[mehwoot]

In contrast, the insured often relies on a recollection of their history and a ton of emotional reasoning to decide if they will be the statistical oddity to make "a profit" of having bought insurance.

This isn't generally the point of insurance. The point of insurance is to amortise risk. Yes, the insurance company expects to, on average, get more money from insuring my house than the cost of any damage to it. But if something really bad happened to my house, it would cost far more than the sum of my insurance payments to fix it, and I don't have that sort of money. I am losing money on average, but I guarantee I will always have a house, so overall I am better off by reducing the extremeness of the worst case situations.

This is why I don't buy insurance or extended warranty for anything I can pay to replace. A company wouldn't offer it if they didn't expect to make money, and I can afford to replace a phone or my luggage, so I'm happy to just take the risk. I buy home insurance because I can't afford to replace my house and travel insurance because there are countries where emergency medical bills can bankrupt you. The government also forces me to buy third party insurance to drive my car, which seems fair enough since I can't afford to pay damages for someone permanently crippled from negligent driving.

In the case here for apple care, I'm not sure. What apple charges for repairs almost definitely has markup, so it's possible that they can provide insurance that averages out below the expected "cost" of repairs but still makes apple money. So maybe it is actually a win-win. Definitely makes sense to add it all up and see if you're getting value for money.

[fnordsensei]

During my decade or so as a consultant, I did a project with one of the oldest insurance companies in my country of residence (they've been around for well over 200 years). They made sure I was aware of their history, in order to understand their business.

They started out insuring farms against calamities. If a farm burned down, it was a proper disaster: for the farmer, for everyone who worked there, and for the surrounding area relying on the farm for food. So the farmers got together and started the insurance company on the premise that it's better for all of them, together, to take a continuous economic hit than to live under a constant existential threat, individually.

It's not only that they continuously pay to be insured before the disaster happens, it's also the fact that if they are helped during a disaster, they can continue to contribute afterwards, for as long as the farm exists. Whereas, if disaster hits and they are permanently gone, that's a permanent end to their contributions, as well as a hit to the community in countless other ways.

This particular insurance company was non-profit from the start, and still is.

For device insurance, I agree that you pay mostly for peace of mind. But like parent, I'm not sure I'm willing to write off all insurance as a racket.

[roenxi]

I'm staunchly anti-insurance in most cases, as once someone is making a profit it can't be a positive-expected-value deal.

But that angle seems to have been covered already so just to be different - insurers also have the strongest incentives in the market to make sure risks don't play out. There is nobody with more at stake in the event of a bad flood or other disaster. The incentive structures around insurance (in a free market, though) are actually really healthy. It is probably the strongest argument against insurance being a racket short of not-for-profits.

It is fun to imagine a big US insurance cartel acting as the counterbalance to Big (Insert Industry Here) in a city planning meeting because they are worried about the risks.

[i_am_proteus]

It might not be positive expected value (dollars) but it's often positive expected utility.

This is usually because insurance hedges against tail risks that wipe out the individual, and in these cases utility is a nonlinear function of dollars.

Most people would rather pay 1% of their net worth to deterministically avoid a 1/100 chance of losing their entire net worth.

Because insurers pool risk, it ends up being simultaneously rational for the individual to carry insurance and profitable for the insurer to write insurance policies.

Investments are a similar kind of risk pooling, but for upsides. You would not gamble your entire net worth on a prospect with uncertain profitability, but a large number of investors each risking a small fraction of their wealth make it possible to raise capital for risky but possibly valuable projects.

[lmohseni]

I like to think of it as: insurance = risk pooling = “socialism”, whereas markets = information pooling = “capitalism”, and risk is simply the negative of information.

[matwood]

> I'm staunchly anti-insurance in most cases, as once someone is making a profit it can't be a positive-expected-value deal.

Are you also against loans?

Insurance is just a way offload risk onto someone else for a fee. An insurance companies profits are not risk free, but they hope a large diverse pool of insured will keep them from being wiped out in a large event.

Most of us don't have a choice on whether to carry insurance or take out loans. I think it's more interesting to look at what the rich do, and from my reading it seems to be mixed depending on cost.

[roenxi]

Very much in favour of loans. I am normally willing to lend at about 5-8% depending on estimated creditworthiness, although nobody has offered me that in the last decade.

[bhickey]

> as once someone is making a profit it can't be a positive-expected-value deal.

This isn't true. There are risks an entity with a billion dollars can profitably take on that a person with a thousand dollars can't. Insurance can reallocate those risks to leave both parties better off in expectation.

