4 ms·

I recall a lecture that proposed the home/fire insurance companies own the fire departments and your policy includes fire department services. In theory it shou

I recall a lecture that proposed the home/fire insurance companies own the fire departments and your policy includes fire department services. In theory it should ensure incentives are aligned but then there is the issue of logistics and scale.

gozur88 10y ago
It might not work out as well as you'd expect. Insurance companies are going to run the numbers, and if they make the most money by covering only 95% of the houses and then just paying out the last 5% that's what they'll do.
- winstonewert 10y ago
  Is that bad? If it costs the insurance company more to stop the fire then to replace my house, the rational action to take is to let the house burn.
  - HarryHirsch 10y ago
    You'd be a ward of the state because your largest asset just burned down. Your neighbours might object because they have to foot your welfare now.
    - gozur88 10y ago
      The scenario is the insurance company pays to replace your lost items because it's cheaper to pay out than provide fire service. So that's not an issue.
      - jimmaswell 10y ago
        Money doesn't replace one of a kind items or data on storage.
  - gozur88 10y ago
    I think it is bad, for two reasons. One, firemen do more than just put out fires. If there's nobody around to put out your burning house, there's nobody around to pull you out if you've been overcome by smoke inhalation. Two, people tend to accumulate objects of sentimental value. Your great grandfather's watch (https://www.youtube.com/watch?v=YFtHjV4c4uw https://www.youtube.com/watch?v=YFtHjV4c4uw) might be priceless to you and only worth $50 to an insurance company.
    - winstonewert 10y ago
      Good points. Both are actually, in some sense, the same thing. Both are costs which you will pay instead of your insurance company. Because they don't pay those costs, their assesments of the costs of a fire will be off. Thus they will let some houses burn which optimally, would not burn. However, my underlying point was really that it does make rational sense to allow some houses to burn. We could put a fireman on every street, and we'd probably save a lot of houses, lives, and heirlooms. But that would prohibitively expensive. Instead, we have to engage in trade-offs, having cheaper fire protection at the cost of risking some houses, lives, and heirlooms.
      - jsprogrammer 10y ago
        Firemen get trucks with sirens and lights. There is no need to locate one on every street. Where are you getting your definition of rational? Are you saying you can assign a fair, total ordering of value to every thing?
        winstonewert 10y ago
        > Firemen get trucks with sirens and lights. There is no need to locate one on every street. But we'd still save more lives, houses, and heirlooms if we did put one on every street. Every additional kilometer between my house and the fire station increases the level of risk for my house. My point is: it's not binary: you have fire protection or you don't. You have varying degrees of fire protection quality with varying degrees of cost and you have pick the one you want. > Where are you getting your definition of rational? Are you saying you can assign a fair, total ordering of value to every thing? No, I certainly hold to the subjective theory of value which rejects the idea that there is an objective fair total ordering of value. By rational, I mean its a decision that makes sense given your subjective valuation. You aren't going to reduce the risk as much as possible because that would be far too expensive. You are going to choose a level of risk that in your estimation trades off expensive and risk in an acceptable manner. That's subjective, and will vary from person to person, but no matter what your decision is, you will end up having some risk that you could have gotten rid of it, if you were willing to pay for it.
  - jimmaswell 10y ago
    Yes, it's bad if people's posessions are destroyed or even lives are potentially lost.
  - PhasmaFelis 10y ago
    Is it bad for the company that you are paying specifically to protect your house from fire to decide that they'd rather let your every mortal possession burn to ash and then cut you a check? I want to be clear. Is this actually the question you're asking?
    - winstonewert 10y ago
      If you are paying the company to protect your house from fire, obviously they should actually protect your house. Hopefully, they would offer an SLA for how quickly they'll get to your house, the quality of service, etc. But in the case postulated above, you aren't paying the company to protect your house from fire. You are paying the company as an insurance company. Fire protection is just something they do in order to reduce their losses. Also, it is not likely they would simply decide not to protect your house. It is more likely they would have fewer fire stations, older equipment, etc that puts your house at a higher risk then you prefer. But my point really was: regardless of who does it, some houses will end burning because it was too expensive to save them.

