May 3, 2024

Insurance Companies to California: “Go to Payday Loans”

Refusing to go down with the ship or even provide a dinghy

By Ed Goldman

Even though insurance companies are compulsive gamblers, I have to admit they “know when to hold ‘em/Know when to fold ‘em,” as that Kenny Rogers song (written by Don Schlitz) has it.

This is why when California—with its lethal combo of fires, floods, earthquakes and life coaches—proved itself to be a worse risk than playing against the house, the industry started lamming out of here. It left no forwarding address.

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Insurance agents may object to my characterization of them being in the gaming industry. My response is what Wendy should have said to Peter Pan: “Oh, grow the hell up.” 

Every year, the industry invites you to join or rejoin a high-stakes poker game. The industry bets that over a period of 12 months—and automatically renewable thereafter, often with increases even if you never file a claim—this is what will occur: You won’t be in a car accident, your home won’t spontaneously combust and your neighbors won’t tear their ACLs walking up your front steps. 

The industry plays the long odds, figuring the chances of those things happening are quite low, on a global basis. The result is that when one of these woes occurs, it has plenty of cash on hand to pay up. The cash came from you and every policyholder in its portfolio—just as casinos make all their money because of all the unsuccessful gamblers at the tables, roulette wheels and slot machines. This explains why when you’re losing your shirt, shoes and underpants, they generously comp your banana daiquiri.

Speaking of casinos, have you been to one lately? The bulk of the games are computerized—and rather than allowing you the dubious fun of watching highly trained dealers consistently shove your hard-earned, ephemeral dollars into a slot on the table or rake away your losing chips, you stand in front of a screen whose blinks, boings and blats imply you’ll be canceling your return flight, sneaking out of your hotel room and thumbing a ride back to Loserville, U.S.A.

Bookies and odds makers are nothing more than actuaries, though usually more gaudily dressed. They assess likelihood and the laws of probability, then lure you into thinking you can defy them. 

It’s another one of those “Puny earthling!” moments, with which our planet is so terribly rife. Like when the car rental place coerces you into buying extra insurance even though you’re already a fully insured driver. Or when somewhere along the line you get convinced that brown-shelled eggs are better for you than white-shelled ones. Or that the TSA is so mindful of airport safety it urges you to buy into a program that lets you zip through the security line next time without removing your shoes. Mark my words, the next potential shoe bomber will be the person who’d upgraded.

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As it turns out, the chief culprit for raising insurance premiums—or for a company simply fleeing a region or state when it has to shell out actual money for actual catastrophes—may be the reinsurance industry.

From the New York Times: “A little-noticed slice of the financial industry that provides insurance to insurers, called reinsurance, has helped drive the changes. These companies promise to step in with cash—usually huge amounts—when something like a hurricane, a wildfire or another big disaster creates damage that is too costly and widespread for insurance companies to pay for on their own. And at the beginning of the year, nearly all of them raised prices.”

Armed with this information, you may now think my comparison of the insurance industry to the casino business is approaching apples-and-tangelos territory. Not so. When the gambling biz has to make a huge cash outlay, it, too, has a reinsurer as a safety net. Instead of calling itself “Lloyd’s of London”or “Berkshire Hathaway” they may have more colorful names, like “Jimmy The Grapefruit” or “Vinny the Bratwurst.” And they may deliver the funds in satchels instead of by wire. But no matter how you look at it, concluding they’re in the same racket is a pretty safe bet.

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Ed Goldman's column appears almost every Monday, Wednesday and Friday. A former daily columnist for the Sacramento Business Journal, as well as monthly columnist for Sacramento Magazine and Comstock’s Business Magazine, he’s the author of five books, two plays and one musical (so far).