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If you can afford to rebuild your house after a fire, there will be no point (and there never was a point). Insurance has always been a negative-EV trade for t
by pclmulqdq 3y ago
If you can afford to rebuild your house after a fire, there will be no point (and there never was a point).
Insurance has always been a negative-EV trade for the average person, but there have been mispricings that make it positive-EV when you have more information than the insurance company. However, the inefficiency meant that you also had to pay for the uncertainty on their estimate of your risk.
With less uncertainty, the spread in the market should go down, and your premium should converge to something close to your actual risk plus the cost to assess your risk.
- lukevp 3y agoPlus the salaries of the sales teams and the marketing budget and the executive bonuses and fancy offices… or were you rolling all that up into “cost to assess”?
- pclmulqdq 3y agoInsurance is (theoretically) a competitive market, so no, those salaries are actually not included - aside from the compensation of the people building and conducting risk assessments. I'm not convinced most insurance companies make a ton off of home insurance specifically - I have heard that healthcare coverage (which is barely an insurance product) is the big profit maker, along with car insurance.
- nradov 3y agoMost home insurers aren't really in the medical insurance business. And, as you indicate, most medical "insurance" companies no longer actually bear much risk. They make their profits by administering health plans for self-insured employers. The profit margin for that is low but the volumes are huge.
- orangecat 3y agoInsurance has always been a negative-EV trade for the average person Negative EV in terms of dollars, but not necessarily utility. For most people, a 1% chance of losing their $500k home is worse than paying a $5100 premium.