[disgruntledphd2]

Historically, insurance companies didn't make money on premiums. Most of the profits came from investing the premiums over time.

This model is clearly breaking down with really low interest rates, hence why you see insurance companies actually caring about premiums and investing in new technology/data to reduce the cost of claims/increase premiums on high risk customers.

[benjaminwootton]

I pay £30 a month to insure an £X00k bill if my house develops a catastrophic problem. That’s +ve EV regardless of the numbers because the risk avoidance has “value”.

[sokoloff]

It’s +EU (expected utility), but probably not +E$ (expected money). Traditionally, EV is talked about as E$, not EU.

When you bring in peace of mind and avoiding risk of ruin, those are utility concerns (which make purchase of -EV insurance sensible in many cases).

[hellbannedguy]

I was told by a working political consultant, that insurance industry lobbiests basically control Sacramento.

They poured a lot of money into political coffiers when CA decided to go to demanding auto insurance at DMV. (Before auto insurance was required, but not demanded. So basically if you wanted to chance it, you could drive witout insurance.)

Thus guy told me the Insurance induesty gives politicians the most amount of money, behind unions.

Why is the insurance industry so concerned with state bills?

I think we all know the answer. And I'm at odds at what the Insurance Commissioner does all day? I guess a VPS to Pornhub?

[codazoda]

A little off topic but are we talking about Country Companies? I know of them only because I worked at Iomega in the late 90's and they had purchased a lot of Jaz drives and had a very high failure rate.

I went on-site to check it out. The company was amazing to me. A massive, newish building in the middle of a very wide expanse of corn fields. I felt like I had landed in the wrong state.

In the end, I thought their SCSI terminators seemed awful small. I brought one back with me and the hardware engineers found that the company making their computers had skimped on the terminators in some way. Switching to Iomega's own terminators solved the problems.

[kleinsch]

I think you're misconstruing the parent's point, and actually saying the same thing they are. They're not saying that insurance is an evil scam empire. They're saying it's a simple calculation: if you can't afford to replace it, buy insurance. If you can, don't.

In your example, the farmers can't afford to replace their farms, so they buy insurance.

The fact that the insurance company in your example is a non-profit is incidental. The farmers have two risks when paying insurance: paying too much and the insurance company not paying out in a disaster. If the insurance company has perfect information, premium == risk probability and everyone wins. Since they don't, they probably have to slightly overcharge - which is OK for the farmers bc they can't afford to replace their farms. If they undercharge, that's also a big risk for the farmers, since insurance in a geographic area faces massive correlation risk. If an earthquake burns down all the farms and the insurance company goes under, the farmers just lost their farms AND all the premiums they've been paying.

[Salgat]

The big difference here is that most folks won't be bankrupted if their iPad breaks.

[lilyball]

Don’t forget insurance prices are also tailored to your particular risk as much as the insurance company can figure out how. Meanwhile, AppleCare is the same fee for everyone. So for you, your risk model might say that AppleCare isn’t worth it. But for someone else who has a much higher risk of accidental damage (for example, parents of young kids) AppleCare might be a far better value proposition.

[xvector]

I just view AppleCare as the price of using my phone without a case, the way it was meant to be used.

[r00fus]

As a tangential counterpoint, my series-0 Apple Watch lived to a ripe age of 4 and survived many ocean swims, pools and showers (and was still usable when I retired it). My coworker's watch died a year earlier during his first swim with it; he had a case (yes some folks did that) while I didn't.

Some cases are more trouble than they're worth.

[Causality1]

Too many people treat every dollar as if they were equal to each other in value when they obviously are not. Your last dollar is a lot more valuable than your hundredth, which is more valuable than your thousandth, which is more valuable than your millionth. That's the point of insurance, spending your less valuable dollars.

[AnthonyMouse]

> What apple charges for repairs almost definitely has markup, so it's possible that they can provide insurance that averages out below the expected "cost" of repairs but still makes apple money.

For them to make money from offering the insurance, it would have to be a gain over their alternative of you not having the insurance and then paying them to repair the device if it breaks.

They also have to be making enough to cover the moral hazard. People who buy insurance are more careless because someone else pays for the carelessness, so the insurance has to be more expensive by the amount of the resulting increase in damage.

[beagle3]

But when your iDevice breaks, you don’t necessarily go to Apple to fix it. Increasingly more, yes, but iPhone screen and battery replacements on the cheap are common where I live (compared to Apple costs).

Mac repairs aren’t anymore, but non-Applecared people might switch off the Apple platform if the cost to repair is too high.

