I cant say I understand this, to me it seems like if you know the averages of claims across time will be $X, then you just sell the premium for >$X . Like it could be seemingly absurd, like if you expect to replace a house every 10 years, then you do annual premium >= ($REPLACEMENT/10) . (all averaged across the pool)
The pools can be different based on the US state and the type of insurance based on the location where the insurer is doing business. For a region where a major dangerous weather event is a certainty on a yearly basis, I (a layman in insurance) would expect the premium would approach just the full cost of replacing the property rather than being something you barely think about once a year. Hence the pricing out.
Part of the problem is that insurers are in the business of predicting the future, which has gotten very hard recently (global warming, cost shocks).
The other constraint is that, jurisdiction dependent, rate hikes are subject to regulatory approval.
Most importantly, the insurance industry does not make much if any money on underwriting. They make their money on investing the float, which only exists if they sell policies. That’s why insurers for the most part are ok posting slightly negative margins on their underwriting.
Well there’s overhead like cost of administering the claims etc etc so actually if it were literally replacing the house every 20 years the annual premium would be like house$ / 10 not 20.
But if it gets even remotely close to that point the yearly insurance is a significant portions of the house worth and it’s obviously not affordable/insurable - whatever term one wants to use.
At that point if one can’t self insure then they can’t afford the house
