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> incredible percentage of your policy that goes into marketing/admin/etc The expense ratio is something like 30 to 40 percent of premium on commercial policie

> incredible percentage of your policy that goes into marketing/admin/etc The expense ratio is something like 30 to 40 percent of premium on commercial policies in case anyone was wondering. This figure is found on annual reports. I'm not sure if insurers should be blamed for that though. Economically, that can be explained by the concave shape of consumers' Von Neumann Morgenstern utility curves describing their degree of risk aversion. It reflects their willingness to pay for a trading an uncertain outcome to a certain one.

state_less 5y ago
I think prompting people with removing risk at the checkout counter might result in a different appetite for risk aversion than if they came to the decision on their own over a period of time. So maybe folks are being corralled into a losing bet?
marcosdumay 5y ago
Hum... Competition should make insurance prices independent of the consumers preferences for risk, just like it makes any other good's price independent of their value to consumers. If insurance prices change with people's preferences, that's a strong signal the market doesn't have enough competition.
- nwienert 5y ago
  It just strikes me as an intensely bad equilibrium where the best priced insurance should be the one that advertises least, yet insurance is the most heavily advertised industry. It makes sense why, it’s basically entirely 0 sum. There’s no innovation to be made, just stealing customers from other companies. Further, I don’t see how competition is improving the industry, as they have next to no tech. I see that competition may keep things honest, but especially in the cases like health insurance I can’t see how it has. Whether that’s entirely caused by bad policy I don’t know. For all the above, in my dim understanding, it seems like one of the few truly ideal cases for being government run. I’d love to hear reasons why not.
  - clairity 5y ago
    you can compete on price, or you can compete on quality. price competition can take various forms, from operational efficiency (better actuarial science, more efficient claims, etc.) to marketing efficiency (better targeting, simpler product, etc.). quality competition would encompass more sophisticated products/product lines, better customer service, etc. so there is a lot of room for competition to drive down price (and increase quality) without it being a zero-sum game. the problem is that markets for financial products are irresistable to the greedy (as it's stripped down to the bare essence of pursuing money itself) making ethically dubious decisions under greedy incentive structures. the government can create a more competitive market through regulation and enforcement but chooses not to (because of its own perverse incentives), so it's not a given that a government monopoly would necessarily be any better. with most issues like this, the default option should be to do both: have government-run options (with no unfair advantages) in competition with (for-profit and non-profit) market participants. this is a pretty rare configuration however, since it removes the obvious (unfair) leverage points for taking advantage of a market.
    - nwienert 5y ago
      When 40 some percent of your price is customer acquisition I don't buy the price being competitive. Health I can see has some room for quality, but still some high 90% of the market doesn't go outside the bottom three plans across almost any type of insurance. I can see the case for allowing insurance alongside. No need for monopoly, though the level of greed in the industry and ability to manipulate through ads is a weird balance - they're incentivized to keep you a bit paranoid.
      - clairity 5y ago
        it's not that the price is necessarily competitive, but rather, that there is (and can be) competition along multiple dimensions even in markets with high acquisition costs. of course, there could just not be enough competition in totality to drive prices down near the marginal cost of production, but significant customer acquisition costs don't necessarily indicate an inefficient market, since complex products (like insurance) require more effort toward customer education (e.g., sales & marketing). my guess, however, is that the current equilibrium point above the marginal cost of production is likely more a function of regulatory capture. insurance went through a broad round of demutualization over the past few decades, and some of the capital gains of that process surely went into legal and political initiatives. to the article's point though, insurance is an adversely-incentivized industry driven to over-financialize every possible risk, which is where it veers into gambling (just like equities and derivatives) and sensationalizing paranoia (just like news). insurance should be reserved for unlikely but impactful natural events, not common or man-made ones, which is what insurance has expanded into.

state_less 5y ago

I think prompting people with removing risk at the checkout counter might result in a different appetite for risk aversion than if they came to the decision on their own over a period of time. So maybe folks are being corralled into a losing bet?

marcosdumay 5y ago

Hum... Competition should make insurance prices independent of the consumers preferences for risk, just like it makes any other good's price independent of their value to consumers. If insurance prices change with people's preferences, that's a strong signal the market doesn't have enough competition.

nwienert 5y ago
It just strikes me as an intensely bad equilibrium where the best priced insurance should be the one that advertises least, yet insurance is the most heavily advertised industry. It makes sense why, it’s basically entirely 0 sum. There’s no innovation to be made, just stealing customers from other companies. Further, I don’t see how competition is improving the industry, as they have next to no tech. I see that competition may keep things honest, but especially in the cases like health insurance I can’t see how it has. Whether that’s entirely caused by bad policy I don’t know. For all the above, in my dim understanding, it seems like one of the few truly ideal cases for being government run. I’d love to hear reasons why not.
- clairity 5y ago
  you can compete on price, or you can compete on quality. price competition can take various forms, from operational efficiency (better actuarial science, more efficient claims, etc.) to marketing efficiency (better targeting, simpler product, etc.). quality competition would encompass more sophisticated products/product lines, better customer service, etc. so there is a lot of room for competition to drive down price (and increase quality) without it being a zero-sum game. the problem is that markets for financial products are irresistable to the greedy (as it's stripped down to the bare essence of pursuing money itself) making ethically dubious decisions under greedy incentive structures. the government can create a more competitive market through regulation and enforcement but chooses not to (because of its own perverse incentives), so it's not a given that a government monopoly would necessarily be any better. with most issues like this, the default option should be to do both: have government-run options (with no unfair advantages) in competition with (for-profit and non-profit) market participants. this is a pretty rare configuration however, since it removes the obvious (unfair) leverage points for taking advantage of a market.
  - nwienert 5y ago
    When 40 some percent of your price is customer acquisition I don't buy the price being competitive. Health I can see has some room for quality, but still some high 90% of the market doesn't go outside the bottom three plans across almost any type of insurance. I can see the case for allowing insurance alongside. No need for monopoly, though the level of greed in the industry and ability to manipulate through ads is a weird balance - they're incentivized to keep you a bit paranoid.
    - clairity 5y ago
      it's not that the price is necessarily competitive, but rather, that there is (and can be) competition along multiple dimensions even in markets with high acquisition costs. of course, there could just not be enough competition in totality to drive prices down near the marginal cost of production, but significant customer acquisition costs don't necessarily indicate an inefficient market, since complex products (like insurance) require more effort toward customer education (e.g., sales & marketing). my guess, however, is that the current equilibrium point above the marginal cost of production is likely more a function of regulatory capture. insurance went through a broad round of demutualization over the past few decades, and some of the capital gains of that process surely went into legal and political initiatives. to the article's point though, insurance is an adversely-incentivized industry driven to over-financialize every possible risk, which is where it veers into gambling (just like equities and derivatives) and sensationalizing paranoia (just like news). insurance should be reserved for unlikely but impactful natural events, not common or man-made ones, which is what insurance has expanded into.