Letter from Washington: Homeowners insurance is a crummy business

by Eli Lehrer on February 21, 2012

There’s an elephant in the room I probably should mention:  someone impersonating a Heartland Institute trustee defrauded Heartland last week, stole internal documents and created one outright fake.  The identity thief has since been revealed to be Pacific Institute President Peter Gleick, although he insists that he “received” the fake document in the mail anonymously and was not its author. Heartland’s official statement on the issue is here.

Heartland’s Center on Finance, Insurance and Real Estate, which I run and which publishes this blog, doesn’t work on the climate change issues that are the focus of the dispute. OOTS readers interested in them should visit our sister site, on Environment and Climate Policy.  With that out of the way…

***

At a time when about half of the insurers in the most windstorm-prone state in the country (Florida) are at serious risk of insolvency, the Consumer Federation of America has announced that homeowners insurance rates have to be suppressed always and everywhere in the name of fairness. As OOTS editor Ray Lehmann explains in this press release, that’s totally untrue and based on faulty analysis of the data that conflates all lines of insurance with the homeowners line. But even Ray’s comments and my own don’t get to a deeper issue: homeowners’ insurance is a lousy business.

This doesn’t mean that insurers are all going to the poor house.  Insurance, taken as a whole, is a pretty good way to make money. It’s not as good as, say, being Apple but better than being an airline or a newspaper. Companies that operate in the admitted insurance market where most people buy their risk transfer products are pretty stable. But, among the major products sold in the admitted insurance market—auto, life, workers’ comp, and commercial insurance—homeowners is almost certainly the worst business.

Let’s look at the facts. For a variety of reasons – including the relative infrequency of claims, the large magnitude of expected claims and the fact that homeowners insurance policies aren’t loaded down with extras – a look at any ten-year period will show that insurers pay out just about what they collect in premiums, meaning that they can only make money off of investments.

The results are pretty clear in the market in three ways. First, no sizeable company, to my knowledge, writes only homeowners’ insurance while there are any number of companies—including some household names like GEICO (auto) and John Hancock (life)—whose insurance businesses are confined to a single line. (Some also sell non-insurance products.)

Second, even though I have every reason to be hyper-aware of it, I can’t recall seeing a single advertisement for homeowners’ insurance anywhere in the past year. If it’s such a great business, why don’t companies want more of it?

Finally, mutual companies’ share of the homeowners’ insurance market—about 60%—is the highest market share of mutuals in any line of insurance.  This is probably because many mutual companies tend to reward their staff based more on sustainable growth (number of customers served where the company produces a normal profit) than on pure economic profits per se.

There are plenty of problems in the homeowners’ insurance market. But excessive rates aren’t one of them.

***

Last week, Heartland’s Joe Bast and a number of other organization CEOs including National Wildlife Federation CEO Larry Schweiger and American Rivers CEO Bob Irvin gathered together with Senators David Vitter and Jon Tester to call for reform to the National Flood Insurance Program. I spent a good part of the day with the CEOs and their subordinates meeting with other Senate offices and trying to educate them about ways that the bill is good public policy.

My main finding—the one that frustrates me the most—was pretty simple: the entire problem relates to politics, not anything about the substance of the bill. Gridlock has its uses but delaying the flood bill isn’t one of them. Arghhh…

Related Articles

  • http://www.offertenews.com/insurance/2012/02/21/letter-from-washington-homeowners-insurance-is-a-crummy-business/ Letter from Washington: Homeowners insurance is a crummy business | Insurance

    [...] posted here: Letter from Washington: Homeowners insurance is a crummy business Segnala [...]

  • http://www.drfouly.net/?p=53020 Insurance » Letter from Washington: Homeowners insurance is a crummy business

    [...] Visit link: Letter from Washington: Homeowners insurance is a crummy business [...]

  • http://namibia.iwooho.com/?p=38068 Peter Gleick Confesses to Obtaining Heartland Documents Under False Pretenses – The Atlantic | Namibia – iWooho.com

    [...] of the Heartland Institute hurts the climate change causeWashington Post (blog)ABC Online -Out Of The Storm News (blog) -PBS NewsHourall 181 news [...]

  • http://tanzania.iwooho.com/?p=30175 Peter Gleick Confesses to Obtaining Heartland Documents Under False Pretenses – The Atlantic | Tanzania – iWooho.com

    [...] of the Heartland Institute hurts the climate change causeWashington Post (blog)ABC Online -Out Of The Storm News (blog) -PBS NewsHourall 181 news [...]

  • http://uganda.iwooho.com/?p=36308 Peter Gleick Confesses to Obtaining Heartland Documents Under False Pretenses – The Atlantic | Uganda – iWooho.com

    [...] of the Heartland Institute hurts the climate change causeWashington Post (blog)ABC Online -Out Of The Storm News (blog) -PBS NewsHourall 181 news [...]

  • http://philippines.iwooho.com/?p=47969 Peter Gleick Confesses to Obtaining Heartland Documents Under False Pretenses – The Atlantic | Philippines – iWooho.com

    [...] of the Heartland Institute hurts the climate change causeWashington Post (blog)ABC Online -Out Of The Storm News (blog) -PBS NewsHourall 181 news [...]

