Gambling Odds

There's an awful lot which can and should be sorted out about the Los Angeles wildfires, in due time. One of those things might be the role which insurance companies played in the disaster.

As far as I understand it, several major home insurance companies at the end of 2024 opted to cancel accounts in the region of the fires because of fear that the fire hazard had become too great in the area. Some folks call that greed on their part. But is it?

Me Pops used to say the having insurance on anything was essentially a bet. If you're buying life insurance, for example, you're betting that you'll die during the, uh, life of the coverage. The insurer is betting you'll live. Likewise, with fire insurance you're betting your house will burn down. They're betting it won't.

Cut to December 2024 Los Angeles. Fire insurers saw a significantly increased risk, for whatever reason, of losing the bet if they continued to play. Consequently, they cancelled policies at the end of the terms. There's nothing wrong with with that, if. If the policy was up, no one, you nor the insurance company, had any obligation to continue it. 

In analyzing the issue my first question would be, what was in the contracts? If they ended December 31, 2024 then the insurers did nothing wrong. They aren't obliged at all to re-up. Sure, they got x amount of cash from you over time. But that was the deal, wasn't it? For a certain amount of money they would insure your property for a certain amount of time. When that period ended, they owed you nothing.

The second question is, what else might have been in the contract? If there was an opt out for the company and they took it, again, where's the evil? Cancelling your insurance didn't mean that a fire would occur. It was simply the company taking the educated guess that it was much more likely, too likely in fact to risk the bet. So they took the opt out. Would you, had you been in their position?

As I have no way of knowing the exact answer with each case, I'll avoid a blanket statement. Still, what was in the contract? It's a fair question. No one is guilty of a grave sin if a contract is legitimate. It's that simple.