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0 pointsspoonjim1y ago0 comments

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.

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toss11y 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.

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0 pointsspoonjim1y ago0 comments

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toss11y ago

Not Quite - only if risk is spread across the whole pool does it provide the value you describe.

Insurance basically disappears, as it adds no value, and we go back to being self-insured.

j / k navigate · click thread line to collapse