  • http://www.contentshomeinsuranceuk.com/letter-from-washington-homeowners-insurance-is-a-crummy-business-out-of-the-storm-news-blog/ Letter from Washington: Homeowners insurance is a crummy business – Out Of The Storm News (blog) | Home Contents Insurance uk

    [...] Out Of The Storm News (blog) [...]

  • http://br.woowr.com/?p=409 The UK homeowner loans related information blog » Blog Archive » Letter from Washington: Homeowners insurance is a crummy business

    [...] which homeowners word rates have to be suppressed regularly as well as … Read some-more upon Out Of The Storm News (blog) Ask an Architect night helps homeowners lay substructure for alleviation projects And given 1995, [...]

  • http://nm.woowr.com/?p=240 The comprehensive information about auto insurance -

    [...] which homeowners word rates have to be suppressed regularly as well as … Read some-more upon Out Of The Storm News (blog) Category: In Car Insurance | Tags: business, crummy, from, Homeowners, Insurance, Letter, [...]

  • http://insurance-quotes.shine-fashion.com/2012/02/22/letter-from-washington-homeowners-insurance-is-a-crummy-business/ Letter from Washington: Homeowners insurance is a crummy business | Insurance Quotes

    [...] Letter from Washington: Homeowners insurance is a crummy business posted February 22, 2012 by adminkenny under House Insurance 0 Letter from Washington: Homeowners insurance is a crummy business At a time when about half of the insurers in the most windstorm-prone state in the country (Florida) are at serious risk of insolvency, the Consumer Federation of America has announced that homeowners insurance rates have to be suppressed always and … Read more on Out Of The Storm News (blog) [...]

  • http://coastalbendsavingsnetwork.com/2012/letter-from-washington-homeowners-insurance-is-a-crummy-business/ Letter from Washington: Homeowners insurance is a crummy business | Coastal Savings Network

    [...] Letter from Washington: Homeowners insurance is a crummy business At a time when about half of the insurers in the most windstorm-prone state in the country (Florida) are at serious risk of insolvency, the Consumer Federation of America has announced that homeowners insurance rates have to be suppressed always and … Read more on Out Of The Storm News (blog) [...]

  • http://cheap-insurance-companies.com/your-questions-about-homeowners-insurance-rates/ Your Questions About Homeowners Insurance Rates | Save Money with Cheap Insurance Companies

    [...] These Tips And Enjoy Cheaper Homeowners Insurance RatesComparing Homeowners Insurance Rates QuicklyLetter from Washington: Homeowners insurance is a crummy business div.socialicons{float:left;display:block;margin-right: 10px;}div.socialicons p{margin-bottom: [...]

  • http://www.resume-7.info/document/resume/letter-from-washington-homeowners-insurance-is-a-crummy-business Letter from Washington: Homeowners insurance is a crummy business – Resume – Resume

    [...] Letter from Washington: Homeowners word is a crummy business [...]

  • http://www.resume-7.info/document/resume/us-chamber-asks-doj-and-sec-for-clear-guidance-on-fcpa-compliance US Chamber Asks DOJ and SEC for Clear Guidance on FCPA Compliance – Resume – Resume

    [...] Letter from Washington: Homeowners word is a crummy business [...]

  • http://www.resume-7.info/document/resume/buffetts-shareholder-letter-out-saturday Buffett’s shareholder letter out Saturday – Resume – Resume

    [...] Letter from Washington: Homeowners word is a crummy business [...]

  • http://www.resume-7.info/document/resume/letter-prescott-the-right-place-for-new-business Letter: Prescott the right place for new business – Resume – Resume

    [...] Letter from Washington: Homeowners word is a crummy business [...]

  • http://www.tedtoddinsurance.com/ Amber

    Really interesting perspective. Even more interesting coming from a Florida perspective, with most major insurers completely out of the game.

  • http://gigunsa.com/67/?p=38 Letter from Washington: Homeowners insurance is a crummy business pJhFJ | Online Shopping

    [...] internal documents and created one outright fake. The identity thief has … pMxs LVQL yuopYRead More… Posts Related to Letter from Washington: Homeowners insurance is a crummy business [...]

  • http://www.carinsurancequestions.co.uk/homeowners-insurance-quotes/ Homeowners Insurance Quotes | Car Insurance Questions

    [...] If Your Insurance Policy Is Right For YouThe Lowdown On Choosing Insurance Quotes For Your BusinessLetter from Washington: Homeowners insurance is a crummy business body.custom-background { background-color: #1f7ddb; [...]

  • http://homeinsuranceagents.com/ Home Insurance Quote

    Amazing information makes me more specific about homeowners insurance policies. A deep observation is required to own any insurance police refer : http://homeinsuranceagents.com/

  • http://cheap-insurance-companies.com/your-questions-about-homeowners-insurance-florida/ Your Questions About Homeowners Insurance Florida | Save Money with Cheap Insurance Companies

    [...] homoewners insurance coverageCreating Home Inventory Lists for your Homeowners Insurance PolicyLetter from Washington: Homeowners insurance is a crummy business div.socialicons{float:left;display:block;margin-right: 10px;}div.socialicons p{margin-bottom: [...]

blog comments powered by Disqus

Previous post:

Next post: