Posted On: March 14, 2006, 1:08 pm CST

Posted By: TXGuru

I keep hearing the word "compromise" in the discussions. Pay the premium and we'll pay the claim. Several variations of this idea have cropped up, including penalty provisions, reduced limits, etc.

Besides the obvious fact that the HO policy does not cover flood, hasn't for 40 years, the language is crystal clear to the average person (even to a group of 4th graders in a study I just read!), and these people shouldn't be getting a single dime in coverage for losses that they didn't bother to insure against (no matter how bad we may feel for their losses), here's my concern with the "compromise" approach.

Insurance is based on the concept of spreading the risk. The law of large numbers. It assumes that some people will have losses at a given point in time, while others won't. If you allow people that have had a loss to retroactively buy the coverage, no matter what premium you charge, penalties applied, interest valuation surcharges, etc., you've violated the basic foundation of the insurance concept. You've GUARANTEED that EVERY participant in the risk pool has just had a loss! The only large numbers you have at that point are the total volumes of claimants, and all the ones on the checks being cut to them.

This whole case is absolutely ludicrous!