It’s possible that AppleCare is a win for both Apple (customer retention) and the customer (lower cost to stay within favorite ecosystem) because it is NOT a zero sum game between them - there are many other players in the game.

[AnthonyMouse]

> But when your iDevice breaks, you don’t necessarily go to Apple to fix it.

Now you're making the case for not buying the insurance because you have a way of paying less for the repairs out of pocket which makes the insurance less valuable.

> It’s possible that AppleCare is a win for both Apple (customer retention) and the customer (lower cost to stay within favorite ecosystem) because it is NOT a zero sum game between them - there are many other players in the game.

The theory being that if you pay out of pocket to Apple they have a $100 margin, but if you pay out of pocket to an independent repair shop they have a $10 margin, and Apple would profit from selling you the insurance by transferring that $10 profit from the independent repair shop to themselves.

By this logic they should also have lowered the price of their repair service to be price competitive with the independent one because then they would get more repair business and attract customers to their ecosystem by having lower repair costs. But they evidently prefer to have higher margins.

And claiming the independent repair shop's margins, evidently only in the case of the insurance and not for actual out of pocket repairs for unknown reasons, would only be possible if the independent shop's margins are larger than the cost of the moral hazard and all other administrative overhead of offering the insurance. But their margins are very slim.

[beagle3]

But value is not absolute.

I broke my 6s home key last year. The phone was 5 years old at this point. Apple would fix it, for $200 or so. A local guy fixed it for $30. But there is a difference (I was made aware of by both Apple and local guy before choosing):

Fingerprint reader would only keep working if Apple fixed it. Was it worth $170? Not to me. It might to someone else.

In this case, it’s way after the end of AppleCare. But these values (working fingerprint reader, and in general Apple certified original parts vs aftermarket) has a value that differs among people.

Apple decided they prefer to cater to those with higher value for this stuff - and they likely are right economically, as it likely lets them capture value in other places in the ecosystem.

P.s. still typing this from the same 6s.

[Animats]

But when your iDevice breaks

Why should it break? These things have been out for a while now. They should be bulletproof by now. As in MIL-SPEC 810G. You can certainly buy phones that are.[1] They're less bulky than iPhones in cases.

[1] https://www.youtube.com/watch?v=mVPku-xItv8

[saagarjha]

I don't know what kind of case you're putting your iPhone into, but those phones are far bulkier than even the bulkiest OtterBoxes that I've seen. Plus, I have a suspicion that my iPhone even without a case would probably survive being stepped on by a boot and dropped into water.

[rzwitserloot]

> This is why I don't buy insurance or extended warranty for anything I can pay to replace.

Exactly. _Given_ that this is a situation where I'd assume the vast majority of those who could buy the AppleCare brand of insurance could instead just pay for the replacement (how many people can afford precisely 1 macbook but couldn't possibly afford a second one? Some, but not many) - the only thing left to 'play' is to be so sure that you'd be the statistical oddity, that it is 'worth' it.

[schwartzworld]

> (how many people can afford precisely 1 macbook but couldn't possibly afford a second one? Some, but not many)

MacBooks are $1300 pros are around $2500. Most people consider that a large amount of money. A new computer is a big purchase for most people. Most would consider replacing one due to damage to be a big loss.

And if you did replace it, would you buy insurance the second time?

[cool_dude85]

I haven't looked at Apple's books or anything, but I have to guess that insurance winners aren't really a "statistical oddity."

The insured population as a whole is a loser (in terms of dollars) or else Apple wouldn't sell the insurance, of course. But I'd guess that individual winners are still common enough - maybe 20%, 30%? - to not be an "oddity".

[mchusma]

There are 3 things about device insurance/warranties that can make them a good deal for all parties. For example, I paid $99 to insure my Google pixel 5a for 2 years.

I did the math and it made sense to me for several reasons:

- historically, I've broken my phone about once every 2 years. I'd prefer to not use a thick case to protect my investment.

- the CAC on mobile phone repair is probably around $50.

- the cost to me for mobile phone repair is about $120, or more than the cost of the premium.

- the cost to Google to get the repair is probably like $60, because they are providing customers.

- so if there is 1 repair needed, Google makes money, I save money, and the repair shop makes what it would have without needing to spend on AdWords or something.

The most likely scenario is this, so most likely it's a profitable trade for everyone. If I don't use it, I get peace of mind. If I use it twice, Google "loses".

I consider it more like "prepaying for repairs at a steep discount" than "insurance". It can make sense in some cases. Home, car, and life insurance aren't nothing like this, as counter examples.

