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0 pointsroenxi4y ago0 comments

I'm staunchly anti-insurance in most cases, as once someone is making a profit it can't be a positive-expected-value deal.

But that angle seems to have been covered already so just to be different - insurers also have the strongest incentives in the market to make sure risks don't play out. There is nobody with more at stake in the event of a bad flood or other disaster. The incentive structures around insurance (in a free market, though) are actually really healthy. It is probably the strongest argument against insurance being a racket short of not-for-profits.

It is fun to imagine a big US insurance cartel acting as the counterbalance to Big (Insert Industry Here) in a city planning meeting because they are worried about the risks.

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i_am_proteus4y ago

It might not be positive expected value (dollars) but it's often positive expected utility.

This is usually because insurance hedges against tail risks that wipe out the individual, and in these cases utility is a nonlinear function of dollars.

Most people would rather pay 1% of their net worth to deterministically avoid a 1/100 chance of losing their entire net worth.

Because insurers pool risk, it ends up being simultaneously rational for the individual to carry insurance and profitable for the insurer to write insurance policies.

Investments are a similar kind of risk pooling, but for upsides. You would not gamble your entire net worth on a prospect with uncertain profitability, but a large number of investors each risking a small fraction of their wealth make it possible to raise capital for risky but possibly valuable projects.

lmohseni4y ago

I like to think of it as: insurance = risk pooling = “socialism”, whereas markets = information pooling = “capitalism”, and risk is simply the negative of information.

matwood4y ago

> I'm staunchly anti-insurance in most cases, as once someone is making a profit it can't be a positive-expected-value deal.

Are you also against loans?

Insurance is just a way offload risk onto someone else for a fee. An insurance companies profits are not risk free, but they hope a large diverse pool of insured will keep them from being wiped out in a large event.

Most of us don't have a choice on whether to carry insurance or take out loans. I think it's more interesting to look at what the rich do, and from my reading it seems to be mixed depending on cost.

roenxiOP4y ago

Very much in favour of loans. I am normally willing to lend at about 5-8% depending on estimated creditworthiness, although nobody has offered me that in the last decade.

bhickey4y ago

> as once someone is making a profit it can't be a positive-expected-value deal.

This isn't true. There are risks an entity with a billion dollars can profitably take on that a person with a thousand dollars can't. Insurance can reallocate those risks to leave both parties better off in expectation.

disgruntledphd24y ago

Historically, insurance companies didn't make money on premiums. Most of the profits came from investing the premiums over time.

This model is clearly breaking down with really low interest rates, hence why you see insurance companies actually caring about premiums and investing in new technology/data to reduce the cost of claims/increase premiums on high risk customers.

benjaminwootton4y ago

I pay £30 a month to insure an £X00k bill if my house develops a catastrophic problem. That’s +ve EV regardless of the numbers because the risk avoidance has “value”.

sokoloff4y ago

It’s +EU (expected utility), but probably not +E$ (expected money). Traditionally, EV is talked about as E$, not EU.

When you bring in peace of mind and avoiding risk of ruin, those are utility concerns (which make purchase of -EV insurance sensible in many cases).

hellbannedguy4y ago

I was told by a working political consultant, that insurance industry lobbiests basically control Sacramento.

They poured a lot of money into political coffiers when CA decided to go to demanding auto insurance at DMV. (Before auto insurance was required, but not demanded. So basically if you wanted to chance it, you could drive witout insurance.)

Thus guy told me the Insurance induesty gives politicians the most amount of money, behind unions.

Why is the insurance industry so concerned with state bills?

I think we all know the answer. And I'm at odds at what the Insurance Commissioner does all day? I guess a VPS to Pornhub?

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