Comment by briandear | Hacker News Reader

Comment by briandear | Hacker News Reader

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Totally agree; the problem of insurance is one of contract law. Most people denied claims are denied legitimately based on the contract they signed. However, there is the perception that claims are denied unfairly because there is a disconnect between what you thought you signed with what you actually signed.

I saw this every day when I was a catastrophe claims adjuster with Farmers Insurance during Hurricane Ike that demolished a good part of the Texas/Louisiana coast. I actually had a customer threaten to shoot me because I couldn’t write a check for a water damaged wood floor despite writing a big check to replace the roof. The actual source of the water damage wasn’t the roof, it was the floodwater. So while the walls from the roof downward were covered because that damage was from the seepage from the damaged roof, the floor damage was entirely from the flood. (It was a two story house so the water from the roof seeped through the walls from the attic and leached downward into the drywall, while the floor downstairs was covered in a pool of water from the floor.

The point is the homeowner thought he was covered despite there being an extremely clear flood exclusion for that particular policy. I could have been really strict and only covered the walls down to the flood line, but since the walls were a total loss either way, I had the flexibility to cover the walls all the way to the floor.

I saw this misunderstanding again and again when it came to roofs. A 20 year roof that is 10 years old is only covered at a fraction of replacement cost because it only had 10 years of value remaining. Those were uncomfortable situations for me however, the homeowner, when buying them policy could have bought a replacement cost add-on, but they wanted to save money so they got burned when they needed the coverage.

Insurance agents are a HUGE part of the problem – is claims adjusters had to be the “bad guy” and break the news that their policy didn’t cover what they thought it did. I was the one getting harrassee when all I was doing was following the contract. I did my best to lean on the side of the homeowner, but all of my payouts had to be supported by detailed measurements, photographs and Xactimate estimates.

A nasty business that was. I barely lasted a year before I burned out.

Every time I have ever purchased any insurance policy, I have read it. All of it. Then I pick out sentences or paragraphs and ask my agent to explain what they mean. The agent never knows. Their boss never knows.

I'm a fairly educated person. I understand a lot of complicated things. I can read and comprehend legal statutes, building codes, lease agreements, historical documents, Shakespeare, transcripts of legal proceedings, and lots of hiphop. But I have never been given a policy statement from my insurance agent that was coherent. Or even complete.

I think it is these "pick and choose" exclusions that have no actual sense to them. Of course a homeowner's insurance policy should cover flood damage to a floor. The floor is part of the home, isn't it? But no, the company decides to pick and choose, and they never really call attention to it.

This is why the ACA came up with the "Essential Health Benefits" list. There were so many things that, common sense would tell you should be covered, but insurance companies would exclude for no viable reason (making more money or not having to pay out claims are not things I consider "viable reasons" in this context). You'd buy insurance, only to find out it wouldn't actually cover things that people would want to use it for.

Insurance doesn't generally cover flood damage for structures in flood zones, or does so at a much higher price.

The point of briandear's example was that wind had damaged the roof and walls, and wind storms were covered by the insurance; whereas flooding had damaged the floors, and flooding was not covered by the insurance.

When you get insurance, it doesn't necessarily cover everything. You might have insurance that will pay for your home if it catches fire and is destroyed accidentally, but will not pay if a person deliberately commits arson. Insurance might pay of your home is destroyed by a storm, but not by a landslide, and so on.

The main problem I heard with briandear's example is that people apparently didn't understand the coverage they had purchased. If I operated an insurance company, I would consider summarizing the policy that people were about to purchase with a simple form showing the most common hazards. Maybe even show them with simple glyphs depicting fire, floods, storms, etc., and indicating whether their plan covers that scenario or not. Ask them to sign or initial that form. It's not a legal form, but you'd present it to them and ask them to confirm they understand it along with the contract text version.

Then, when an event happens and they're asking for an insurance payment, you show them the form that they had initialized, and explain how things were covered or not covered.

I would also want to explain to people that multiple disasters can happen at once, and explain how the insurance company will reason about what's covered, based on the cause of each thing that was damaged or destroyed.

I wonder how much extra insurance companies are able to charge consumers because it is so complex for most people. There is massive information asymmetry there in favor of the insurance company which almost certainly is reflected in higher margins than they'd otherwise have if they had an educated customer able to properly assess the offering.

> The main problem I heard with briandear's example is that people apparently didn't understand the coverage they had purchased.

While that's true, a part of the reason is the complexity of policies, and exclusions for situations which people consider "common sense" to be covered. Situations which are medium risk, but part of people's everyday lives.

For example, my travel insurance does not cover accidents which are "a result of drug or alcohol influence". My laptop loss insurance does not cover theft if it is "left unattended in a room with public access".

It might make sense to exclude getting high on unknown drugs in Thailand and stabbing yourself, or leaving your laptop on a truck stop cafe table while going to the toilet.

But at the same time, having a few beers while on holiday, and leaving your laptop on your desk at a startup office are both things which reasonable, responsible people still often do. And would not expect to invalidate their insurance cover.

Unfortunately nobody could explain to me the precise details of these clauses - what counts as a "result of" or "public access".

Living on a floodplain is like smoking two packs of cigarettes a day. You'll be fine for a while, and then you won't be. If the house isn't on stilts, you'll have to fix the flood damage eventually. Insurance companies know this, so they'll charge enough for flood coverage to cover the inevitable losses.

As I understand it, in the US, flood damage is almost never covered by homeowner's insurance. It is covered by flood insurance from the US government.

The reason for this is because most human settlements are near water. It is not only essential to life, it is a good means of transportation and has been for a long time. So most human settlements are built in flood plains. Thus, sooner or later, most homes will be at risk of flood damage.

Insurance is about risk management. There is no risk to manage here in terms of taking a financial bet. It is all downside for the insurance company. The question is not IF the house will be in danger of flood so much as WHEN. Insurance companies try to avoid such bets, for the most part. (Not counting life insurance.)

If and when are the same from a risk management perspective... Have you heard of life insurance? 100% of customers will die, the bet is whether they die before the collected premiums exceed payout.

No, actually, a lot of term policies basically bet that you die after the policy expires.

Whole life policies make the bet you are describing. They are a lot more expensive than term policies and you can borrow against them because you are basically putting money into a fund in some sense.

The vast majority of life insurance is absolutely a bet. Many, many life insurance policies are only good if you die on this flight to New Zealand or if you die in a car wreck or if you die in the next five years while still quite young. People buy these things because they are cheap as all fuck because they are long shot bets. Most people won't die on their plane flight or in the next five years while in their 20s or 30s.

And the last line in the comment to which you are replying makes it crystal clear that I have, in fact, heard of life insurance.

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