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re: Does insurance violate the basic laws of economics?
Posted on 3/1/24 at 10:11 am to LSUFanHouston
Posted on 3/1/24 at 10:11 am to LSUFanHouston
quote:No.
Does insurance violate the basic laws of economics?
quote:That's missing the point. The reduction of financial risk is the value being purchased. Not the payout.
However, when it comes to insurance, a customer pays money to a company in exchange for a good or service, but the company does everything in their power to avoid having to actually provide the good or service.
quote:Binary thinking. Insurance purchases and pricing are based on risk--which runs between 0 < risk < 100%.
Furhter, outside of top-side limits, no one, the customer nor the company, knows at the time the price is charged, if they will have to provide anything or what the cost of that will be.
quote:Nothing better when people point to government intervention then blame "economics" or "capitalism" for high prices.
But if the basic laws of economics don't apply to insurance, then is a "free market" solution the correct one?
Indeed, when the government steps in and sets prices NOT based on risk (the product)... that certainly decouple the product from the marketplace. But that's not "insurance's" fault, nor the "free market's" fault. That's government's fault. 
2
Posted on 3/1/24 at 10:18 am to Taxing Authority
quote:
That's missing the point. The reduction of financial risk is the value being purchased. Not the payout.
The reduction of financial risk has no value when there is no actual loss. At least not to the purchaser, and at least not in any quantifiable way.
The value of a policy is in the fact that it provides the stated benefit when the conditions are met to access that benefit.
I guess there is the ole "sleep better at night" benefit... but even that goes away when the purchase is "required"
quote:
Binary thinking. Insurance purchases and pricing are based on risk--which runs between 0 < risk < 100%.
Completely correct. And I think the biggest problem with the Louisiana insurance market, especially relative to home insurance, is that everyone is having difficulty figuring out where the "x" lies between 0 and 100.
Now you are getting into acutarial science as well as the unpredictable forces of nature, none of which are economic issues.
Posted on 3/1/24 at 11:56 am to Taxing Authority
quote:
That's government's fault.
Except in the case of mandatory auto insurance by law was exactly what the insurance companies, not the citizens/consumers were asking. I remember the ads on tv pushing for the law change. Ads sponsored exclusively by the insurance companies and not a single one by any group or segment of the public.
The ads were anti-economic because even as a child of <12 I understood once required by law the costs would climb astronomically, and that’s exactly how it has played out. All the “value” was screwed by price gouging the law abiding.
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