Better Safe Than Sorry
They say it is preferred to have it and not need it, then to need it and not have it. Insurance is one of those expenses we have come to accept and consider it foolish to decline. Going through life without the various forms of financial assurance is dangerous, hazardous, perilous, precarious, minacious and all other adjectives for risky behavior. Protection against unforeseen casualty is a privilege for the rational and risk averse individual. To forgo the security endowed by the $2.2 trillion is fiscal suicide. This sentiment is changing.
It is no secret that all forms of insurance are rising in price. Higher premiums, lower deductibles and the general fear of submitting claims is plaguing American families. The omnipotent insurance companies pronounce that their generosity has reached its limit, and they must raise costs to remain profitable in the highly uncertain environment of modernity.
When researching the factors attributing to this dramatic rise, one would come across thousands of articles blaming everything except the obvious. Car insurance companies blame the roads, the dangerous drivers and even the cars. The health insurance companies declare it’s the complexity of modern medicine and disease that’s making everything expensive. The home insurers have the audacity to blame the Earth itself. The changing climate is the perfect scapegoat because who can argue with the forces of God and nature to justify malicious price hikes. Rarely, do you see the honest ascription of inflation as the primary cause.
Insurance costs are calculated based the value of the insured. If property prices double, then the cost to insure that property doubles. Insurance companies have the best actuarial scientists in the world computing complex equations to determine the exact value of every person, place, and thing that one wishes to indemnify and all their associated risks. They know the exact cost to replace, and they know how much to extract from the customer to ensure profitability. The problem is that the insurance companies came to the conclusion that things are simply not worth their paper value.
Currency debasement has distorted the value of everything by pricing it in an inflated medium of exchange. The insurance company looks at a multimillion-dollar mansion in southern Florida and says, “I don’t think that stucco structure is going to survive another category 5 hurricane” and they refuse to insure it at the perceived value. Companies are abandoning California and other states with consumer protections against price gouging. These businesses still must make money, and these current valuations are not adding up.
The industry was able to hide most of these rising costs in various ways. They pushed these costs onto the corporation and shared risk was spread amongst employees who only saw favorable benefits. They used financial instruments with customer premiums, following the typical cash rich company avenue of becoming another bank. They utilized government lobbying to subsidize and subsequently require certain liability protections. Above all they refused to pay out claims. The reason why insurance companies refuse to acknowledge the overvaluation of assets, is because they charge premiums on the market value and then deny compensation predicated on the actual value.
You understand the game yet? They want you to think that they are ensuring the replacement value of your home, car, body, whatever; in reality they are charging you for that value but insuring the actual value independent of the market. Your mortgage lender likely requires homeowners’ insurance to protect their investment, not yours, despite never paying the market price for the home. You pay for an inflated asset, assume all the risk, pay for the insurance at the inflated rate, and if casualty were to ever befall upon this asset, the claim would likely come up short so the bank can acquire the property at the reduced (actual) price. Like a good neighbor…
Unfortunately for our favorite neighborly insurance companies, all the finagling and lobbying just bought them time that is about to run out. Valuations have become too high to insure. The risks are staggering, and state governments will not allow them raise premiums any further. This is what happens when they lie with inflation data. The government CPI rate is insanely understated so these poor poor insurance providers can’t charge the market value to consumers. This is why they heavily escribe to the climate change narrative. They will bully state representatives into removing price ceilings, or they will abandon the state altogether and blame the changing winds.
The U.S. federal government is already dancing to the tune of weather-related inflation because to be honest is to admit their own fault in debasing the currency. The U.S. Treasury recently posted a report detailing the rise in home insurance costs and its relation to the rise in natural disasters. They did not once explain how weather makes prices rise; however, they did admit the following:
There is a significant trend of Americans moving to places with higher risk of natural disasters.
The insurance claims derived from natural disasters has paid out double the amount this decade than last.
Zip codes with higher home costs, are at higher risk of natural disasters and pay more in insurance.
This 74 page, utterly tone-deaf report came to the conclusion that rich people like to live near the beach. Apparently expensive homes need more expensive insurance, and each new disaster creates more financial damages, NOT BECAUSE THE HOMES COST MORE, but because the weather hurts more.
This is your federal government telling you that their spending habits are definitely not causing this crisis of insurance and that they should be allowed to spend more money to fix it. Anyone with enough braincells to rub together can determine that rise in natural disaster costs are directly attributable to the rise in home costs. The Gulf of Mexico didn’t suddenly become more dangerous, hurricanes are just blowing over $1 million homes instead of $500,000 homes.
This backs the whole insurance industry into a very tight corner. Assets are horribly overvalued and it’s no longer profitable to insure them without illegally burdening the consumer; corporations can no longer handle the burden of insurance; the government is saying the coasts are uninhabitable, but rich people keep building mansions there; everyone figuring out that insurance is a scam wants to murder industry CEOs. What do you do?
You do the right thing. You properly assess homes on their realistic value, you only guarantee replacement at par, you refuse to indemnify mansions below sea level, you listen to your actuaries and abandon markets that refuse to acknowledge the reality of inflation. Ironically, the right thing is severely damaging to the world economy. If insurance companies only cover assets at real value, then the banks must subscribe to that value as well. Markets will correct to these prices and likely cause a brutal recession. This whole time, everyone has been pretending that homes are supposed to double in value every few years. They tried to dispel blame onto the corporate greed, or the government price control, or maybe the weather, but they couldn’t admit that the debasement of currency was the cause all along.
Risk is compatible with life itself. You can mitigate it, but you cannot remove it. Insurance in the modern world is just a false sense of security that tells us how expensive all our stuff is. You’re not guaranteed a damn thing, but they want you to believe in that replacement value, so you keep paying your premiums. They’ll raise your deductible, lobby to your government, espouse silly narratives, and call you foolish for seeking alternatives. In reality, the best insurance is your own prudent saving and your community.
All our earthly possessions have taken over our rationality as we assume we have so much to lose. Our assets are priced in ever depreciating dollars. We’ll ALWAYS pay out more than we receive from the underwriters because our stuff just isn’t worth that much. The real value in life that comes from companionship and individual achievement cannot be insured, it can only be cherished.