FAIR Plans

I doubt there has ever been a time when more people are pushing, developing, or considering the creation of state-backed FAIR plans. Somehow, in some way, through magic finance, these people are pushing the narrative that they can provide affordable insurance because they don’t have to make a profit, unlike those “greedy” insurance companies. This is not good for the public, who will fund these programs and the resulting losses.

Insurance companies are, on average, excluding investment income, non-profits. The average underwriting profit margin over the last ten years is 0%. 100% of all profits are from investment income. If insurance companies cannot make an underwriting profit at their current rates and underwriting models, and these are for-profit entities, then why is there any expectation that a state-backed non-profit that does not possess ANY investment portfolio can somehow write the same risks at a lower rate or even the same rate and break even? Do they somehow possess an innovative, state-of-the-art underwriting model? Maybe they do, but I’ve never seen a state-backed insurance company that truly did. I have seen them pretend they were better, but reality eventually caught up when they incurred a large fire or hurricane.

Are they going to succeed in negotiating lower reinsurance rates? Maybe, though quite doubtful because adverse selection will be higher in a FAIR plan.

Will more intelligent and talented people run them? That isn't very likely because, by and large, talent gets paid far more than the FAIR plans pay. Also, simply assembling the team and expecting them to perform well from the beginning is not a realistic expectation in the real world. It works in the fantasy world. And even if the best talent available is assembled, a FAIR plan is a government program, therefore politicians will interfere.

Consider how the narrative would change if the industry advertised that companies do not actually make money off insurance. Imagine big-time television advertising and YouTube advertising replacing ostriches with the fact that insurance companies make no money on insurance. That might bruise some egos, so that’s not going to happen.

It is best for the public if the founders of FAIR plans make it clear that FAIR plans are designed, if designed correctly, to break even after factoring in enough profit to build surplus. Publicize that FAIR plans are designed to create capacity, not low rates. FAIR plans are not designed to save anyone money but to provide insurance in an otherwise insurance desert.

For the insurance companies that don’t want to write property, do everyone a favor. Stop pretending and get out. Carriers not willing to hire underwriters who think or do not allow their underwriters to think are a cancer to this industry. Those carriers are an essential reason behind governments taking over parts of the industry and why the trial attorneys have gained so much leverage over state legislatures.

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