Shared Risk

No, that’s not how insurance works. The word “insurance” has lost all meaning in the context of the health-care debate.

But this raises another issue. I’ve been seeing stories that insurance companies are factoring “climate change” into their premiums. These people have real skin in the climate game, and I’m wondering if they’re taking the “climate scientists” too seriously, and creating a market opportunity for an insurer who doesn’t buy the nonsense?

9 thoughts on “Shared Risk”

  1. That first article was one of the clearest explanations of insurance that I’ve seen. Too bad the lefties can’t understand something so simply put.

    The conclusion is that insurance is a business and free competition offers the consumer the best deals. Insurance companies that stay in business will be those that earn the best reputation from their customers. This concept is apparently too simple for govt. to understand.

  2. re: insurance and climate change.

    Maybe, but in this case I wonder if some climate panic could make them more right for the wrong reason. The cult of Gaia tends to push a model of the climate being stable and benevolent barring human intervention, but over the sort of timescales and risk levels insurance deals with that isn’t necessarily so true. Looking for the wrong Black Swan is better than expecting none at all.

    1. With competition you don’t have to care if some companies factor in climate change or anything else for that matter.

  3. The second article, from CBC, is best characterized as garbage. The reporter did a poor job, by quoting Thistlewaite repeatedly and failing to check his claims with any actual living person who works in the property insurance industry. I represent several dozen property and casualty companies as an agent, in coastal Texas, no less. Property premiums are forward looking on the smallest possible scale. They are calculated annually on a zip code by zip code basis, based on previous experience. Insurance companies do not consider “climate change” in determining premiums.

  4. I think more that we’re seeing the end game for insurers’ sudden belief in climate change. The whole thing is just a pretext to raise insurance premiums, particularly on bad bets the industry made.

  5. I think the linked article is unclear on one point though: how much you pay for your bet with the insurance company depends on how they calculate the risk, and that is I think what most people are talking about when they say “shared risk” – for most of the forms of insurance that most people in the US purchase (directly or indirectly), the bookie aka insurance company typically isn’t assessing the individual; they’re assessing some group of people who are somewhat like the person seeking insurance, e.g., houses in the same zip code for homeowners’ insurance, white men aged 45-54 who don’t smoke and have no history of coronary disease or diabetes for life insurance, etc. I agree that this isn’t truly shared risk, but use of aggregate statistics to assess risk is a core part of most insurance markets, and I think this is what most people are thinking of even if it’s not correct.

    One notable exception is maritime insurance, where many (most?) of the factors that go into insuring a specific ship on a specific voyage are based on that specific ship, its cargo, its crew, its owner, its point of departure, its destination, etc. But most people don’t buy commercial maritime insurance from , say, Lloyds.

    1. cthulhu, I believe you are missing the point about shared risk which the article explained very plainly.

      Each customer represents one bet. That customer/bet is made with an expected positive outcome but could go either way. One bet does not a business make, So the company makes multiple bets.

      Those bets could in theory all be to the same customer multiple times… no sharing there. The fact that those bets are made to multiple people instead does not mean the customer is ‘sharing’ the risk.

      The company is ‘spreading’ the risk with multiple bets so that win/lose averages to expected return, but that’s not sharing either.

      1. Also, in a free market it doesn’t matter how the insurance companies calculate their risk. Those that provide the best price for the best service will succeed and those that don’t will fail. Thus the product will improve to the best price/performance without any govt. interference. The only thing the govt. can do is make the result less optimum.

        The best protection for the consumer would be if they could buy partial insurance from several insurers.

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