OK Bunkie, perhaps you are asking yourself: “Self, what in H—L do Japan and San Francisco have to do with my homeowner’s insurance?”
Well…..get a cup of Java and sit yourself a spell. This may take a while to connect.
(Trivia for today: Coffee was called Java because a lot of coffee was grown there in the early part of the 20th Century. There was also an earthquake in Java in 2009. And 2006 for that matter. And Krakatoa was off the coast of Java.
First, the earthquake and tsunami in Japan provide a vivid demonstration of just exactly what an earth moving event can cause. But, Japan is only the latest to experience a recent earthquake, with a big one in Indonesia in October of 2010 and the ones in Java as noted above. These earthquakes were on what is called “The Pacific Ring of Fire”.
In the article, you will note that these earthquakes are on the western side of the Pacific Plate. The eastern side bumps up against the West Coast of the USA from the Aleutians in Alaska down to the north half of Baja California. The plates are moving in relation to one another and as they move, stress is built up when the edges of the plates stick against one another. When the stress gets great enough, it is relieved by the two plates slipping; a mechanism that results in earthquakes. There is speculation that the plates are relieving stress and there will be a string of earthquakes around the “Ring of Fire” in a clockwise direction. That would imply that there is going to be the next Big One, maybe in Alaska and maybe in San Francisco.
So……now let’s talk about insurance (Wow! That’s a big step!)
Insurance is a type of cooperative arrangement to share risk. Let’s assume that you and I and 98 other people each have a house worth $100,000. None of us can afford to replace our house if it burns down. So, one of us starts a company to share that risk. Let’s suppose that we can “gestimate” fairly accurately (assessing the amount of monetary risk is called “underwriting”) that in ten years, one house will burn down. So, in every ten years, we will have to put a total of $100,000 to compensate the one for the loss of their house. That works out to $100 a year from each one of us. ($100 times 100 people times 10 years.) Now the individual that has the insurance company doesn’t do that full-time job for free. So, he invests the money he receives and collects interest on it. And once he gets enough money in reserve, we can be fairly sure that our risks are covered.
But……..what if the risks are NOT equal? Suppose you build your house of brick with a tile roof and the chances of it burning down are one in 100 years. Your neighbor builds his house of straw with the chances of burning down of one in five years. His risk is twenty times your risk so it is only fair that he pay 20 times your rate.
Well, two things can happen. First, all of the Little Piggies with Straw Houses say it’s “NOT FAIR” that they have to pay the full cost of the risk they have assumed. So the Government starts an insurance pool and charges a “fair” price. Like flood insurance. There is one little problem: There is not enough money coming in to cover the risk. But that’s OK, because when the pool falls short after a catastrophe, they take YOUR tax dollars to pay off all of those insurance claims. Boy, are YOU ever screwed!
There is another way that Little Piggies deal with the problem: They DON’T BUY ANY INSURANCE!
Now back to earthquakes.
I went to high school in the San Francisco bay area. Way back then, they were talking about “The Big One”. And there have been a bunch of pretty good size ones since then, but not “The Big One”. So….if you had a house/business in San Francisco and you knew that “The “Big One” was due at any time, you’d get earthquake insurance, right?
Well, only 15% of the value of San Francisco is insured against earthquake loss. The owners out there know that they are at risk, but they choose not to pay to insure themselves. But not to worry, because when “The Big One” comes, the government will hold a gun to your head and steal you money to give to those “Poor Victims” (of their own greed and stupidity) that are now homeless and without insurance.
And if you think I am making it up, the Government is STILL spending your money on the damn fools in New Orleans who refused to cover their risks. Even though everybody knew what the risks were.
(In a previous life time, I was married to a woman I met some 60 miles SOUTH of New Orleans. And I recall talking with her family in 1972 about the prediction that New Orleans was going to be flooded. Not only due to the geology, but also due to the corruption in the bodies that were maintaining the levees. Curiously enough, a couple of years before Katrina, The Love of My Life and I made a road trip to New Orleans. I suggested we go before it was wiped off of the map. EVERYBODY KNEW THE RISKS!)
And to top it off, they blame the insurance companies for being greedy!
Boy, are YOU ever screwed!
(PS-you might print this out and date it. Put it somewhere so that you can find it after “The Big One”. That way, you can tell your friends that you knew all along what would happen and why.)
Steamboat Jack (My evil twin)
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