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Ask the Architect

Insurance is largely a gamble


Q. My home insurance premiums have increased over the past couple years. We haven’t been affected by storms or floods, yet my rate has gone up each year. From what little I can gather from them, my home is supposedly increasing in value, which is hard to believe, since relatives in the flood area had depreciation factored into their insurance payout, so they got less than what they needed to rebuild and had to borrow money from us. Is there anything we can do to our home to avoid getting these increases? I feel like I’m being shaken down, since I have to carry home insurance to have my mortgage. What can we do?

A. That’s a very good question, one that nobody can give a definitive answer to, mainly because even though the insurance industry has many statistical, mathematical and scientific models to determine the risk for your particular home, the result is still based on human opinion. “Garbage in, garbage out,” was the expression I remember being used for computer analysis when I took my first computer courses. (We used punch cards that had to be stacked in a machine after I walked more than a mile across campus to where the Burroughs machine, our computer back then, stood in a room, nearly 40 feet long, clicking away while I sat, sometimes for hours, until 2 in the morning, before the results were walked over to me by one of the computer operators.)

Unfortunately, even though the technology has changed, the results are the same. You’re seeing increases due to the simple fact that insurance is like gambling, and the casino can’t lose. The insurance company sets the rate of your bet, and you’re betting that you’ll never have a catastrophe, and the insurance company is betting that you will. If you have a loss, since your insurer, not an independent party, is holding your money, it gets to tell you how much it will pay for the damage to be fixed.

In essence, your insurance company sets up an account for your home, accrues funds and makes a profit on the interest for its trouble to be bothered to “insure” you. You pay what the company decides, because your mortgage company demands it, and because you don’t have the money to either fully pay for the house or fully pay for the potential damage. You’re the paying sustainer of this elaborate system set up to protect you. Your rates rise because you aren’t protecting just you.

Again, the casino sets the rules and can’t lose, so if it needs more of your money to pay for a catastrophe somewhere else, or if it determines that disaster is statistically more likely, it projects how much more it will need to not go broke. In this game, remember, only you can go broke. Next week I’ll address home resilience measures you can take.

© 2019 Monte Leeper. Readers are encouraged to send questions to yourhousedr@aol.com, with “Herald question” in the subject line, or to Herald Homes, 2 Endo Blvd., Garden City, NY 11530, Attn: Monte Leeper, architect.