Didn’t see this until this morning, if only Cincy had an o-line (click link for the picture)
Wonder what Cincy would give the Texans for Tunsil this offseason?
I hold that all insurance is gambling.
Life insurance - I bet I die before I pay all the premiums, they bet I won’t. I am just a few months from outliving my latest life insurance. I won’t need near the coverage now but it is going to be way more expensive because they don’t think me living is near as good of a bet.
Pure insurance isn’t gambling, it’s smoothing. You can’t win, you can only - at best - be put back in the position you were in before you suffered a fortuitous loss. This applies to almost every type of insurance the general public will have contact with…except life insurance.
Life insurance still isn’t gambling in the way you describe. Still, the insurer isn’t gambling on your life, it’s using vast and detailed actuarial studies by which it can determine that it will collect enough premium from all of its policyholders such that it can pay the death benefits of everyone and still turn a profit.
Now, the payout from life insurance has become detached from the concept of indemnity so, in theory, you can buy as much limit as you want. But insurers control for the moral hazard of selling too much insurance to someone whose financial circumstances does not justify such an amount by running credit checks and making you fill out an application.
You also have to have an bona fide financial interest in the life being insured, to stop people essentially gambling on the lives of strangers. Also, because when life insurance first became a thing, criminals would take out life insurance on random people and then murder them.
That’s just a fancy way of calculating the vig.
Not really. Vig suggests that you have to pay it all back with interest. If you take out a life insurance policy and die from a heart attack a week later, the policy pays the full amount and that’s the end of it.
That reminded me of this story about Michael Malloy:
The vig is the cost you pay the bookmaker for taking your bet in the first place. You don’t get it back, whether you win or lose the bet. You’re just out that money either way. It’s a lot like paying insurance premiums.
It is. The difference with insurance, though, is that there is no winning. You pay premium to someone who promises to reimburse you if you have a loss. If you don’t have a loss, the premium is still gone; if you do have a loss, they will put you back to where you were just before the loss. Even if the claim reimbursement matches your loss to the penny, you’re still out the premiums.
With gambling, you lay your bet and you can lose or win. You can be better off afterwards, which is never the case with insurance - in theory or in practice.
Again, life insurance (and it’s cousins like personal accident, key man etc.) is a slightly different animal in that you can choose how much you buy and it does not necessarily have to be justified by your exposures. However, the principle of indemnity without betterment is still applied in how it is underwritten. For example, you might take out a life policy so that those you leave behind aren’t financially hobbled by your passing - e.g. it pays off your mortgage (which you would have done if you hadn’t died), provides for the future income you won’t now earn, pays for your kids’ college education and/or pays your funeral expenses.
If you are trying to buy limits far in excess of your financial needs or circumstances it will be flagged in underwriting and you’ll get declined, offered lower limits and/or surcharged for the increased moral hazard. Conversely, if you want to slap your life savings on the Texans winning the Super Bowl, the bookie will gladly…nay, gleefully…take your money.
You’re trying awfully hard to convince us that insurance isn’t a racket.
It isn’t. It’s a very necessary business that allows society to function. However, just like any other business, regular folks typically get the shitty end of the stick because they have no leverage and usually no advocate.
We’ve all had insurance nightmares where they won’t pay for this or that, and there’s absolutely no leverage. Conversely, I worked for the company who arranged the insurance on the Deepwater Horizon and we collected $550 million in full within 3 days of its demise. My company was Transocean’s agent, not the insurers’, so we pushed to get the claim paid on their behalf. If you buy a policy from Jake at State Farm, Jake works for State Farm, so he’s not your advocate, he’s theirs.
Even so, it’s still not like Transoceanic won a bet. They paid a huge premium to insure that unit at that value and there’s not really much room for a loss adjustment process when you’ve got video of it blowing up and sinking in 5,000 feet of water. They’re still out a rig that they chartered out at $1 million / day, and it would take a couple of years - and probably more than $550 million - to build a replacement.
The problem isn’t insurance; the problem is that people think that it’s just free money to the insurance company if you don’t have a claim, which is not at all the case. You are paying them to take on your risk for you, and they carry that risk on their books (which costs them money to do) so you don’t have to. You are contributing to the pool from which other people’s claims are paid, so it’s mostly irrelevant whether you have a claim or not because claims are being paid.
