Thursday 1 August 2019

Real insurance. Not that pretend stuff.

I keep wishing for an insurance product that doesn't exist.

Every year, pay an annual premium. If an earthquake hits Wellington during that year of sufficient Mercalli magnitude, you get cash payment immediately. You have automatic right to renew the policy for the subsequent year; the insurer has to provide a year's heads-up that it will no longer be providing the policy at the current policy price. That latter bit's to avoid the case where you've bought the policy every year, then the insurer stops issuing insurance when an earthquake not quite big enough to trigger the policy is a foreshock for a bigger quake to come.

It's a simple policy. The annual contract price would be the annual risk of an earthquake, which GNS here assesses at 0.83% per year (for the type of quake against which I'd like to insure), plus a margin for the insurer.

And it wouldn't result in cases like this, where decades-old defects in a house that were unknown to the owners are reason to not pay out an earthquake claim.

We do not yet live in Arrow-Debreu worlds.

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