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Insurance After Hurricane Sandy

NEW YORK ( TheStreet) -- The insurance business will always come back after a disaster such as Superstorm Sandy, but the customers are going to get it in the neck.

As I noted last week, insurance is a form of bookmaking. Your premium is a bet that something bad will happen. That something is defined by the fine print of your contract.

The insurer takes your money, knowing that it's unlikely it will have to pay off. The insurer get to invest the money while the bet is active, and if you "win" - if nothing happens -- then you "lose" -- the insurer keeps the money.

When the bet is bad, but must be made, the government steps in. The Federal Emergency Management Agency (FEMA) and Small Business Administration (SBA) have paid out $7.8 billion so far in New York alone, according to the Insurance Journal, $3.7 billion of that in flood insurance claims.

Of course, as I noted before, you pay for that. The act that reauthorized the flood insurance program last yearalso authorized some huge premium increases, based on risk.

Even when Uncle Sam is your bookie, he doesn't like to lose money, and when the Act was signed, the flood insurance fund was $18 billion underwater.

The National Association of Insurance Commissioners publishes an annual list of the Top 25 property and casualty insurance players. Most are focused on car insurance.

Note in particular the "Direct Loss & DCC to EP Ratio" -- that's the insurers' losses, plus costs meant to contain the losses and defend themselves in court, compared to the amount of premiums that came in.

Total loss ratios range from a high of almost 85%, for an Australian company called QBE that does marine as well as car insurance, to a low of less 47% for Assurant (AIZ - Get Report), which also does health insurance and handles extended warranties.

What the layman will notice is that everyone's taking in more than they're paying out, sometimes a lot more. What insurers and investors will note is the action, that results can vary widely, that nothing is really certain.

You can't buy the largest player in this game. That's because it's State Farm, which is set up as a "mutual insurance" company. That is, it's owned by policyholders instead of stockholders. Based on policy income, State Farm is twice as large as the next largest insurer, Zurich Insurance, with more than 10% of the market.

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