Question

Many insurance carriers enjoy a robust business. As an example, UnitedHealth Group Incorporated,
headquartered in Minnesota, had about $185 million in sales in 2017 and employed approximately
230,000 people. Still, as an industry report from the business research company Hoovers established,
insurers of all stripes, health or auto or property or anything else, face two major hurdles. First, they “are
increasingly subject to a large number of regulations and reporting requirements by states.
Consequently, some insurers have withdrawn from states that impose burdensome requirements.”
Second, large-scale “claims have become more common, creating problematic concentrations of risk for
individual insurers. . . . And some risks can be large enough to drive insurers out of business or cause
them to curtail services offered, increase rates, or leave states where risk is highest.”26 Thus, profits can
be high within the industry, but so can payouts in the aftermath of major catastrophes. The report goes
on to say that “floods, hurricanes, and tornadoes” produce the riskiest economic circumstances for the
industry. Consequently, states in which these weather events are more common—Alabama, Florida, and
North Carolina—have seen some carriers cease business operations within them.27

• In selecting coverage and setting prices, how does an insurance company choose the ethical balance between making a reasonable profit and risking catastrophic losses of its own?

• Should the law require that carriers offer property insurance in states where harsh natural disasters
occur? Or should federal and state monies be used to subsidize insurance companies’ resources in
these circumstances? In each case, why or why not?

Answer 1

1. In selecting coverage and setting prices, an insurance company chooses the ethical balance between making a reasonable profit and risking catastrophic losses of its own by reviewing the coverages again and again and not getting into events where risks are higher and profits are lower. The insurance companies have to strike a balance between risk and reward and in cases where such a balance ceases to exist, then such events should not be covered by the insurance companies. This prevents the insurance companies from significant losses arising out of such events.

2. In my opinion, federal and state monies be used to subsidize insurance companies’ resources in circumstances where harsh natural disasters occur because the insurance companies stand at loss if they cover such natural disasters and it is the responsibility of federal and state agencies to step into such situations and offer relief to both insurance companies and people as well. In the absence of such relief, insurance companies will be bankrupt and will not be able to function properly.