Premium Disequilibrium

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I'm sure you can imagine exactly what would happen if State Farm suddenly decided that they would cover wind, water/flood and fire on every homeowner's policy that, up to this point, had excluded recovery in these categories. Since State Farm had been carefully collecting actuary data and setting rates (in those states that didn't impose strict price controls on residential insurance premiums) to extract their fairly thin margins, a sudden spike in expected payouts would require pretty drastic action.
Because a large portion of returns to insurance come from re-investment of collected premiums, insurance entities are incentivized to minimize required reserves and put the rest "to work." A sudden increase in potential claims liabilities is not an easy thing to adjust to. Combining that with a period in which the rate of new claims is more than likely to spike, this would likely be, at least in the world of commercial insurance, fatal. So if the FDIC is suddenly required to assume substantial new liabilities after having for years collected premiums that would be insufficient to cover even the regular default rate, well that's not good. Absent rather serious mis-management at the FDIC (we could realistically hope for this, actually) someone is probably going to have to inject a serious hunk of capital to keep the entity solvent.
Congress, White House Weigh Increase in Deposit Insurance [Wall Street Journal]

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