TALLAHASSEE — Farmers Insurance Group announced Tuesday that it would no longer write new policies or renew existing homeowner, auto and umbrella policies, a day after Florida Chief Financial Officer Jimmy Patronis took to Twitter to threaten to take action if it did. “Hearing rumors @WeAreFarmers might pull out of Florida,” Patronis tweeted Monday afternoon. “If that’s true my office is going ...
But that’s the way insurance tends to work - actuaries look at the risk involved in ensuring person X or group X against threat Y and charge accordingly.
Larger pool, lower risk. That’s one of the basics in actuary tables.
That’s now how it works. Adding a high-risk pool to a low-risk pool doesn’t lower the overall risk. It averages it. Meaning the lower-risk pool has their costs increased, and the higher-risk pool has their costs decreased. Since the high-risk pool is much smaller than the low-risk pool, merging them is a negative for a larger population.