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If you dispense with insurance entirely, how do you deal with catastrophic expenses? The key things I think you are not considering are: 1. If you choose not t

by mb7733 3y ago

If you dispense with insurance entirely, how do you deal with catastrophic expenses? The key things I think you are not considering are: 1. If you choose not to take out an insurance policy, and instead save the money yourself, you will not have the lump sum immediately available to cover catastrophe. Whereas as soon as you start paying insurance premiums you are covered. 2. The payout you receive when you make an insurance claim does not just come from the premiums you have personally paid. In fact, for a rare event, the size of the payout likely exceed the total cost of all premiums you could pay over your entire lifetime. This is because the risk is pooled over all customers, and not all customers will make claims. Neither of the above 2 points become any less relevant as the insurance premiums become more and more accurately priced.

dragonwriter 3y ago
> If you dispense with insurance entirely, how do you deal with catastrophic expenses? If insurance can accurately predict losses that will occur and price accordingly, you are paying exactly the same amount plus overhead, on a similar schedule for insurance as directly paying for losses yourself without insurance. The cost spreading effect (both over time and over individuals) is a direct consequence of the inability to accurately predict losses and the resulting inability to price accurately.
- mb7733 3y ago
  > If insurance can accurately predict losses that will occur and price accordingly, you are paying exactly the same amount plus overhead, on a similar schedule for insurance as directly paying for losses yourself without insurance. The hypothetical that I'm working with is that the insurer can perfectly price insurance by perfectly estimating the _risk_ or _expected loss_ for each individual customer. They can then pool this risk, take a profit, and everyone wins. This is what I assumed you meant by "perfectly priced insurance". But I've realized you're talking about the case where insurer has perfect knowledge of the future losses each individual will take. I agree in this case insurance will not make sense. Insurance would be free for most individuals and impossibly expensive for those doomed to catastrophe. (The latter group would be screwed, even if they shared perfect knowledge of the future with the insurer.)
  - dragonwriter 3y ago
    > The hypothetical that I'm working with is that the insurer can perfectly price insurance by perfectly estimating the _risk_ or _expected loss_ for each individual customer. So is mine. But my premise is that the true risk (that is, what uncertainty cannot be eliminated with sufficient information about the current state physical universe) is small, most of the apparent risk is just insufficient current data or an insufficient model; things like the drone data gathering are an attempt to narrow the first problem, and the second will improve over time with scientific progress. As those improve, the expected loss converges toward the actual loss (and does so at any given proximity on progressively shorter timelines.)

by mb7733 3y ago

dragonwriter 3y ago

> If you dispense with insurance entirely, how do you deal with catastrophic expenses? If insurance can accurately predict losses that will occur and price accordingly, you are paying exactly the same amount plus overhead, on a similar schedule for insurance as directly paying for losses yourself without insurance. The cost spreading effect (both over time and over individuals) is a direct consequence of the inability to accurately predict losses and the resulting inability to price accurately.

mb7733 3y ago
> If insurance can accurately predict losses that will occur and price accordingly, you are paying exactly the same amount plus overhead, on a similar schedule for insurance as directly paying for losses yourself without insurance. The hypothetical that I'm working with is that the insurer can perfectly price insurance by perfectly estimating the _risk_ or _expected loss_ for each individual customer. They can then pool this risk, take a profit, and everyone wins. This is what I assumed you meant by "perfectly priced insurance". But I've realized you're talking about the case where insurer has perfect knowledge of the future losses each individual will take. I agree in this case insurance will not make sense. Insurance would be free for most individuals and impossibly expensive for those doomed to catastrophe. (The latter group would be screwed, even if they shared perfect knowledge of the future with the insurer.)
- dragonwriter 3y ago
  > The hypothetical that I'm working with is that the insurer can perfectly price insurance by perfectly estimating the _risk_ or _expected loss_ for each individual customer. So is mine. But my premise is that the true risk (that is, what uncertainty cannot be eliminated with sufficient information about the current state physical universe) is small, most of the apparent risk is just insufficient current data or an insufficient model; things like the drone data gathering are an attempt to narrow the first problem, and the second will improve over time with scientific progress. As those improve, the expected loss converges toward the actual loss (and does so at any given proximity on progressively shorter timelines.)