With the California fires, consumer advocates have redoubled their atacks on the “greedy” insurance companies. California congressman John Garamende said from his eight-year experience as insurance commissioner that the insurance companies will “‘lowball’ and deny claims.” Carmen Balber, executive director of Consumer Watchdog, adds that home insurers in California are more profitable than the nationwide average (I guess Balber thinks insurance companies in California make too much money). Even Kamala Harris chimed in: “Many insurance companies have canceled insurance for a lot of the families… which is only going to delay or place an added burden on their ability to recover.”
When someone buys an insurance policy he/she is buying into a risk pool (an insurance policy is not a savings account) where everyone in the pool shares the risk assumed by that pool. It’s the shared risk concept that makes insurance work. The insurance companies are literally betting that a specific home won’t be destroyed. If the home is destroyed everyone in the risk pool pays a small (because of sharing) amount for its replacement.
Insurance companies’ use actuarial tables to guide them when…
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