No insurance is risk distribution. We all pay 5$ so none of us needs to pay 5,000,000$ which is not economically sustainable. What insurance companies get is administrative overhead fee. This has nothing to do with gambling.
The price of an insurance product is divided in 4 parts, the risk, the actuarial adjustment, administrative and distribution costs, and return of capital.
No, the risk is the probability of a claim times the value of a claim. If you just charge that is mathematically proven that the insurance pool is going to fail. The actuarial adjustment is there to create a surplus that guarantee the survival of the pool.
The return of capital is what the owners of the capital expect to get to have their money invested on the insurance company instead of moving their money to other investment opportunities.
But the capital provided by the owners is what is used to backstop the insurance and ensure the pot always exists. The amount of capital needed is calculated by the actuaries but supplied by the owners.
This is why I’m confused why you listed both an interest on capital and an actuarial adjustment.
You gamble with which bookie (insurance company) you choose. You gamble when you choose where to live. You gamble how fast you can make your insurance claim. This shit is gambling through and through. And we (“The Common Person”) are getting fleeced.
Just because there is a statistical aspect to it doesn’t make it gambling. By your definition literally everything is gambling which is a very small brained take.
No insurance is risk distribution. We all pay 5$ so none of us needs to pay 5,000,000$ which is not economically sustainable. What insurance companies get is administrative overhead fee. This has nothing to do with gambling.
The price of an insurance product is divided in 4 parts, the risk, the actuarial adjustment, administrative and distribution costs, and return of capital.
Aren’t the risk and the actuarial adjustment the same thing?
No, the risk is the probability of a claim times the value of a claim. If you just charge that is mathematically proven that the insurance pool is going to fail. The actuarial adjustment is there to create a surplus that guarantee the survival of the pool.
Yes, you need to hold enough money to cover more/larger claims than expected, but doesn’t the return on capital cover that part?
The return of capital is what the owners of the capital expect to get to have their money invested on the insurance company instead of moving their money to other investment opportunities.
But the capital provided by the owners is what is used to backstop the insurance and ensure the pot always exists. The amount of capital needed is calculated by the actuaries but supplied by the owners.
This is why I’m confused why you listed both an interest on capital and an actuarial adjustment.
From the buyers point of view it reduces risk, so it is not gambling for them.
However it is gambling from the point of view of the underwriters.
(I am assuming both sides play fair and pay out when they should)
Nah nah nah; Insurance is like preem gammbling.
For example insurance companies couldn’t pay everyone back after Hurrican Katrina. First come first serve I guess. :P
To my understanding insurance companies isolate areas so if that area gets hit hard. The insurance company just files bankruptcy in the area and moves on..
You gamble with which bookie (insurance company) you choose. You gamble when you choose where to live. You gamble how fast you can make your insurance claim. This shit is gambling through and through. And we (“The Common Person”) are getting fleeced.
Sounds like a protection racket, like the mafia used to do. Does that still count as gambling?
Just because there is a statistical aspect to it doesn’t make it gambling. By your definition literally everything is gambling which is a very small brained take.