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The purpose of insurance is to protect you from unpredictable or unlikely risks. If a risk is predictable and likely, what's the point? If you want to distribu

The purpose of insurance is to protect you from unpredictable or unlikely risks. If a risk is predictable and likely, what's the point? If you want to distribute risks fairly, that's more a job of government subsidization. It is unfair that someone born with a genetic disease has to pay large medical bills, and I'm ok with the government subsidizing that. On the other hand, I don't want to subsidize the risk of serial drunk drivers. It's totally fair they have to pay higher premiums or not be allowed to drive. Ideally there could be a compromise. Like insurance companies agree to insure bad drivers if they take remedial driving lessons. It's theoretically possible we could use insurance as a free market solution to government regulation. Instead of building codes, require building insurance. And the insurance companies will do their best to actually predict the risk of various disasters and what things actually work to reduce them.

AnthonyMouse 10y ago
> The purpose of insurance is to protect you from unpredictable or unlikely risks. If a risk is predictable and likely, what's the point? That's the problem. The more accurately we can predict insurance claims the less reason there is for anybody to buy insurance because there is less uncertainty to insure against. And one of the things existing insurance does unintentionally is to spread the cost of misfortune across more people. If the misfortune becomes more accurately predictable then the people not likely to suffer it are spared the cost but that only moves more of it to the people who do. But you make an interesting point in the sense that it isn't enough to prevent insurance companies from using the information. If insurance customers can accurately learn their own risk, the same result will obtain regardless because the low risk customers will opt out of insurance until the premiums are high enough that the high risk customers do too. > And the insurance companies will do their best to actually predict the risk of various disasters and what things actually work to reduce them. Unfortunately that is completely the opposite of how insurance actually works. The insurance company has little control or involvement in such things because it isn't cost effective for them to micromanage everything. So what actually happens is that if you require insurance, people buy it and then take more risks because they have insurance. The fundamental tenet of insurance is to buy predictability at the cost of inefficiency. If you independently improve predictability the only thing left is the inefficiency.

AnthonyMouse 10y ago

> The purpose of insurance is to protect you from unpredictable or unlikely risks. If a risk is predictable and likely, what's the point? That's the problem. The more accurately we can predict insurance claims the less reason there is for anybody to buy insurance because there is less uncertainty to insure against. And one of the things existing insurance does unintentionally is to spread the cost of misfortune across more people. If the misfortune becomes more accurately predictable then the people not likely to suffer it are spared the cost but that only moves more of it to the people who do. But you make an interesting point in the sense that it isn't enough to prevent insurance companies from using the information. If insurance customers can accurately learn their own risk, the same result will obtain regardless because the low risk customers will opt out of insurance until the premiums are high enough that the high risk customers do too. > And the insurance companies will do their best to actually predict the risk of various disasters and what things actually work to reduce them. Unfortunately that is completely the opposite of how insurance actually works. The insurance company has little control or involvement in such things because it isn't cost effective for them to micromanage everything. So what actually happens is that if you require insurance, people buy it and then take more risks because they have insurance. The fundamental tenet of insurance is to buy predictability at the cost of inefficiency. If you independently improve predictability the only thing left is the inefficiency.