, do you mean it happens without the insured even asking for it? Or is it upon requests from the policyholders that the carrier makes the necessary changes? |
No, inflation protection is normally offered in the form of a term insurance rider to a permanent insurance policy. The rider will cost a little extra premium as normally the extra coverage (based on an inflationary measure, such as the Consumer Price Index) is added without proof of insurability.
InsTeacher
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