An inconvenient history

In the field of actuarial science, I'm even more of an amateur than I am in the dismal science of economics, but even I can comprehend the logic behind the concept of buying insurance before you crash the car.

For homeowners' insurance, after the house is in flames isn't a good time to seek Allstate's "good hands". And similarly for the natural-events sector of construction insurance; building on the New Madrid Fault, along the Outer Banks, or the below-water-level parishes of Louisiana ought to be a lot more expensive, for actuarial reasons, than building in low-seismic risk areas, distant from oceanic hurricanes, or on the high ground, as the 18th century French did when they sited the original New Orleans on high ground which didn't flood during the Katrina event.

Now, under the modern collective persuasion, prudent builders who don't select such risky sites are Federally required to subsidize the imprudent who do, sometimes repeatedly. Well-armed guys (on your taxpayer payroll, ironically) clad in ninja suits with three large block letters on the back will come for you if you refuse.

Similarly for health insurance. States, such as Vermont, which have adopted the community rating collectivization principle, enable high-health-risk customers to pay the same low premium as less actuarially expensive customers, whether their adverse health prospects result from genetic inheritance or behavioral choice. And then there was Rod Clarke's anti-helmet motorcycle group, which offered to sign waivers, disclaiming the right to expensive cranial care should they crash while riding; Montpelier was neither amused nor receptive.

As those of advancing years know, the longer you wait to enroll in long-term-care insurance, the higher the premiums. To me, as an amateur actuary, it makes perfect sense. A rational person wouldn't expect to be offered insurance once he's at the in-patient desk of the nursing home, just as the post-Andrew de-roofed Floridian would have been and should have been turned down (pre-existing condition) for storm coverage. By this measure, the state government of Florida isn't rational: it now offers homeowners' insurance at less-than-market rates. When the bill inevitably comes due, look for Florida to demand dollar-denominated help from other States.

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