[ksec]

>In the case here for apple care, I'm not sure. What apple charges for repairs almost definitely has markup, so it's possible that they can provide insurance that averages out below the expected "cost" of repairs but still makes apple money.

If you only take Apple's word for it. Their lawyer said in court they do not make any profits for their repairs. And may be running at a lost. Apple then also did a few PR pieces on how they lost tens of millions every year due to repair fraud.

I wouldn't say it is a flat out lie, but it is definitely a spin if you know anything about BOM and operation cost.

The AppleCare Services itself of course make additional profits, it is often the money making item for 3rd party resellers. Selling AC makes more profits for them than iPhone or Mac. If Apple can pass those on to retailers, you can guarantee Apple is making lots of profits on it.

As a matter of facts this is all just Insurance and Data Science. You can buy similar protection from other insurance companies, and you should immediately notice the price difference.

[csomar]

> The point of insurance is to amortise risk.

I don't think so. Insurance doesn't amortize risk for the individual (though it amortizes risk for the pool). Say you have a 1 in 1.000 years of your house getting destroyed in an earthquake; this means you most likely will never get a payout in a 50-60 years period.

If you pay 1 in 500 odds (the insurance makes money), you can never amortize this risk over your lifetime. However, such an event might be too catastrophic for you to bear, so you go with the insurance. I mean, some people are going to go through earthquakes/fires every year. So for society, as a whole, you are better off being insured.

> In the case here for apple care, I'm not sure. What apple charges for repairs almost definitely has markup, so it's possible that they can provide insurance that averages out below the expected "cost" of repairs but still makes apple money. So maybe it is actually a win-win. Definitely makes sense to add it all up and see if you're getting value for money.

That's Apple care for you. It certainly doesn't cost the markup that Apple's is asking for. But for people who are too deep into Apple, it provides them into a window of staying Apple compliant. People who do not care about Apple Care might be the one who needs it the most, but Apple might know that which is why they put a price on it. (this is solely my assumption).

[my123]

In many countries, you aren’t allowed to bundle insurance with a product.

[sokoloff]

> The government also forces me to buy third party insurance to drive my car, which seems fair enough since I can't afford to pay damages for someone permanently crippled from negligent driving.

I agree with your post overall, but this piece always struck me as incomplete at best. My state’s mandated minimums for 3rd party bodily injury are $20K per person, $40K per occurrence (and $5K of property damage liability).

In the scheme of things, those minimums seem like “technically, but not practically” being insured against the risk.

[cascom]

Agree with you.

Separately I have several hundred thousand dollars of auto liability coverage but no collusion/coverage on the actual car, and am often surprised to learn others don’t do the same (with middle aged used cars)

[mehwoot]

Fair enough. I don't live in the U.S, where I live the limits are far, far higher- at least $500,000, probably more adding up all the different types of entitlements.

https://www.greenslips.com.au/claims-guide/entitlements.html

[techrat]

> A company wouldn't offer it if they didn't expect to make money

Companies certainly offer 'extended' or longer warranties compared to a competitor as a selling point with the intention to deny all claims and issues. Asus is particularly bad about this.

[cascom]

To simplify when purchasing insurance typically the first question is:

1) would this be a loss I could afford to bear, if not most people insure and stop there (Home insurance, health insurance, Auto (liability), etc.)

2. If it’s a risk they can afford to self insure than the question becomes “does my view on expected losses differ from that of the insurer?” (E.g. I’ll definitely break an iPhone screen in the next two years so AppleCare pays for itself)

Side note: I think the real genius of AppleCare is that it’s priced extremely attractively and creates a great customer experience, but due to the sticker price of repairs, the math shifts to, replace vs repair when out of warranty…

[notafraudster]

Right, in math terms, generally (perhaps excluding your arbitrage scenario for Apple here), insurance is expected value negative to the consumer but utility neutral or positive because of a non-linear transformation of dollars into utility -- and this also explains why your second paragraph is more or less correct for most people.

[bryanrasmussen]

there are also the people who know they are more likely than others to get their devices damaged, in which case the payment for insurance makes definite sense. This is something of course the insurance company doesn't know, but people are of course working on making it discoverable for them.

[moksly]

I’m not sure if this is a Danish thing, but here you can add an electronic appliance insurance to your regular “indboforsikring” which is the policy form that covers your home and all the shit in it.

They come in various forms, but mine covers anything from throwing a wii controller into a TV to losing your laptop in a bag or having it stolen. It also covers all family members and is $80 a year.

