[endswapper]

Pardon if I misunderstood, or misinterpreted your post, but you seemed to be saying that premiums must be more than the claims or they wouldn't/couldn't be in business. That is not true.

Even if an insurance company has claims greater than its premiums it could exist, and even be profitable, because of its ability to earn additional revenue through investing its float. You seemed to omit this consideration, which is significant because investment returns on billions of dollars can be significant.

[thedufer]

This argument hinges on counting the time value of money for insurers but not their customers. The investment money made on float would instead have been made by the customers if they didn't buy insurance.

I think you're correct in a very specific technical sense (measuring in nominal dollars, that is), but not in the sense that matters in the real world.

[makomk]

Not really. Each individual customer requires much higher liquidity than the insurance company does - it's fairly likely that you'll have to spend your entire medical fund unexpectedly, but incredibly unlikely that every single insurance customer will need to claim at once. Also, investing is a lot more inefficient at small scales.

[slavik81]

Assuming we have a business that makes money on investment and loses money on selling insurance, why would it continue to sell insurance?

[zaroth]

Because that's where it gets the money to invest in the first place...?

[slavik81]

Well, at that point they're basically turning over a loan again and again. I'd thought they could walk away and keep the money, but I now see that if the insurance truly was unprofitable, they'd be left with nothing by the time the last day covered by their insurance ended.

[jjoonathan]

You're ignoring the fact that self-insured people can invest their own "float".