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What is the societal value of adding more (and real-time) data to insurance? In general, insurance helps spread risk. This means that if something drastically

by xevb3k 8y ago

What is the societal value of adding more (and real-time) data to insurance? In general, insurance helps spread risk. This means that if something drastically bad happens we distribute the impact over a larger population reducing the individual impact. In the extreme if you perfectly assess risk insurance ceases to have any value. The insurance costs would perfectly reflect the risk and there would be no benefit to owning insurance. My hunch is that this kind of data driven insurance could help people avoid risky situations. But I’m not sure that’s a given and it seems like there are many downsides (particularly if the risk is unavoidable). I’d be interested in perspectives on this.

supertrope 8y ago
"My hunch is that this kind of data driven insurance could help people avoid risky situations." That's the ideal. The cheapest accident to pay for is the one that doesn't happen. It's all about aligning incentives. The win-win dynamic is that the insurer can certify training courses, licensing, product design, etc. Customers can get discounts for making safer choices. Selection effects can be more adversarial. e.g. You get dropped after the first incident. The people who would benefit the most from coverage can't get it. People with poor credit scores get discriminated against even in the absence of activity specific bad history. Obviously as you mentioned perfect discrimination causes the system to break down. Risky customers can't get covered while safe customers don't buy because their risk is infinitesimal.
apolishch 8y ago
That is the dream - be a risk management and insurance company, rather than just the latter. We do reward people for safe flying and provide them with data in order make the best choices. This is why we are fairly transparent about where the price comes from (even if we do not necessarily tell people exactly how we calculated a price from the data). If a customer knows that their price is high because, for instance, there are 2 schools within a 300 yard radius, chances are they can move their flight, thus endangering less people and saving themselves insurance premiums.
wongarsu 8y ago
>In the extreme if you perfectly assess risk insurance ceases to have any value. For low probability high impact risks insurance is very useful even if perfectly assessed. For example you might determine the risk of my house flooding in any given year to be exactly 0.1%, and the expected damage $100000. Having to pay $100k would be a disaster for me, but paying $110/year to an insurance company is small cost I might not even notice. With perfect risk evaluation insurance is mathematically a bad idea, but unless you have limitless access to capital at market rates it's hard to get an advantage from not talking that insurance

by xevb3k 8y ago

supertrope 8y ago

"My hunch is that this kind of data driven insurance could help people avoid risky situations." That's the ideal. The cheapest accident to pay for is the one that doesn't happen. It's all about aligning incentives. The win-win dynamic is that the insurer can certify training courses, licensing, product design, etc. Customers can get discounts for making safer choices. Selection effects can be more adversarial. e.g. You get dropped after the first incident. The people who would benefit the most from coverage can't get it. People with poor credit scores get discriminated against even in the absence of activity specific bad history. Obviously as you mentioned perfect discrimination causes the system to break down. Risky customers can't get covered while safe customers don't buy because their risk is infinitesimal.

apolishch 8y ago

That is the dream - be a risk management and insurance company, rather than just the latter. We do reward people for safe flying and provide them with data in order make the best choices. This is why we are fairly transparent about where the price comes from (even if we do not necessarily tell people exactly how we calculated a price from the data). If a customer knows that their price is high because, for instance, there are 2 schools within a 300 yard radius, chances are they can move their flight, thus endangering less people and saving themselves insurance premiums.

wongarsu 8y ago

>In the extreme if you perfectly assess risk insurance ceases to have any value. For low probability high impact risks insurance is very useful even if perfectly assessed. For example you might determine the risk of my house flooding in any given year to be exactly 0.1%, and the expected damage $100000. Having to pay $100k would be a disaster for me, but paying $110/year to an insurance company is small cost I might not even notice. With perfect risk evaluation insurance is mathematically a bad idea, but unless you have limitless access to capital at market rates it's hard to get an advantage from not talking that insurance