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California Earthquake Authority. §8 on Other Insurance says

a. If there is other insurance that covers earthquake loss to the dwelling or other property covered under this policy,we will pay our share of the covered loss or damage. Our share is the proportion that the applicable limit of insurance under this policy bears to the combined limits of insurance of all policies that cover the same property.

This reduces the value of my insurance policy (but not its cost to me) only because I have another policy, potentially with a competitor. It seems to have no purpose other than monopolism. Can it be an antitrust violation?

More competitive forms of insurance, such as life insurance, put options, credit default swaps, etc., do not have clauses of this sort. For example, a $1M life insurance policy does not lose value merely because you have a second one. And you can get as many as you like (for example, you get one with each new job, and you can generally keep it way past your time of employment). Obviously these life insurance companies, commodity derivatives, etc. companies can't write clauses like the CEA clause above -- they don't have monopolies and so they would go out of business if they did this. Is there anything legally non-monopolistic about the CEA clause quoted above?

Specifically, would CEA be in violation of anti-trust law if they suspended a claim because I either declined to discuss "Other Insurance", or because they found out about "Other Insurance" through some form of anti-competitive collusion?

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    Why should Company A pay out for 100% of damage when you could have claimed from Company B as well? Why should Company X pay most of the costs when Company Z actually gives you most of the coverage? And why would you be losing anything, when every company pays out its share of costs? How else do you propose splitting up costs that are covered by multiple policies or companies? And what the heck does any of this have to do with competition or monopolies?
    – Nij
    Jun 19 at 7:47
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    This seems a totally valid question concerning over-insurance. It is obvious to me why say fire insurance would have such a clause, to prevent the moral hazard of it being in the interest of the policy holder to suffer the loss, but it not obvious with earthquake insurance. As per the example, if this was life insurance the question would be very different.
    – Dave
    Jun 19 at 9:36
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    @Nij "why would you be losing anything, when every company pays out its share of costs?" The OP's matter of concern is self-explanatory: "This reduces the value of my insurance policy (but not its cost to me)" (emphasis added). "How else do you propose [...]", "And what the heck [...]". Easy there. This is not a university test or some setting where the OP is to be held accountable for losses, wrongdoing, etc. The OP is not to be grilled like this. Jun 19 at 13:15
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    The life insurance comparison is irrelevant, because you can insure your life for any total sum you want, depending on how much premium you wish to pay. In fact most "life insurance" is not really insurance at all, but an investment scheme (and usually an inefficient one designed to profit the insurer). OTOH if a tangible asset is destroyed, it (conceptually at least) had a definite market value at the time it was destroyed or damaged, and attempting to obtain a higher insurance payout than that is usually fraudulent.
    – alephzero
    Jun 19 at 16:06
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    "This reduces the value of my insurance policy (but not its cost to me) only because I have another policy" -- Yes. But whether you carry multiple policies on the same property is under your control, and whether you accept the terms of the policy is under your control. If policies were available in which double coverage worked the way you would like it to do, it is reasonable to expect that they would cost more -- probably about as much more as it would take to make your particular double-coverage plan a wash. That's how economics works. Jun 20 at 17:31
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Is there anything legally non-monopolistic about the CEA clause quoted above?

Yes. The clause is not monopolistic at all, since it is not prohibiting you to purchase or retain policies from elsewhere. All it does is notify you about a limitation of CEA's liability to you in the event of losses covered by multiple insurance policies.

Note that the clause is not in terms of "other insurers" or "insurance providers" but of "other insurance" (that is, regardless of there being one or multiple insurance providers involved). The clause addresses scenarios of coverage overlap, which has nothing to do with monopolistic practices.

In fact, section 10089.26(b) of the California Insurance Code provides that

Nothing in this section shall prohibit a participating or nonparticipating insurer from offering a condominium earthquake loss assessment policy for different amounts of coverage other than those offered by the authority.

As explained above, the clause you reproduce is compatible with that provision.

This reduces the value of my insurance policy (but not its cost to me)

Some context is missing in your description, but you might want to inquire of the CEA about your premium on the basis of section 10089.26(a)(2):

It is the intent of the Legislature, to the extent practicable, that rates charged by the authority to condominium loss assessment policyholders and residential property owner policyholders are treated equitably, and that a proportionate share of premiums is paid for potential exposure to loss, to the authority.

Perhaps the CEA's reason for asking you about your other insurance policies is precisely to adjust/lower your premium. The clause you reproduce simply informs you that withholding that information in no event can result in you obtaining compensation that exceeds the loss you incurred.

would CEA be in violation of anti-trust law if they suspended a claim because I either declined to discuss "Other Insurance", or because they found out about "Other Insurance" through some form of anti-competitive collusion?