It does require you to pay the first $230 of damages, so it’s not very useful to protect smartphone glass or other small damages, but it covers all the big stuff and it makes “do you want to buy extra insurance for your appliance” really easy to answer with a no.

[TheSpiceIsLife]

Also common in Australia, part of what we call Home contents insurance”, which covers all the items in side* your home and is seperate from the building insurance itself.

Here, too, some more expensive items and personal electronic devices (phones, laptops) are not part of the basic home contents insurance policy options but can be added for a small additional annual fee similar to what you have indicted, and they’ll usually want to know if any of those devices or items exceeds a specific value ($2000 last time I checked) and lost them on the policy.

[moksly]

Hehe, we have something similar did bicycles where insurance gets really expensive if you have a bike valued above $2300.

I sort of get why too. I had an early long distance ebike, that cost me $3000 that I didn’t buy the extra insurance for because I always locked it in the basement. The one afternoon I didn’t, it got stolen. Right outside our apartment building in plain view of like 120 apartments, and basically in the middle of the university of Aarhus where we have security patrolling the roads every 30 minutes, a 23kg bike got stolen. :p

Anyway, the police and insurance process was basically a webworm that told me directly that the police wouldn’t spend time on it and then paid me my insurance money right away after I signed in with our national ID. When it’s sort of a free crime to steal bikes, it makes sense that insurance is hefty. On the flip side, I guess expensive MacBooks are stolen less often in Denmark than in Australia.

[Ekaros]

Also my Finnish credit card had surprisingly good protection knocked my 150€ external HDD of desk resulted in usual knocking sound, made claim and got about half that back. So there is other options that cover, not often looked at.

[beckman466]

> Yes, the insurance company expects to, on average, get more money from insuring my house than the cost of any damage to it.

> This is why I don't buy insurance or extended warranty for anything I can pay to replace.

Yes, yet you're forgetting that this is only possible for privileged knowledge workers, as well as capitalists. That group of knowledge workers, specifically, is only a tiny percent of the working class overall (all those who are paid in wages, and who do not own capital such as land, machines or intellectual property, etc.), especially when you include both the working class in the global north as well as the global south.

For a lot of 'non -knowledge worker' working class people this threshold of affordability, for being able to buy a replacement when something breaks etc., is much much lower. They are forced to live paycheck to paycheck, and do not have the financial security available for emergencies.

Add to this equation the parasitic American credit card industry, and the toxic culture of excessive credit card spending they have created (which is reinforced and perversely rewarded by the US' shoddy credit rating system, no less) and your hypothetical scenario starts to crumble under the weight of the reality of the capitalist exploitation that the US working class has to deal with in the US today.

In other words, yes, you might be able to replace your iGadgets because you're cash flow positive due to your privileged position and ability to withstand the manipulation described above, yet many really cannot, by no fault of their own.

I am excited for the open protocol, cooperative, insurance/saving pools/mutual credit funds that are emerging; such as what is used in Enspiral circles (CoBudget.co) [1] and elsewhere, which allow small groups of people to build financial resiliency together without the ultra-financialized, rentierist capitalist insurance industry in the middle.

Another exciting alternative/example/experiment is the unemployment insurance circles in the Netherlands, called Broodfonds (translates to 'Bread-fund').

[1] https://medium.com/enspiral-tales/grow-your-own-economy-in-a...

[matwood]

> A company wouldn't offer it if they didn't expect to make money

> So maybe it is actually a win-win

In the case of AC, I think it is a win-win.

Apple could make money and it still be a good deal for the customer. AC on a phone for example. If the user comes in with a broken screen they can pay $100 and get a replacement phone (or $30 for only a screen). The replacement phone didn't cost Apple anywhere near retail (they are probably refurbs), and it cost the user $100+AC cost.

It also keeps users in the Apple ecosystem, and in part leads to their very high customer satisfaction scores. As someone who has used AC a number of times in the past, it's very nice to walk into any Apple store with a broken phone and walk out 15 minutes later with a new phone.

[vladvasiliu]

> it's very nice to walk into any Apple store with a broken phone and walk out 15 minutes later with a new phone

I think this is something that should be taken into balance.

It's probably less the case with an iPhone, but there is value in the insurance being able to quickly get your widget back to a wrking state.

Say you're a contractor and your computer breaks down. You're not just out the price of a new computer (or of the repairs) but also the fact that if you can't replace it right away, you're losing billable days, maybe weeks. My sister needed to wait a few weeks to have her new Lenovo laptop delivered, and it had no custom options. I wouldn't be comfortable with so long a lead time if my income depended on it. If they're able to deliver on the next business day repair, then it's completely worth it.