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Because at the limit, the size of the pool is one...you.
by jcims 3y ago
Because at the limit, the size of the pool is one...you.
- mb7733 3y agoAccurately pricing insurance doesn't reduce the size of the pool. When you buy insurance, you aren't just pooling risk with other customers with the exact same risk profile as yourself. You're pooling with all customers of the company. (Plus all customers of any reinsurance company, etc.)
- rrix2 3y agoIt's not being individually priced, people at higher risks are being forced out of their insurance options leaving only low-risk individuals priced in! Non-renewal isn't just some rate adjustment
- pishpash 3y agoIt is just a very high rate if they could charge it, but that's the point: when the uncertainty is nil, the premium will always be the replacement cost when the replacement is about to happen, so that there's no insurance. Put another way, if the insurance company isn't taking on any risk then you are.
- maxerickson 3y agoAre there a lot of downsides to that for home/liability insurance? Obviously with something like medical insurance, where people often carry risks that are no fault of their own, there are downsides.
- maxerickson 3y agoIt seems perfectly reasonable to treat someone taking singular risks differently than someone taking average risks.
- twoodfin 3y agoExactly. And insurance is still a good deal even if the expected value for that one member pool is negative. In fact, insurance as a market doesn’t work unless the average customer loses out. This is not a bad thing!