Here is the fundamental issue that nobody really talked about from early on and long before we got to this point. There is a reason that insurance markets are some of the most regulated markets everywhere and always. It is far too easy to set up an insurance program, take in premia for a long time, and along the way not put aside enough in cash or assets to cover the future contingencies supposedly being insured against. Some future bankruptcy devolves the 'insurance' into a ponzi scheme. Regulation comes into play to make sure there is some semblence of assets held in reserve to the potential future claims.
So was the PWSA sponsored program ever really 'insurance'? Legally probably not. As pointed out quite accurately by a commenter here (
So go back to the WPXI story today. Does it really matter that the PWSA program was shut down? Short term or long term, if there was a correctly calculated amount of cash being put away for the contingencies being insured against then there should be no unmet contingent claims. The fact that there seems to not be sufficient assets for the few claims already taken in by the program only raise bigger questions about whether there would have been sufficient assets over the longer run.
This all gets to the most difficult question for insurance markets whether regulated or not.. how much to be saved and what price to charge? Contingent claims markets of all kinds are some of the hardest to ever determine an efficient price in a free market. The problem is that so much depends on the unknown parameters of the future. That is true of all insurance markets, but for some that unknown future has been studied to death.. quite literally. Most all of actuarial science is dedicated to the mortality quantification that is the heart of life insurance. So I bet they come pretty close to getting the numbers right.
Thus the number one question is whether such actuarial accuracy could ever be replicated in predicting the future of the city of Pittsburgh aging and ageless water infrastructure. The PWSA cant even identify all the leaks it has in its backbone now and I bet there just isn't any meaningful estimate of what it would cost to replace the whole system. What they know about the condition of individual taps to each and every home in the city is likely an order of magnitude even smaller. So it seems obvious to me that worse than most any othe water system in the nation (because of it's age and relative lack of investment for so long) nobody can really know what a fair price would be for a sewer line insuranace program.
At the core then is why a new company jumped into the breach and try and fill this apparent lack of market for a decently priced insurance program, whether sold individually to homeowners or collectively via the PWSA. There appeared to be a big profit and some entrepreneurial sorts jumped in to fill the gap with winners all around. Sort of the way the free market should work. But it was likely an illusion. The mispricing of the future risk is all that was really going on here and eventually.... down the road it may have been.. it really was impossible to collectively insure the failure of Pittsburgh's aging water infrastructure at a price that anyone would accept. I won't get into the pseudo-profit built into this particulal scheme which was the offer of the insurance program to pay for some rehabilitation of the PWSA's public drains at the same time... there certainly was not money for that and may be a core reasons some homeowners are being left adrift because of lack of assets. That could in some parlances be called a 'side payment'.
and don't get me going on the economic failings, and impossibilities, of the defunct WEHAV insurance once thought up for Pittsburgh's West End neighborhoods. Insurance can fill great gaps in the market by reducing risk when desired, but it can't solve all problems.
PS. Brings up a real question for the future of the system. Have they made any progress finding anyone to actually run the PWSA?