A Note on Insurance Company Behavior

Despite Katrina and other calamities, home and auto insurers made a record $44.8 billion in profits last year, according to the LA Times.

In other words, there is a payout crisis. The insurers say they face deep problems, for which the only cures are premium hikes, cutbacks in coverage, and an expanded role by state and federal governments in insuring against natural disasters:

"Unless insurers can get relief, you're going to see a pullback by the private industry," warned Robert P. Hartwig, chief economist of the industry-funded Insurance Information Institute.

"We're not being good stewards of our investors' capital or our policyholders' surplus if we keep doing business where we can't make money."