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from wharton

expanding tail to the disn?

http://knowledge.wharton.upenn.edu/article/1170.cfm

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One statement from the article:
A leading insurer had $4 billion worth of damage and its Florida office was able to avoid bankruptcy only because the parent company bailed it out.

They have one office that's responsible for all of Florida, which is historically know to be hit by hurricanes?

That seems like really poor planning to me.
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Either I am missing the joke or the person who posted does not understand.

The insurance company was a FL company. They are part of a larger insurance company but operate in FL as a separate legal entity. They have many 'offices' so location of the 'office' was not the issue.

The FL business sustained losses that were larger then expected. It was true for almost all the P&C insurance companies in FL at the time. Many were going to pull out of FL rather then write new coverage. This was up until the FL laws and rules were changed (some to force the insurance companies to stay and some changes to make the risks more manageable). I believe the state said if you are not going to write P&C then you can not write auto and other forms that are more profitable. No cherry picking.

FL does have a problem with the weather and the risks involved. The amount they can collect in FL does not cover the pay-outs in many situations. Hence the risks are hard to manage if taken on a FL basis only.

The national company bailed out the FL entity for a number of reasons. I believe the company was State Farm, Alstate or one of the other well known brands so this was not a local or junior player who go caught out by above average claims.

John B. Corey Jr.
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Yeah, that's a better way of looking at things. I was probably being short-sighted.

I was just unhappy that FL let insurance companies set up subsidiaries in the state that could trade on the good name of the parent, but without any obligation on the part of the parent to bail out the subsidiary if there are a lot of losses. The risks should be spread over the whole country.

I believe the state said if you are not going to write P&C then you can not write auto and other forms that are more profitable

Why is one form of insurance more profitable than others? Shouldn't competition even things out? Why do the insurance companies all try to outdo each other on low prices for P&C, but don't compete on price for auto or life?
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Why does Walmart have better prices for the consumer and therefore the ability to crush people who are overcharging?

Competition in insurance tends to drive prices below what is needed when a major even happens. Then premiums harden and the business becomes more profitable again. Tough industry.

John B. Corey Jr.
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