walkitout (walkitout) wrote,
walkitout
walkitout

What Insurance Is Not For

Insurance works well for events which occur at predictable intervals to arbitrary and unconnected individuals. That's kind of what actuarial science is good at. I'm sure the technical definition is a little different. I always hope that people remember about Portfolio Insurance (and I'm always wrong). I also hope that people remember what happened to homeowners insurance in Florida in the wake of a couple of bad hurricanes (and what is likely to happen to the government of Florida since they're basically insuring everyone's house these days). I'll probably be wrong about that, too.

Over at Calculated Risk, there's an entertaining bit about Mortgage Insurance:

http://www.calculatedriskblog.com/2009/02/ratings-cut-for-mortgage-insurers.html

In general, mortgage insurance has been doing comparatively okay, since most of the risk went to the people who bought the securitized mortgages -- which would ultimately be all of us, which is what seems to happen whenever Bad Events happen to Large Numbers of Connected Individuals.

Which is what insurance is _not_ for.
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