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Comment by hallway_monitor | Hacker News Reader

It does seem like it's time to stop letting this "industry" profit off the misfortune of its customers. Making all of these a public service instead of private industry makes sense at this point.

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The profit margins on insurance are usually pretty slim. Insurance companies are generally not well differentiated from one another, so they have few avenues to compete other than on price. A state-run insurance plan also has to operate at a profit/surplus or else it will have to be subsidized by the taxpayers. The effect is the same either way.

Slim from a percentage of total premiums but substantial when looking at the absolute dollar amount of profits. It's all relative to the size of the pie.

The absolute value is only meaningful when compared to the amount of capital invested.

Its also only meaningful when measured over a long period which takes good years and bad years into account.

Also, when margins are slim, a major event (like a series of wildfires in one of the biggest cities in the US) can wipe out those profits. A responsible insurer can withstand one bad year. But if those major events start happening with more frequency, then one bad year becomes a series of bad years. Reinsurance premiums for the insurer go up, meaning that taking on risk is more expensive, and they’ll eventually have to decide between raising their own premiums to unsustainable levels or pulling out of risky markets.

Margins being slim doesn't mean much as long as insurance companies see continuing operations as profitable. I'd like to see this model stress tested until more insurance companies pull out. This would cause reductions in the housing market from the increased insurance prices and subsequent mortgage reduction, and would lead to more compartmentalized insurance prices and risk approximations between high and low-risk homes.

Either that or a barrage of government policies which will make things worse for everyone and continue the US economy's descent into the death spiral.

Ironically they don't profit off the misfortunate customers. Those ones typically get back more than their premiums.

They profit off the fortunate customers, those who have no need to claim from insurance.

Even that depends on the length of their coverage and the claims the customers are able to make.

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