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Why does insurance as a business feel like legalized gambling? “I’ll give you 1000:1 odds that you won’t crash your car” “I think that person will win that bet

Why does insurance as a business feel like legalized gambling? “I’ll give you 1000:1 odds that you won’t crash your car” “I think that person will win that bet and I’ll give you 100:1 odds”.

rocketbop 4y ago
In general insurance is designed to contain or negate your loss, but not to allow you to profit, so in that respect is different to gambling.
- ff317 4y ago
  Yeah but what about life insurance? It's not the deceased who gets the payout, it's their survivors. It's a real grey area ethically, as you can think of it as the survivors taking a bet on whether a family member will die soon, and profiting off of winning that bet. You could argue that the dead person approved and paid for it, but that's not always clearly the case. Some whole-life policies carry cash value and are an investment vehicle as well, so you can potentially make money on them surviving as well. This seems ethically-better, but most life insurance is term life that doesn't have this investment upside.
eru 4y ago
Because economically and mathematically insurance and betting is the same. It's just that morally we treat insurance differently; and society has developed some moral and ethical rules around this topic. But because the mathematical structures are so similar, you can guess that the moral rules have lots of grey areas. (Similar for financial derivatives. Eg farmers use wheat futures to lock in the prices for next year's harvest today. Speculators use the same futures to 'gamble' on prices.)
Linosaurus 4y ago
> Why does insurance as a business feel like legalized gambling? The mathematics are similar from the ensurer/casino side. However: 1. The happiness impact of losing 5x your net worth (house burnt down, eternal debt) is likely much bigger than gaining it. 2. It's harder to repeat sell insurance to someone until they are broke, compared to a slot machine.
bostik 4y ago
Because they are. In fact, there's an entire trifecta. If you take bets on how companies will do in the future, it's called finance or investment services. If you take bets on human misery, it's called insurance. And if you take bets on sports, it called gambling. Businesses in all three have, for good reasons, the reputation of being predatory.

rocketbop 4y ago

In general insurance is designed to contain or negate your loss, but not to allow you to profit, so in that respect is different to gambling.

ff317 4y ago
Yeah but what about life insurance? It's not the deceased who gets the payout, it's their survivors. It's a real grey area ethically, as you can think of it as the survivors taking a bet on whether a family member will die soon, and profiting off of winning that bet. You could argue that the dead person approved and paid for it, but that's not always clearly the case. Some whole-life policies carry cash value and are an investment vehicle as well, so you can potentially make money on them surviving as well. This seems ethically-better, but most life insurance is term life that doesn't have this investment upside.

eru 4y ago

Because economically and mathematically insurance and betting is the same. It's just that morally we treat insurance differently; and society has developed some moral and ethical rules around this topic. But because the mathematical structures are so similar, you can guess that the moral rules have lots of grey areas. (Similar for financial derivatives. Eg farmers use wheat futures to lock in the prices for next year's harvest today. Speculators use the same futures to 'gamble' on prices.)

Linosaurus 4y ago

> Why does insurance as a business feel like legalized gambling? The mathematics are similar from the ensurer/casino side. However: 1. The happiness impact of losing 5x your net worth (house burnt down, eternal debt) is likely much bigger than gaining it. 2. It's harder to repeat sell insurance to someone until they are broke, compared to a slot machine.

bostik 4y ago

Because they are. In fact, there's an entire trifecta. If you take bets on how companies will do in the future, it's called finance or investment services. If you take bets on human misery, it's called insurance. And if you take bets on sports, it called gambling. Businesses in all three have, for good reasons, the reputation of being predatory.