While I agree with you that you should only insure the risk you can’t carry yourself there should be a profitable business opportunity insuring individuals that have been dropped by other companies provided the reason from the drop is not predictive of future risk.
I am pretty sure that insurance companies know this. I bet that they have data showing that, even in cases where it seems like the cause of a claim was outside a person's control, that person is still more likely to make a second claim than someone who has never made a claim.
I would think so too, but I would not be surprised if there is some sort of industry wide collusion to not try and change the situation. The key is separating out the risks that are truly higher from those that are not. If they are applying this as a blanket policy on all claimants it suggests that collusion is the culprit.
Or it suggests that the extra work needed to differentiate between the truly higher risks and those who are not is cost prohibitive. It may be more cost effective to just stick with the blanket policy.
This is exactly the reason. Big-name insurers trade in volume business. The more they standardize the product, the cheaper they can sell it - not a whole lot different to any other industry. That's not to say they don't attempt to have sophisticated pricing models that ingest all kinds of underwriting data points, but there are costs to that complexity too.
There is a broad market in specialist insurance which caters to the non-volume cases. It just costs more because you have to expend more effort-per-sale (and of course because non-volume also tends to mean that the risks genuinely are higher - e.g. homeowners with prior subsidence claims).
Given how easy it would be to data mine this out of the claim history I find this explanation hard to buy. There must be a whole set of specific claim types that show no correlation with future claims. If you can’t find these in your data you are not looking very hard.
Of course if no one else is looking why give up the easy money - after all it is not like the customer can buy a new policy without the massive markup. Collusion does not need to be explicit, it can be accomplished just through everyone using the same systems and rules.
Properly rating a potential customer seems to me like the key metric for these companies and if I can find a way to better qualify risk and therefore offer lower prices to truly less risky customers that equals profit. So I'm pretty sure there is very strong competition in this area and insurance companies will do absolutely everything they can to ascertain the risk of each individual customer and price a policy accordingly.
You would think so, but if it is being done on a blanket basis then it would suggest that not too much looking into the individual situation is being done.
Competition only works if at least one of the parties involved is trying to compete. If all the insurance companies are happy to slap on a blanket risk premium then there is no competition. This is great if you want to disrupt the status quo.
