Let’s say for argument’s sake that a company was able to charge an average premium of $2,000/year for 5000 homes (with $300,000 avg. dwelling, $30,000 other structures, $150,000 in contents and $60,000 in loss of use) and there were absolutely no claims or inflation for 100 years. (of course that would never be allowed by the DOI in California because emotion overrides logic there).
The company would amass $1,000,000,000 (One Billion dollars) not including interest and investment income and only as long as they had no overhead during that time for buildings, staff, supplies, etc. The just kept receiving checks. And then, in the blink of an eye in one year, 500 of the homes burned down. Assuming all were total losses and each had a 150% replacement cost endorsement for the structure there would be 500 claims of $690,000 potentially for a total of $345,000,000. That’s why 30 years of profits were wiped out in two years.
The math is going to get really interesting in the coming years for carriers who want to play in the forest.
Good summary Reality. No way to charge enough for all the disasters that befall Mexifornia. Carriers should just pull out and let Moonbeam 2 handle it.
Let’s say for argument’s sake that a company was able to charge an average premium of $2,000/year for 5000 homes (with $300,000 avg. dwelling, $30,000 other structures, $150,000 in contents and $60,000 in loss of use) and there were absolutely no claims or inflation for 100 years. (of course that would never be allowed by the DOI in California because emotion overrides logic there).
The company would amass $1,000,000,000 (One Billion dollars) not including interest and investment income and only as long as they had no overhead during that time for buildings, staff, supplies, etc. The just kept receiving checks. And then, in the blink of an eye in one year, 500 of the homes burned down. Assuming all were total losses and each had a 150% replacement cost endorsement for the structure there would be 500 claims of $690,000 potentially for a total of $345,000,000. That’s why 30 years of profits were wiped out in two years.
The math is going to get really interesting in the coming years for carriers who want to play in the forest.
Good summary Reality. No way to charge enough for all the disasters that befall Mexifornia. Carriers should just pull out and let Moonbeam 2 handle it.