"Act of God" is common legal terminology for a very rare event outside of human control for which no party to an agreement can be held accountable.

https://en.wikipedia.org/wiki/Act_of_God

While this is true. It does not mean that they are not "normal." They are just so rare as to allow a party to get out of a contract.

As a society, we cannot ignore the cost of the "Act of God" level disasters when summing up the cost of said disaster. If an insurance companies might be able to avoid paying out on a claim doesn't mean property (or lives) did not get lost.

Just wanted to give some color to BMJ's comment for most people who would not be familiar with the legal boilerplate, as his comment was interpreted as theological by some.

In my mind the issue is pretty simple: if you buy a house in a wild-fire prone area, you should expect a wildfire at some point. Whether or not you want to prepare by a) purchasing insurance or b) wild-fire proofing your house is your prerogative. If you're not willing to take/mitigate the risk, then live somewhere else.

True, but not really relevant. I mean, that article literally (!) calls out flood insurance as a situation where such "acts" are subject to the contract.

> And of course in practice the insurance companies cheat and don't save enough, so people don't actually get paid.

Or changing conditions throw off their actuarial tables, making the company insolvent when reality intercedes. Those changes could be as obvious (at this stage) as climate change, or as subtle as a long-standing practice of preventing forest fires, which while seemingly preventing property loss to fire is actually creating an unstable system which has the capability for much larger destruction than the typical fire.

That isn't true. It's a law that insurance companies must have the money to pay claims. That's what reinsurance protects insurance companies against. People don't get paid because they didn't suffer a covered loss. I was a catastrophe insurance adjuster for Farmers insurance during Katrina and Hurricane Ike and the unpaid damages where often for damages not caused by a covered event: for example a destroyed wooden floor with no evidence of roof leakage would often be denied unless they had Flood insurance. We also have massive amounts of attempted fraud. People attempting to claim full value on a roof that was 20 years old. The amount of fraud in the property insurance business amounts to literally billions. Also denied claims are easily challenged with a public adjuster. I had plenty of debates with public adjusters and there were time when I did legitimately underpay a claim. Damage estimating is a very inexact science. There are dozens of variables such as material cost fluctuations, damage area material cost gouging, contractor shortages they lead to out of state contractors coming in charging higher than the prevailing rate for a given piece of work. The meme that insurance companies are evil is simplistic. The amount of regulation in that industry is astounding. I had to get separate licenses in 18 states. A few other states has reciprocity agreements but generally I had to pass exams just to step foot in a state in any official capacity. I am definitely not referring to health companies though.. Can't speak to that, but the property and casualty side of things isn't as terrible as it's anecdotally portrayed. During Ike, I wrote 12 checks per day which meant 16 hours a day on rooftops wading through debris and occasionally coming across human remains. Yet less than 5% of the claims I worked were denied and generally only partially.

Property and casualty insurance spreads out risk over a large group of people during the same time period. P&C insurers have it easy. They can pay out claims from the premiums that come in, and take the leftovers as their profit.

Life insurance spreads out risk over a large span of time for the same person. Life insurers have to be more careful. They have to invest the premiums wisely, so that they will have exactly enough cash on hand to pay out the amount of the policy on the expected date it comes due (along with some profit). If the person dies earlier than expected, they could lose money. If the person dies later, they could get more profit. Furthermore, if the investment market is unexpectedly good or bad, that affects the insurer's ability to pay the benefit. Life insurers can rely on the fact that while all people eventually die, they don't all croak at once. There's actually a predictable rate, so if you get enough people to buy policies, you're never paying out more than you take in.

Disaster insurance is more like life insurance, but even harder to pull off, because all those benefits are probably going to be paid at exactly the same time. So what insurers have to do is take that gigantic, elephant-choking payout and let each underwriter take a little bite of it, until it's all accounted for. They're spreading the risk over multiple people, long periods of time, and multiple investors. And even so, thanks to the fact that it is essentially an enforced savings scheme, a big enough disaster would be a shock to the financial markets.

But there's no way around that. If a storm destroys one of your windows, you're going to be buying a new window, instead of some other thing that you may have wanted more. If it destroys your whole town, a lot of money is going to shift from savings and investments into construction.

There is some advantage to having disaster insurance. First off, ordinary people are absolutely horrible at reasonably judging risks. Second, we are also pretty bad at compartmentalizing our savings and investments. If you have a 100-Year Flood fund, and a Yellowstone Goes Kablooie fund, and a Bad Tornado Season fund, and your grocery budget stands at $20 for this month, would you have the fortitude to eat nothing but beans and rice for four weeks? And third, institutional investors manage money better than a lot of individuals, and can take better advantage of the tax laws. It isn't hard to just dump everything into the Fideliguard Some of Everything Index Fund, but some people still put all their money in an ordinary commercial bank savings account, where the interest doesn't even cover the monthly service fees, but it still gets taxed.

But as you say, a lot of those advantages can disappear to just one bad actor in the insurance company trying to cheat a little for some personal gain. The best thing people can do to manage disasters is to be aware of their own risks, and to plan ahead only for those scenarios that have a reasonable likelihood of occurring.