The End of a Fair Price: Dynamic Pricing and the Normalization of Gouging
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The End of a Fair Price: Dynamic Pricing and the Normalization of Gouging
Unofficial Hacker News client; not affiliated with Y Combinator.
sib · · focus · HN ↗
While there are certainly some issues of concern in the article and the reviewed book, the above seems like exactly what insurance companies should be doing: pricing (or making available) coverage based upon risk.
This is not much different from an auto insurance company raising your rates (or cancelling coverage) because you've received a number of speeding tickets, which implies increased future risk of loss.
In fact, I received a letter from my homeowners insurance company a couple years ago stating that they would not renew our coverage due to conditions that they'd observed (clearly from aerial imagery) including overgrown bushes touching the walls of the house and some larger tree branches growing over the house.
I had a landscaping company come and fix the issues, sent my own drone up to take new pictures, sent the company the pictures, and they agreed to continue coverage. And now my house has less future risk of damage. This seems like a win-win for both of us.
mindslight · · focus · HN ↗
Your bushes only seem like a reasonable example because you are looking at them in isolation - it was only a single issue you had to deal with, and something you seemingly wanted to deal with anyway. If they had instead blasted you with a litany of different issues, or a bush that you wanted to keep for sentimental reasons, or you simply didn't have the time/resources to create your own counter-documentation and operate their heavyweight bureaucracy, you'd be singing a much different tune.
And while these things can happen anyway with regular in-person home inspections, the point is that increasing surveillance and unaccountable "AI" make it much easier to bury customers in a deluge of complexity making for even-less-competitive markets.
(I would give a healthy list of examples of my own home being deficient in many ways an insurance inspector would call out yet are in the process of being managed, but I'm sure it would just invite a lot of "well ackshually that's dangerous and weird!" out of touch responses from people whose first instinct is to call someone rather than to fix something themselves)
[0] Notice how they weren't going to raise your premiums by $30 a year or whatever, but outright cancel your policy - in other words a massive overweighting of the actual risk from some bushes growing into the house.
sib · · focus · HN ↗
Given that the annual premium is like 0.27% of the value of the policy, a change in risk of a few percent because some big tree limbs were hanging over the house or because some brushes might have enabled a fire to spread to the house more easily could clearly swamp the value of the premium to them.
And, to be clear, I didn't want to spend $2,000 to fix the problems, I would have rather not had to deal with it, but that's part of the joy of being a homeowner.
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We live in a place (California) where the government has generally prevented homeowners insurance companies from effectively charging for risk (e.g., wildfires) and therefore many companies have stopped writing policies altogether. This doesn't seem like a good outcome. Note that this is the same state that won't let auto insurers charge based on "black boxes" either, so good drivers are subsidizing bad drivers (even more than in other places).
mindslight · · focus · HN ↗
I agree with you that this is terrible. The perverse incentive also underlies the rest of your comment - the insurance company is looking for any reason to cancel your policy. Yesterday it was overgrown vegetation, but who knows what it will be tomorrow.
And while this would appear to be a major impediment to insurance companies accurately pricing risk (ie extra $XX for your trees rather than cancelation), I am not in California and yet still experience the same kind of thing. It really seems like these companies have no idea how to price risk apart from one big cohort of "normal", a few minor deviations (eg woodstoves), and with most everything else being a "we can't write a policy, go elsewhere". Even trying to significantly raise my deductibles to lower premiums nets like $20/year. I'm at the point where I'd drop house insurance completely except for the whole liability coverage thing, which is once again not possible to price out as a separate product in a competitive market (as once again, "different" implies "must be risky" to insurers).
> a change in risk of a few percent
You can't just hand wave adding a few percent on top of that 0.27% to swamp it. The base rate of wildfires themselves must be well below that 0.27% (modulo that perverse incentive). Vegetation obviously adds some risk, but how much? Look at the fire referenced in <a href="https://news.ycombinator.com/item?id=49899240">https://news.ycombinator.com/item?id=49899240 . Notice how it's the lone house standing. Not a patchwork of houses where a good chunk with good vegetation management survived. Rather it was proper vegetation management PLUS a lot of luck.
> that's part of the joy of being a homeowner
This is a common coping refrain but it proves to much for analysis. You could stomach $2k (which isn't all that much in the context of home ownership), but what if it was $50k from a ten item list with some items being much more costly? What if you had bought the house with a five year plan to gradually fix a bunch of similar deferred maintenance, but then were all of a sudden being put over a barrel by the insurer simply looking for pretexts to cancel? Or what if you didn't have that spare $2k, decided to do that work yourself, and their surveillance-based decisions then canceled your policy anyway because tree work "is risky" ?
The point is that every detail of real life ends up looking "risky" when you put it under a microscope - "what if?" and all that. And as I said in my original comment, insurance companies don't really seem interested in accurately pricing risk for conditions outside of the "mainstream" cohort - a cohort which additional surveillance then shrinks.
> Note that this is the same state that won't let auto insurers charge based on "black boxes" either, so good drivers are subsidizing bad drivers (even more than in other places).
This is the same exact "I've got nothing to hide" argument, but with even more invasive telemetry reporting. What you're calling "subsidizing bad drivers" I would call responsible consumer protection to avoid a race to the bottom into yet another pervasive surveillance regime.
We can easily think of types of bad driving that will not show up in telemetry, and types of telemetry that will flag as "bad driving" while being perfectly prudent. And that's not even getting into things like "we see you go out most Friday nights" or "we see you visit liquor stores".
Pricing on crash and moving violation history, as has been the standard for a long while, is good enough. If you feel you're overpaying because rates are constantly going up, the solution certainly isn't to embrace a crab bucket mentality of trying to push it onto some vague "other" people! Rather this is counterproductive - additional discriminators inevitably make rates go up due to increased complexity/stickiness despite any illusion of a temporary reprieve.