4 ms·

> Insurance is NOT a financial instrument Unless you are attempting to redefine the word insurance you are simply incorrect. Insurance is one of the most commo

by epr 6y ago

> Insurance is NOT a financial instrument Unless you are attempting to redefine the word insurance you are simply incorrect. Insurance is one of the most commonly used financial instruments in existence. If insurance was somehow not a financial instrument, it would not be insurance, but something else entirely.

kingkawn 6y ago
Debt would like a word...
- sida 6y ago
  OP said “one of the most...” Debt is certainly the most common and insurance is the one of the most common
TheNorthman 6y ago
I can't speak for insurance markets everywhere but in Denmark, you are simply incorrect. Insurance companies have existed as consumers' co-operatives since the first insurance 'company' in Denmark, founded after a city-wide fire in Copenhagen in 1728. These agreements were never meant to be traded between insurance companies and in most cases simply weren't. The only major exemption from this rule are for companies offering life insurance but they aren't allowed to offer regular insurance. Instead of acting as financial instruments, insurance companies are required to have, on-hand, the necessary liquidity to pay-out enormous sums.
- sailfast 6y ago
  Just because it's not traded doesn't mean it is not a financial instrument. You are paying into a pool of money that promises to pay you a certain sum of money above your contribution if something happens. That is defined by a monetary contract. It's a financial instrument, by definition. Just because the insurance companies have higher capital requirements and treat customers differently doesn't mean it's not a financial instrument.
  - TheNorthman 6y ago
    You're not right simply because you say you are. If we're going to talk about definition, tell me where you found yours. I'll help you with some I just googled, that support my definition: > Financial instruments are assets that can be traded. [0] > Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. [1] And my point about about life insurances being financial instruments: > The asset classes are cash, vehicles, real estate, business, directly held equity, indirectly held equity, fixed income, pension equity, pension fixed income, cash value life insurance. [2] > Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments. [3] [0]: https://www.investopedia.com/terms/f/financialinstrument.asp https://www.investopedia.com/terms/f/financialinstrument.asp [1]: https://en.wikipedia.org/wiki/Financial_instrument https://en.wikipedia.org/wiki/Financial_instrument [2]: https://www.sciencedirect.com/topics/social-sciences/financial-instrument https://www.sciencedirect.com/topics/social-sciences/financi... [3]: https://en.wikipedia.org/wiki/Insurance#Life_insurance https://en.wikipedia.org/wiki/Insurance#Life_insurance
    - leesalminen 6y ago
      So, if I'm holding un-vested RSUs in a tech start-up, it isn't a financial instrument because the monetary contract stipulates that I can't _trade_ it?
      - TheNorthman 6y ago
        No, unvested RSUs are financial instruments for the same reason life insurance is. Your unvested RSUs accumulate cash-value over time and can be traded at the time of vesting. One might call them a derivative financial instrument. Regular insurance doesn't accumulate cash-value and therefor is not a financial instrument.
    - sailfast 6y ago
