4 ms·

I think that one difference might be that physical inspections don't scale. It seems to me that the current systems working (for regular people) requires that i

I think that one difference might be that physical inspections don't scale. It seems to me that the current systems working (for regular people) requires that insurers not be too good at assessing risks. The better the insurer is at assessing risk the closer insurance gets to providing no value to the insured.

wisty 3y ago
Insurers don't on average provide value. If a risk can't be assessed, they will only offer a policy if they think it's value to them at the price they charge.
spoonjim 3y ago
Insurance can provide value even when risk is assessed perfectly! If everyone has a 1 in 100,000 chance of a $100,000 damage incident, they will have to keep $100,000 of savings to make sure they can avoid becoming homeless from an accident. But by paying $1.25 in insurance, (25% profit to the insurer), they can use their $100,000 for other purposes and generate much more than $1.25 in income from it.
- toss1 3y ago
  Not Quite - only if risk is spread across the whole pool does it provide the value you describe. If risk is assessed perfectly, they know that Alan's & Charles' houses will not have a fire, but Bob's house will burn. Alan and Charles (and all the others) pay only the $0.25 overhead/profit, while Bob must pay the $125,000 ratings +profit. Insurance basically disappears, as it adds no value, and we go back to being self-insured.
squidgyhead 3y ago
In terms of sheer game-theoretic value, sure, perfect knowledge will reduce value gaps. However, the thing with having your house insured is that you will have somewhere to live if you have a house fire. The +/- for the insurer might be close, but going from having a house to having no house is a bigger deal than going from one house to a twice-as-expensive house.
tptacek 3y ago
Insurance is famously negative EV (in dollars, if not utility).

4 ms·

I think that one difference might be that physical inspections don't scale. It seems to me that the current systems working (for regular people) requires that i

by harimau777 3y ago

wisty 3y ago
Insurers don't on average provide value. If a risk can't be assessed, they will only offer a policy if they think it's value to them at the price they charge.
spoonjim 3y ago
Insurance can provide value even when risk is assessed perfectly! If everyone has a 1 in 100,000 chance of a $100,000 damage incident, they will have to keep $100,000 of savings to make sure they can avoid becoming homeless from an accident. But by paying $1.25 in insurance, (25% profit to the insurer), they can use their $100,000 for other purposes and generate much more than $1.25 in income from it.
- toss1 3y ago
  Not Quite - only if risk is spread across the whole pool does it provide the value you describe. If risk is assessed perfectly, they know that Alan's & Charles' houses will not have a fire, but Bob's house will burn. Alan and Charles (and all the others) pay only the $0.25 overhead/profit, while Bob must pay the $125,000 ratings +profit. Insurance basically disappears, as it adds no value, and we go back to being self-insured.
squidgyhead 3y ago
In terms of sheer game-theoretic value, sure, perfect knowledge will reduce value gaps. However, the thing with having your house insured is that you will have somewhere to live if you have a house fire. The +/- for the insurer might be close, but going from having a house to having no house is a bigger deal than going from one house to a twice-as-expensive house.
tptacek 3y ago
Insurance is famously negative EV (in dollars, if not utility).