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> Insurance companies almost always win, that's how they make money Not exactly. They make money off pricing their insurance higher than the chances of it happ
by akhatri_aus 9y ago
> Insurance companies almost always win, that's how they make money
Not exactly. They make money off pricing their insurance higher than the chances of it happening.
- brndnmtthws 9y agoYes exactly. They make money by a) charging enough in fees to cover the risk and b) limiting the amount they have to pay out. Just look at how health insurance works: without government regulation, most of the day to day healthcare you actually need isn't covered under the terms of the insurance. For example, contraceptives.
- defo_nonconvex 9y agoErr, a big chunk of their bottom-line comes from reinvesting the float, or just re-insuring and taking the spread.
- akhatri_aus 9y agoTo do this you can only make money if the insurance is priced at more than the chance of it happening. Or the reinsurer wouldn't be able to offer any insurance either, & the float wouldn't exist because it would be paid back in claims. Insurance runs on the same premise of making money a casino does. If there was no casino edge, there would be no cash for the casino 'float' back into bets.
- defo_nonconvex 9y agoGiven a market in a steady state, as long as your (return+premium) rate is higher than your expected payout, you're still ok. So your premium-expected_payout could be negative and you could hopefully still keep the lights on, no?