gozur88 10y ago

It might not work out as well as you'd expect. Insurance companies are going to run the numbers, and if they make the most money by covering only 95% of the houses and then just paying out the last 5% that's what they'll do.

winstonewert 10y ago
Is that bad? If it costs the insurance company more to stop the fire then to replace my house, the rational action to take is to let the house burn.
- HarryHirsch 10y ago
  You'd be a ward of the state because your largest asset just burned down. Your neighbours might object because they have to foot your welfare now.
  - gozur88 10y ago
    The scenario is the insurance company pays to replace your lost items because it's cheaper to pay out than provide fire service. So that's not an issue.
    - jimmaswell 10y ago
      Money doesn't replace one of a kind items or data on storage.
- gozur88 10y ago
  I think it is bad, for two reasons. One, firemen do more than just put out fires. If there's nobody around to put out your burning house, there's nobody around to pull you out if you've been overcome by smoke inhalation. Two, people tend to accumulate objects of sentimental value. Your great grandfather's watch (https://www.youtube.com/watch?v=YFtHjV4c4uw https://www.youtube.com/watch?v=YFtHjV4c4uw) might be priceless to you and only worth $50 to an insurance company.
  - winstonewert 10y ago
    Good points. Both are actually, in some sense, the same thing. Both are costs which you will pay instead of your insurance company. Because they don't pay those costs, their assesments of the costs of a fire will be off. Thus they will let some houses burn which optimally, would not burn. However, my underlying point was really that it does make rational sense to allow some houses to burn. We could put a fireman on every street, and we'd probably save a lot of houses, lives, and heirlooms. But that would prohibitively expensive. Instead, we have to engage in trade-offs, having cheaper fire protection at the cost of risking some houses, lives, and heirlooms.
    - jsprogrammer 10y ago
      Firemen get trucks with sirens and lights. There is no need to locate one on every street. Where are you getting your definition of rational? Are you saying you can assign a fair, total ordering of value to every thing?
      - winstonewert 10y ago
        > Firemen get trucks with sirens and lights. There is no need to locate one on every street. But we'd still save more lives, houses, and heirlooms if we did put one on every street. Every additional kilometer between my house and the fire station increases the level of risk for my house. My point is: it's not binary: you have fire protection or you don't. You have varying degrees of fire protection quality with varying degrees of cost and you have pick the one you want. > Where are you getting your definition of rational? Are you saying you can assign a fair, total ordering of value to every thing? No, I certainly hold to the subjective theory of value which rejects the idea that there is an objective fair total ordering of value. By rational, I mean its a decision that makes sense given your subjective valuation. You aren't going to reduce the risk as much as possible because that would be far too expensive. You are going to choose a level of risk that in your estimation trades off expensive and risk in an acceptable manner. That's subjective, and will vary from person to person, but no matter what your decision is, you will end up having some risk that you could have gotten rid of it, if you were willing to pay for it.
- jimmaswell 10y ago
  Yes, it's bad if people's posessions are destroyed or even lives are potentially lost.
- PhasmaFelis 10y ago
  Is it bad for the company that you are paying specifically to protect your house from fire to decide that they'd rather let your every mortal possession burn to ash and then cut you a check? I want to be clear. Is this actually the question you're asking?
  - winstonewert 10y ago
    If you are paying the company to protect your house from fire, obviously they should actually protect your house. Hopefully, they would offer an SLA for how quickly they'll get to your house, the quality of service, etc. But in the case postulated above, you aren't paying the company to protect your house from fire. You are paying the company as an insurance company. Fire protection is just something they do in order to reduce their losses. Also, it is not likely they would simply decide not to protect your house. It is more likely they would have fewer fire stations, older equipment, etc that puts your house at a higher risk then you prefer. But my point really was: regardless of who does it, some houses will end burning because it was too expensive to save them.