No. The terms of your insurance policy might entitle the insurer to void the policy or deny coverage in the event of intentional misrepresentations. That would have nothing to do with anti-trust legislation, but with your breach of contract: your concealment of information that can be material to the insurer's assessment of risk.

If you can prove that concealing your other insurance is not a material breach, or not a breach at all, then the insurer's denial of a legitimate claim would put the insurer in breach of contract (not of anti-trust laws).

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  • Thanks for the detailed answer. I definitely will try 10089.26(a)(2) to reduce the premium if they are reducing coverage. I do have 2 questions. First, when you say "The clause you reproduce simply informs you that withholding that information in no event can result in you obtaining compensation that exceeds the loss you incurred."...I think the clause goes further than that. I think they're saying they'll reduce how much they "apply" which means the deductible of one policy might not be covered by a second policy. Jun 20 at 6:21
  • Second, how, in the specific case of earthquake, could concealment of the second policy possibly be "material" to the risk assessment? I mean, maybe for fire insurance, I'll be less careful with the stove if I'm 10X insured. OK. But for earthquake?? They're worried I'll accidently hack beams around the house to make sure it falls in the next earthquake? I can't think of the correlation, apart from cases involving fraud. Jun 20 at 6:21
  • Also, your opening paragraph "The clause is not monopolistic at all, since it is not prohibiting you to purchase or retain policies from elsewhere. All it does is notify you about a limitation of CEA's liability to you in the event of losses covered by multiple insurance policies." seems self-contradictory from a practical standpoint. Sure, they're not prohibiting me from obtaining a second policy, but they are making it un-economical, unless I can rectify the situation via 10089.26(a)(2) as you suggest. (but I have to call them and make sure they'll honor that). Jun 20 at 6:39
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    "how, in the specific case of earthquake, could concealment of the second policy possibly be "material" to the risk assessment?" In earthquake insurance it has nothing to do with insured's moral hazard, but with the severity of the exposure. Not knowing about insured's other insurance might prevent the insurer from taking advantage of risk-transfer provisions (if any) with reinsurers, CEA-participating insurers, etc. In turn, having to allocate greater reserves pursuant to such "stand-alone", high-risk policy tends to constrain the insurer's possibility of selling more policies. Jun 20 at 11:25
  • "they're not prohibiting me from obtaining a second policy, but they are making it un-economical". A favorable conclusion on the basis of legislative intent depends on the details of your context as well as the particulars that prompted the legislature to create the CEA. In a wide variety of contexts, though, a supplier has no obligation to protect his customers from un-economical positions on decisions they make elsewhere. For instance, a car dealership has no obligation to lower the price of an automobile merely on grounds that the customer already owns a vehicle. Jun 20 at 11:36
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Insurance is not gambling

Insurance covers your loss. Insuring with multiple insurers does not entitle you to make a profit.

This has been a fundamental part of general insurance law from the beginning, when there are co-insurers (including the owner if they underinsured) they share liability up to the amount of the loss. This provision in the contract is simply stating the default position at law.

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    The question hasn't proposed that they are entitled to making a profit. They only surmised that they should be able to accidentally or co-incidentally making a profit in the case of a triggering event. I also don't see any support for the statement that "insurance is not gambling." Just about every actuary would probably agree that it is a form of gambling.
    – grovkin
    Jun 20 at 1:28
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    There are elements of typical insurance regulation, like the requirement you have an insurable interest in the thing you're insuring, that aim to distinguish insurance from straight up gambling. While both involve risk and uncertainty, gambling involves creating a risk out of nowhere and betting against it in the hope of a gain, while insurance involves a risk that already exists and indemnifying against the loss it could cause. Jun 20 at 4:03
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    @ZAchLipton that link is unquestionably, without a doubt, incorrect. It completely ignores the cost of insurance premiums. In the case of no triggering event taking place, the insured party incurs the losses in the amount of insurance premiums paid.
    – grovkin
    Jun 20 at 5:12
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    @TannerSwett paying insurance premiums creates a financial loss if no triggering event takes place.
    – grovkin
    Jun 20 at 5:13
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    @grovkin But insurance premiums are a loss that's guaranteed to happen. A guaranteed loss is not a risk. Jun 20 at 13:08
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It's not unusual that something is insured twice. If I travel to a holiday by car and get into an accident, my suitcases and their contents might easily be covered by my travel insurance, my car insurance, and my household insurance. Collecting money two or three times would be illegal. But since the amount is quite small, any of the three insurances would handle my claim most likely without complaining; in this case I would probably have to claim with the car insurance and the travel insurance anyway, and add the suitcases to one of the claims.

