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'{OT] Cockroach Detection and Y2K bugs.'
1999\01\07@161341 by John Payson

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|Ask your Errors and Omissions insurance company what risks they
|won't cover -- Sky diving without a parachute and Y2K issues.

The problem with Y2K insurance is that the whole notion of it runs
contrary to the way most insurance works.  If John Smith buys fire
insurance for his house, the insurance company can look at the hist-
ory of buildings similar to Mr. Smith's, and decide that of the 1,000
customers with houses of similar construction and in similar neigh-
borhoods, probably five to ten of them will suffer a severe fire.
If the company then sets its rates to 2% of the home's value, then
unless more than twenty of the homes burn down the revenue will exceed
the payments; even if that happens, insurance companies have a reserve
which fills up in years when claims are light and can be used in years
when claims are higher than expected.

In the case of the Y2K problem, however, there is no good historical
data for insurers to use in setting rates.  Worse, there is a strong
correlation among claims.  Whereas fire claims tend to be reasonably
independent and happen in a continuous trickle, Y2K claims are likely
to arrive all at once; if an insurer underestimates the expected pay-
outs, there will be no way to recoup their losses.


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1999\01\07@170759 by paulb

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John Payson wrote:

> Whereas fire claims tend to be reasonably independent and happen in a
> continuous trickle, Y2K claims are likely to arrive all at once; if an
> insurer underestimates the expected pay- outs, there will be no way to
> recoup their losses.

 "Y2K Insurance" - sort of an Oxymoron...
--
 Cheers,
       Paul B.

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