Price gouging and homeowners insurance

LSJohn

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Our buddy vapros posted some comments about the mess in Southeast Texas and some thoughts on some things likely to come.

Not to put too fine a point on it, but unless we're talking about water, food and medicine, "price gouging" is a term that could have been invented by Marx, or Lenin, or Trotsky. When supplies of something are short in an area, the higher price one can get for it, the more motivation there is to go to extra effort and expense to bring in new supply.

I had a friend in South Georgia who loaded a flatbed truck with 3/4" plywood and drove it to South Florida during a board-up panic on an approaching hurricane forecast soon after Andrew. He had to pay something like $20 a sheet for it (this was early 90s) gas, oil and wear and tear on his truck to get it to Miami, and was selling sheets for (if I remember correctly) $35/sheet. People who bought from him couldn't get board-up material anywhere else. Nevertheless, someone reported him for price gouging and he got arrested. He was able to post bail in lieu of appearance and the bail money served for payment of his fine. I told him he should have gone to court, but he was glad to be going home and didn't plan to go back.

I have to assume that the people who bought from him were very glad he had gone to the extra expense to bring plywood to where they could get it. If the situation arose again, they wouldn't be getting any from him.

Similar comments implying gouging or taking advantage of people are sometimes made about out-of-state contractors. No doubt some of them are crooks, and a local outfit would be preferable, but if the outsiders didn't gear up to come in after such widespread damage as hurricanes often do, people would be months longer in getting back to normal. And, it's mostly the insurance companies who bear the higher costs.

Now, about homeowners insurance, and adjusters trying to keep costs down.

You'd think that was their job, but in a "catastrophe" situation, the dozen ++ insurance companies I worked for were only trying to get claims resolved as quickly as possible without paying for things they didn't owe and without paying exorbitant overcharges. There are at least two factors that make these their top interests (besides whatever good PR they get out of resolving claims quickly and to customer's satisfaction):

1) The companies are under constant pressure from state regulators and politicians who are under constant pressure from homeowners (voters) after a catastrophe of the kind that affects tens of thousands of buildings because there are not enough adjusters in any area to handle so many claims expeditiously. Company adjusters are brought in from other regions and many hundreds of independent adjusters are hired as well; still, timely resolution is a challenge.

2) Although there are objective issues related to the amount of risk to insure any individual property, the way risk calculations are made is largely controlled by state insurance commissions. To balance this measure of control over companies' prices, states typically will approve general rate increases after a company has experienced a bad year in the state on the theory that perhaps their premiums were held too low to "allow" a reasonable profit, AND, in the specific case of a costly catastrophe, to help them to make up those losses. (Electric and Gas companies are generally treated in this way as well.)

I've worked for many companies as an adjuster and as an adjusters' supervisor, mostly in "catastrophe" situations, which defines hurricanes, earthquakes, large and widespread wind and hail storms. I owe none of these companies any defense of their practices, but it's simply a fact that I was never pressured, told or suggested to save money. "Pay what we owe at the price that is fair in the local event area" was SOP.

FWIW, it happens that I never worked for USAA, but I have 3 vehicles and two homes insured by them. American Family is also very good if you are in a state in which it does business. I spent one day in the field with a supervisor for State Farm -- for whom I thought I was going to work after Hurricane Ivan -- but one day is all it took. This lady sounded as though she thought her job was to keep State Farm costs to a minimum.

Oh, for some of you Tennessee/Kentucky guys, I once worked with a crew from Grange Insurance after a tornado hit Clarksville. It was a very brief assignment for me, 6-8 days, but my impression of that company was very positive. Good guys trying to do right. It was a long time ago (20+ years) but those kinds of things are usually slow to change.
 
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