      Sure, good point. I’ll bite. The first sentence Wikipedia “monetary contract between two parties” definition leaves out the trading bit you include from other places. Here’s what the Financial Accounting Standards Board says: (https://www.fasb.org/cs/ContentServer?c=Page&cid=1351027210037&d=Touch&pagename=FASB%2FPage%2FBridgePage https://www.fasb.org/cs/ContentServer?c=Page&cid=13510272100...) Imposes on one entity a contractual obligation either: A) To deliver cash or another financial instrument to a second entity B) To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: A) To receive cash or another financial instrument from the first entity B) To exchange other financial instruments on potentially favorable terms with the first entity. Sounds like insurance fits in this category. I die next week, you pay me a million dollars, and I’ve only paid you $100 (or whatever small premium) Furthermore, any agreement can be traded if someone sees an advantage in the trade and can rely on the agreement to hold. Just because someone’s not doing the trade doesn’t mean it’s not trade-able. I guess it could be explicitly prohibited but even then I could see a Dane in the above insurance example securing a home loan because they have this insurance, and would be able to pay out upon death (for example) as a normal thing.
- vikramkr 6y ago
  In the US there's basically a 110% chance that whatever insurance policy you took has become a part of some derivative contract with swaps or whatever. And everyone financially engineers insurance if they have anything resembling a free market. Reinsurance in denmark: https://www.lexology.com/library/detail.aspx?g=654d1fd4-cffc-4a72-8a5c-d89d7c7f8529 https://www.lexology.com/library/detail.aspx?g=654d1fd4-cffc... First result for Denmark insurance swaps: https://books.google.com/books?id=XsbFBgAAQBAJ&pg=PA34&lpg=PA34&dq=denmark+insurance+swaps&source=bl&ots=nAmPyCE-hm&sig=ACfU3U3wm1-o99wz4ltQ8gByXF7XRKylag&hl=en&sa=X&ved=2ahUKEwivzoyCgoTqAhV4SDABHWuyD1wQ6AEwAHoECAUQAQ#v=onepage&q=denmark%20insurance%20swaps&f=false https://books.google.com/books?id=XsbFBgAAQBAJ&pg=PA34&lpg=P...
  - ISL 6y ago
    Even the "110%" number is apt to be correct, as someone has probably sold one of those derivatives short.
    - vikramkr 6y ago
      Good point - I meant that as hyperbole but if you want to start counting shorts and swaps on swaps and swaps on shorts and shorts on swaps and reinsurance and swaps on reinsurance and so and and so forth, well, that gets really big really fast. Let's just say there was a reason we were so worried about AIG going under during the previous financial crisis.
- jldugger 6y ago
  Finance: the art of trading money now vs more money later Insurance: the art of spending money now to avoid spending more money later Seems like an open and shut thing -- insurance is a form of finance, whether consumer cooperatives, for-profit companies, or the government itself. Unless we're debating the "instrument" part.
- SllX 6y ago
  It sounds like you have a very specific history of insurance and way of thinking about it in your country, but insurance goes back to the Ancient world and was one of the first financial instruments if not the first. When you take out a policy, yes you are mitigating the risk of “something bad” happening, to you, and of it does happen, then the insurer makes you whole as far as the contract was concerned. But that means you’re gambling, and so is the insurer. You’re making a bet on a certain outcome and so is the insurer. If you “win” that bet, e.g. the cargo on your ship was stolen by pirates and you insured against that, then your insurer “loses” and has to pay out. If nothing happened during the voyage though and you safely delivered your cargo, then the insurer “wins” and you “lose”, but what you’ve “lost” is a fraction of the value of the cargo which is better than the loss of the whole cargo. The insurer makes money by pooling these bets, betting that it will win more bets than it loses.
sukilot 6y ago
Parent meant that it's not an arms-length transactional investment. It's meant to be a fiduciary service like an accountant or finacial advisor. They are supposed to make money by helping you and taking a percentage fee, not by tricking you or outsmarting you.
smithza 6y ago
The American capitalistic perspective tainted the nature of insurance. The comment > Insurance is supposed to be a safety mechanism that protects you if something bad happens. is a better vision of the way we should approach insurance IMO. My views are not to abolish capitalism at all, but am commenting on one of the pain points of its selfish tendencies.

