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So if they're adjusting premiums such that they're net positive on every single account, does that mean they'll refund your money if you end the contract withou

So if they're adjusting premiums such that they're net positive on every single account, does that mean they'll refund your money if you end the contract without ever having made a claim?

chimeracoder 11y ago
> So if they're adjusting premiums such that they're net positive on every single account, does that mean they'll refund your money if you end the contract without ever having made a claim? No, because you're paying for the peace of mind that comes with knowing that your worst-case scenario has been mitigated, on the off-chance it happens. Even if there is no disaster, you still benefited from not having to worry about it as much (knowing that the insurer would cover some portion of it). Let's play a game: you're allowed to flip a coin ten times, and I will pay you $1 for each time it comes up heads[0]. Your expected value is $5, but you could make as much as $10 or as little as $0. Someone else comes up to you and offers to pay you a guaranteed minimum of $2 at the end of the game. In exchange, you have to pay him $.25 every time you flip the coin, regardless of whether it comes up heads or tails. In expectation, you're going to come out behind, but this game tightens the variance on your outcome. The worst case is that you lose $.50 (you pay the insurer ten quarters, flip ten tails, and receive $2 from the insurer). The best case is that you receive $7.50 (you pay the insurer ten quarters, flip ten heads, and receive $10 from me). The expected outcome is lower, but the range of possible outcomes is $8, not $10. In the real world, you're insuring against money being taken from you, but mathematically it's the same, and I find it's easier to explain it this way. Most people have a more intuitive sense of earning money than losing it. Go figure - psychology is weird. [0] One notable difference here is that the distribution of coin flips is approximately normal (binomial), whereas most insured events have a very long tail, with a mode of 0.
- deciplex 11y ago
  I understand how insurance works, but you haven't really addressed what I'm talking about, which is that insurance companies often don't seem to understand how insurance works. You can't expect to make a profit off of every account - it defeats the purpose of an insurance scheme altogether. If an insurance company raises the premiums on a person after they make a claim, or drops them from coverage, even when the nature of that claim does not raise their risk profile, then they're doing it wrong.
  - unclebucknasty 11y ago
    You're right. The parent comment is explaining only the actuarial risk model of insurance schemes, which is not the same as raising rates on a customer for makng a claim, even when his/her risk profile is unchanged. The purpose is clearly to discourage you from making a claim, which is what makes insurance a legal scam.
  - irixusr 11y ago
    I would think Insurance companies understand their business better than most industries < you loose a lot of money fast if you do risk wrong. They don't expect profit from all their accounts, not a priori. However they choose to do business only with those account which they believe will be profitable. If They expect to loose money from an account, they'll choose not to do business with you. We can debate if this is moral or not (some religions state it's not, i.e. the Amish as it is a form of gambling and discourages charity) but that's the game.
- backlava 11y ago
  Insurance rates usually go up after a claim even if it's obvious that the claim doesn't reflect a higher future risk, though.
  - rdtsc 11y ago
    In a way they go up because they can. If you look at it from their point of view. It is an event which they can point to and justify and say "sorry, this is our policy" and just raise the rates. Now of course if they charge too high, then you could go to a competitor. But there is this CLUE database (I just learned about in a sibling comment here) which apparently is shared among insurers and depending on what is there (or what is not there! -- such as, it was really just an accident) you get labeled and dropped. So even a competitor might decide it is safe to stay away from you.
  - megablast 11y ago
    It does, you have clearly shown yourself to be unlucky!
- marssaxman 11y ago
  > No, because you're paying for the peace of mind that comes with knowing that your worst-case scenario has been mitigated, on the off-chance it happens. The irony is that the peace of mind I end up with when dealing with insurance companies of any sort is the dead certainty that they are going to screw me over just as hard as they possibly can, should I ever actually need the service they pretend to be in the business of selling, so I'd better give them as little as I can legally get away with and expect to handle the unlikely disaster on my own.

So if they're adjusting premiums such that they're net positive on every single account, does that mean they'll refund your money if you end the contract without ever having made a claim?

chimeracoder 11y ago

> So if they're adjusting premiums such that they're net positive on every single account, does that mean they'll refund your money if you end the contract without ever having made a claim? No, because you're paying for the peace of mind that comes with knowing that your worst-case scenario has been mitigated, on the off-chance it happens. Even if there is no disaster, you still benefited from not having to worry about it as much (knowing that the insurer would cover some portion of it). Let's play a game: you're allowed to flip a coin ten times, and I will pay you $1 for each time it comes up heads[0]. Your expected value is $5, but you could make as much as $10 or as little as $0. Someone else comes up to you and offers to pay you a guaranteed minimum of $2 at the end of the game. In exchange, you have to pay him $.25 every time you flip the coin, regardless of whether it comes up heads or tails. In expectation, you're going to come out behind, but this game tightens the variance on your outcome. The worst case is that you lose $.50 (you pay the insurer ten quarters, flip ten tails, and receive $2 from the insurer). The best case is that you receive $7.50 (you pay the insurer ten quarters, flip ten heads, and receive $10 from me). The expected outcome is lower, but the range of possible outcomes is $8, not $10. In the real world, you're insuring against money being taken from you, but mathematically it's the same, and I find it's easier to explain it this way. Most people have a more intuitive sense of earning money than losing it. Go figure - psychology is weird. [0] One notable difference here is that the distribution of coin flips is approximately normal (binomial), whereas most insured events have a very long tail, with a mode of 0.

deciplex 11y ago
I understand how insurance works, but you haven't really addressed what I'm talking about, which is that insurance companies often don't seem to understand how insurance works. You can't expect to make a profit off of every account - it defeats the purpose of an insurance scheme altogether. If an insurance company raises the premiums on a person after they make a claim, or drops them from coverage, even when the nature of that claim does not raise their risk profile, then they're doing it wrong.
- unclebucknasty 11y ago
  You're right. The parent comment is explaining only the actuarial risk model of insurance schemes, which is not the same as raising rates on a customer for makng a claim, even when his/her risk profile is unchanged. The purpose is clearly to discourage you from making a claim, which is what makes insurance a legal scam.
- irixusr 11y ago
  I would think Insurance companies understand their business better than most industries < you loose a lot of money fast if you do risk wrong. They don't expect profit from all their accounts, not a priori. However they choose to do business only with those account which they believe will be profitable. If They expect to loose money from an account, they'll choose not to do business with you. We can debate if this is moral or not (some religions state it's not, i.e. the Amish as it is a form of gambling and discourages charity) but that's the game.
backlava 11y ago
Insurance rates usually go up after a claim even if it's obvious that the claim doesn't reflect a higher future risk, though.
- rdtsc 11y ago
  In a way they go up because they can. If you look at it from their point of view. It is an event which they can point to and justify and say "sorry, this is our policy" and just raise the rates. Now of course if they charge too high, then you could go to a competitor. But there is this CLUE database (I just learned about in a sibling comment here) which apparently is shared among insurers and depending on what is there (or what is not there! -- such as, it was really just an accident) you get labeled and dropped. So even a competitor might decide it is safe to stay away from you.
- megablast 11y ago
  It does, you have clearly shown yourself to be unlucky!
marssaxman 11y ago
> No, because you're paying for the peace of mind that comes with knowing that your worst-case scenario has been mitigated, on the off-chance it happens. The irony is that the peace of mind I end up with when dealing with insurance companies of any sort is the dead certainty that they are going to screw me over just as hard as they possibly can, should I ever actually need the service they pretend to be in the business of selling, so I'd better give them as little as I can legally get away with and expect to handle the unlikely disaster on my own.