Having your home insured twice is unusual, but can happen when you switch insurance and forget to cancel the old one. And the amount of money in a claim is most likely huge. I would assume that each insurance has to pay what they would pay if they were the only insurance, but with the total payout limited to your actual damage. The insurances would have to sort out between them who pays what, that shouldn't be your problem. But each insurance definitely has a very reasonable interest to know about the other insurance, one to prevent fraud, and two to reduce what they have to pay.

So paying for two home insurances is most likely a waste of your money, but your first insurance won't stop you from doing it. It's actually in their best interest. If your $400,000 home is insured twice for $400,000, and gets completely destroyed, each insurance collects the full premium but only pays half the damage.

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  • "each insurance collects the full premium but only pays half the damage." Exactly. My question is: how can this happen if the market is competitive? Or, if the market is not competitive, then how does it comply with anti-trust? Jun 24 at 5:44
  • personal_cloud: That happens because it is stupid to get two home insurances. You only have yourself to blame. Each insurance guarantees that your damage will be covered. And they both do what needs to be done to cover the damage, so you don't lose money. You have no right to get two full payments. It's the same as going to an all-you-can-eat buffet and paying twice. You eat as much as you can, and then you eat as much again as you can - which won't be much. Your fault. Your problem.
    – gnasher729
    Jun 24 at 11:31
  • And who says the market is not competitive? It's your choice to buy insurance from company A, or from company B, or from both companies. Or from none at all. Buying from two companies is stupid. That doesn't mean the market is not competitive.
    – gnasher729
    Jun 24 at 11:34
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To summarize some of the points made in the comments...

CEA is, most likely, charging more for over-insurance because it costs them more. The reasons are quite specific to the earthquake insurance business and evidently not obvious even to those of us who have thought about the issue for a while. Starting with the most significant:

  1. Moral hazard. Not in the same sense as fire insurance, since you can't cause an earthquake. But if you have two policies on your home, then you have a strong incentive to underestimate your property value or construction costs. So in each policy you insure a 1M home for 500K. In smaller earthquakes, this home is likely to have substantially more damage than a 500K home, so the insurance company loses money.

  2. They lose some market segmentation control. While market segmentation can be monopolistic, it is often not, as in highly competitive products like CPUs. (Or maybe it's totally monopolistic, but is still legal, as in university financial aid -- where they can condition the deal on your sworn testimony of how much money you have. I have no idea why that's legal). This loss of legitimate, or at least legal, pricing ability can be significant.

  3. Coverage overlap. This is probably not significant for individual homes with 2X insurance, since insurance companies are likely already insuring many more than 2 homes in the same zip code. But it could create logistical issues if they want to, say, divide their portfolio into tranches of whole policies, where each tranche has no more than 1M in each zip code. And then at some point, maybe with 100X insurance on one guy's home, the overlap does become costly, so maybe they have to draw the line somewhere.

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  • Beware that there are several inaccuracies in this answer, most of which I had addressed in the comments/chat to my answer. Moreover, neither your question reflects that the CEA is "charging more for over-insurance", nor are there grounds for concluding that "They lose some market segmentation control". By coverage overlap I meant the redundancy on your end from insuring your property via multiple policies. On the insurer's end there are no issues (logistical or otherwise) at all: In the event of loss, insurers simply prorate their disbursements as stated in the clause you reproduced. Jun 22 at 12:30
  • "On the insurer's end there are no issues (logistical or otherwise) at all: In the event of loss, insurers simply prorate their disbursements".... Sure, and by analogy, Diamond Monopoly Inc doesn't incur any extra costs when you buy a competitor's diamonds... they simply give you half as many diamonds the next time you order. (You already got diamonds, why do you need more?) But that doesn't make it right. Because there's still this little problem: they gave you half of what you paid for! So we always need to ask why, and that's what my answer addresses. Jun 22 at 20:57
  • @personal_cloud As said elsewhere, insurance is not a lottery. You have no right at all to get more than your losses paid. So paying two insurance premiums just loses your money, but that's your own fault.
    – gnasher729
    Jun 23 at 10:26
  • @gnasher729 Good point. However, the insurance vs. lottery question is secondary to, or symptomatic of, competition issues. Suppose you have two earthquake companies offering identical policies. One is a "lottery" and the other is an "insurer". In a competitive market, they'll charge the same premium. By extension, if competition requires payouts to exceed losses in some cases, then the existence of "insurers" rather than "lotteries" could be a sign of monopolism. My answer is the only one to detail why there might not be monopolism in such cases. Jun 24 at 5:47

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