by epr 6y ago

kingkawn 6y ago

Debt would like a word...

sida 6y ago
OP said “one of the most...” Debt is certainly the most common and insurance is the one of the most common

TheNorthman 6y ago

I can't speak for insurance markets everywhere but in Denmark, you are simply incorrect. Insurance companies have existed as consumers' co-operatives since the first insurance 'company' in Denmark, founded after a city-wide fire in Copenhagen in 1728. These agreements were never meant to be traded between insurance companies and in most cases simply weren't. The only major exemption from this rule are for companies offering life insurance but they aren't allowed to offer regular insurance. Instead of acting as financial instruments, insurance companies are required to have, on-hand, the necessary liquidity to pay-out enormous sums.

sailfast 6y ago
Just because it's not traded doesn't mean it is not a financial instrument. You are paying into a pool of money that promises to pay you a certain sum of money above your contribution if something happens. That is defined by a monetary contract. It's a financial instrument, by definition. Just because the insurance companies have higher capital requirements and treat customers differently doesn't mean it's not a financial instrument.
- TheNorthman 6y ago
  You're not right simply because you say you are. If we're going to talk about definition, tell me where you found yours. I'll help you with some I just googled, that support my definition: > Financial instruments are assets that can be traded. [0] > Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. [1] And my point about about life insurances being financial instruments: > The asset classes are cash, vehicles, real estate, business, directly held equity, indirectly held equity, fixed income, pension equity, pension fixed income, cash value life insurance. [2] > Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments. [3] [0]: https://www.investopedia.com/terms/f/financialinstrument.asp https://www.investopedia.com/terms/f/financialinstrument.asp [1]: https://en.wikipedia.org/wiki/Financial_instrument https://en.wikipedia.org/wiki/Financial_instrument [2]: https://www.sciencedirect.com/topics/social-sciences/financial-instrument https://www.sciencedirect.com/topics/social-sciences/financi... [3]: https://en.wikipedia.org/wiki/Insurance#Life_insurance https://en.wikipedia.org/wiki/Insurance#Life_insurance
  - leesalminen 6y ago
    So, if I'm holding un-vested RSUs in a tech start-up, it isn't a financial instrument because the monetary contract stipulates that I can't _trade_ it?
    - TheNorthman 6y ago
      No, unvested RSUs are financial instruments for the same reason life insurance is. Your unvested RSUs accumulate cash-value over time and can be traded at the time of vesting. One might call them a derivative financial instrument. Regular insurance doesn't accumulate cash-value and therefor is not a financial instrument.
  - sailfast 6y ago
    Sure, good point. I’ll bite. The first sentence Wikipedia “monetary contract between two parties” definition leaves out the trading bit you include from other places. Here’s what the Financial Accounting Standards Board says: (https://www.fasb.org/cs/ContentServer?c=Page&cid=1351027210037&d=Touch&pagename=FASB%2FPage%2FBridgePage https://www.fasb.org/cs/ContentServer?c=Page&cid=13510272100...) Imposes on one entity a contractual obligation either: A) To deliver cash or another financial instrument to a second entity B) To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: A) To receive cash or another financial instrument from the first entity B) To exchange other financial instruments on potentially favorable terms with the first entity. Sounds like insurance fits in this category. I die next week, you pay me a million dollars, and I’ve only paid you $100 (or whatever small premium) Furthermore, any agreement can be traded if someone sees an advantage in the trade and can rely on the agreement to hold. Just because someone’s not doing the trade doesn’t mean it’s not trade-able. I guess it could be explicitly prohibited but even then I could see a Dane in the above insurance example securing a home loan because they have this insurance, and would be able to pay out upon death (for example) as a normal thing.
vikramkr 6y ago
In the US there's basically a 110% chance that whatever insurance policy you took has become a part of some derivative contract with swaps or whatever. And everyone financially engineers insurance if they have anything resembling a free market. Reinsurance in denmark: https://www.lexology.com/library/detail.aspx?g=654d1fd4-cffc-4a72-8a5c-d89d7c7f8529 https://www.lexology.com/library/detail.aspx?g=654d1fd4-cffc... First result for Denmark insurance swaps: https://books.google.com/books?id=XsbFBgAAQBAJ&pg=PA34&lpg=PA34&dq=denmark+insurance+swaps&source=bl&ots=nAmPyCE-hm&sig=ACfU3U3wm1-o99wz4ltQ8gByXF7XRKylag&hl=en&sa=X&ved=2ahUKEwivzoyCgoTqAhV4SDABHWuyD1wQ6AEwAHoECAUQAQ#v=onepage&q=denmark%20insurance%20swaps&f=false https://books.google.com/books?id=XsbFBgAAQBAJ&pg=PA34&lpg=P...
- ISL 6y ago
  Even the "110%" number is apt to be correct, as someone has probably sold one of those derivatives short.
  - vikramkr 6y ago
    Good point - I meant that as hyperbole but if you want to start counting shorts and swaps on swaps and swaps on shorts and shorts on swaps and reinsurance and swaps on reinsurance and so and and so forth, well, that gets really big really fast. Let's just say there was a reason we were so worried about AIG going under during the previous financial crisis.
jldugger 6y ago
Finance: the art of trading money now vs more money later Insurance: the art of spending money now to avoid spending more money later Seems like an open and shut thing -- insurance is a form of finance, whether consumer cooperatives, for-profit companies, or the government itself. Unless we're debating the "instrument" part.
SllX 6y ago
It sounds like you have a very specific history of insurance and way of thinking about it in your country, but insurance goes back to the Ancient world and was one of the first financial instruments if not the first. When you take out a policy, yes you are mitigating the risk of “something bad” happening, to you, and of it does happen, then the insurer makes you whole as far as the contract was concerned. But that means you’re gambling, and so is the insurer. You’re making a bet on a certain outcome and so is the insurer. If you “win” that bet, e.g. the cargo on your ship was stolen by pirates and you insured against that, then your insurer “loses” and has to pay out. If nothing happened during the voyage though and you safely delivered your cargo, then the insurer “wins” and you “lose”, but what you’ve “lost” is a fraction of the value of the cargo which is better than the loss of the whole cargo. The insurer makes money by pooling these bets, betting that it will win more bets than it loses.

sukilot 6y ago

Parent meant that it's not an arms-length transactional investment. It's meant to be a fiduciary service like an accountant or finacial advisor. They are supposed to make money by helping you and taking a percentage fee, not by tricking you or outsmarting you.

smithza 6y ago

The American capitalistic perspective tainted the nature of insurance. The comment > Insurance is supposed to be a safety mechanism that protects you if something bad happens. is a better vision of the way we should approach insurance IMO. My views are not to abolish capitalism at all, but am commenting on one of the pain points of its selfish tendencies.