If an insurance company runs at a combined ratio of about 90% - i.e. after all claims and expenses are paid they keep 10c on the dollar - they are outperforming the market. Most syndicates at Lloyd’s of London operate at a combined loss ratio of 955 or higher.
Limey have you been following this trial going on in federal court in Houston now?
This is it, in a nutshell. People have bad experiences with insurance companies because they only deal with them for unpleasant reasons…1) to pay premiums, and 2) because they’ve suffered a loss. There are no warm fuzzies with insurance, no matter what Jake from State Farm tells you. He’s a weasel.
We also like yanking your chain.
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Wild case. So far in my brief legal career I’ve made my living suing insurance companies, but I don’t think I’ll ever see a case that interesting hit my desk.
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Had never heard of it, but that’s awesome! Thanks! That’s about as good an example of the moral hazard of over-selling life insurance as you’re ever likely to see.
It will be interesting to see if they wriggle off the hook. If the claimant has proof of death - as dodgy as it may be - they’re pretty much going to have to find Rosendi and drag him into the courtroom to prove he’s not dead. Otherwise, they’re going to have prove that the application was completed fraudulently, but the person who completed the application is dead (allegedly), so good luck with that. Just because the insurance company investigators haven’t found his vast wealth, doesn’t mean it doesn’t exist; they have to prove it doesn’t exist.
Here’s one area where life insurance differs from regular insurance. When you make a claim for something, you have to demonstrate that you have an interest in the thing being claimed for. This goes without saying most of the time because it’s your car, house, boat etc., so it’s not really a question. But if you saw a car wrecked on the street, you couldn’t make a claim for it without first proving that you had an interest in it and have suffered a loss.
Life insurance is exempt from this requirement, as the policy itself is deemed to be proof of interest. Consequently, showing up at the claims window with a policy that names you as beneficiary and a death certificate for the life insured by it is all the proof of interest needed. These insurance companies will likely have a hard time wriggling off this hook they willingly impaled themselves on.
As I tell people all the time, if insurance companies always acted in the best interest of their clients, my job wouldn’t exist.
It wouldn’t be the TZ otherwise and I wouldn’t have it any other way.
Correct me if I’m wrong, but if the insurers took money in premiums, isn’t that, by default at least, acknowlegement that they were accepting the terms of the policy, whether he was actually worth $70MM or not? I’d say the “Sam Spade Defense” of “we didn’t believe you, we believed your $200” would hold much weight, would it?
You are absolutely correct when it comes to life insurance. This is the “policy proof of interest” element to it. Basically you don’t have to prove anything other than the person insured is dead and the insurance company has to cut the check.
Conversely, you can’t insure your 1998 Chevy Impala for $10 million and, when it mysteriously catches fire, collect on that amount without first proving that you made $9,999,950 of improvements to it.
So why would this be different? If the insurance company writes a policy for $10MM on the Impala, and I assume collects premiums reflecting that assessed value, why would they be allowed to come back and say, “yeah, we insured it, we took your money as if it was worth that much, but it wasn’t really”? If they agreed it was worth that much in the first place, why aren’t they on the hook? I realize that’s a silly example, but the principle…
When you insure your car or house, the insurance company doesn’t ask you what you think it’s worth. They ask you what it is, how old is it, what improvements have you made to it etc. etc. They get details of the item, make their own valuation, and charge you premium accordingly. With life insurance, you pick the number and they agree to it; a complete reversal of the valuation process.
There is an exception to being tied to the insurance company’s valuation, and that is if you have an agreed value policy. This happens all the time in commercial insurance, particularly marine insurance, but is also applied to things like classic cars and other collectibles as well as jewelry/art etc.
A 1998 Chevy Impala may have a book value of $50, but what’s the value of your cherry 1961 Chevy Corvette Stingray? Rather than leaving it to chance, you get an agreed value policy where you and the insurance company agree going in that it is worth a predetermined amount, and that’s what they pay of it’s totaled or stolen. Even so, they’re not going to agree a value that bonkers, you’re still going to have to justify the valuation at the outset; but better then than when it’s a burned out shell or wrapped around a tree.