[gruppe_sechs]

As the modelling gets better, are we ultimately heading for a future where the only people who are able to get insurance are people who don't need it, because they aren't going to make a claim? If insurers get too good at predicting the future then it breaks their entire business model.

[ndsipa_pomu]

Insurance is for unpredictable outcomes such as a lightning strike hitting your car or even just another driver having an undiagnosed medical event that causes them to crash into your car.

Why would you want insurance for predictable events when you can just put the money to one side yourself and not feed the insurance companies' profits?

[abduhl]

Insurance is for hedging against a risk. It has nothing to do with predictability. In fact, the bedrock of insurance is predictability.

You have a 1% chance of sustaining $1MM in damage. Do you carry around a million dollars or do you get insurance?

What about a billion? What about a thousand? Congratulations, you now know what you’re willing to pay for a deductible and what you’re going to look for in an insurance policy max.

[ndsipa_pomu]

I'm not understanding your point. The 1% chance means that you are uncertain whether or not you are going to be in that 1%. Otherwise, some people would have 100% chance of sustaining $1MM in damages and others would have zero% - that's predictability.

Similarly, insurance companies frown on people getting insurance when the person knows that they have a claim to make - when there is certainty, then insurance is the wrong product and may be considered insurance fraud.

I think you're mixing up predictable events with probabilistic events. Just because you know the average likelihood of an event occurring does not mean that it is predictable. (e.g. the chance of getting red or black on a roulette table has known odds, but you're only going to be able to win if you can predict the outcome)

[abduhl]

The un in unpredictable got autocorrected out of my original post (It has nothing to do with UNpredictability.)

My point was that insurance isn’t about unpredictability, it’s about cash flow and risk hedging based on probabilities.

[ndsipa_pomu]

> My point was that insurance isn’t about unpredictability, it’s about cash flow and risk hedging based on probabilities.

I disagree. If you can predict that your house will never be burnt down, then you wouldn't need buildings insurance - it's the unpredictable nature of these events that makes insurance useful. Yes, the costs of these unpredictable events are spread out across the insurers so that they can turn an unpredictable event that causes a huge expense into a predictable insurance premium instead.

[abduhl]

We are looking at this from different points of view.

You define predictable as: I can predict if and when this will happen to me.

I define predictable as: I can predict that this will happen one in one hundred times.

Both are correct definitions of predictability. In the insurance context, your view is the one of the insured and mine is the one of the insurer. The switch between the two occurs at some risk-adjusted monetary threshold. In other words, whether you are an insuree or an insurer depends on your risk tolerance. For example, most home owners are insurees for the purposes of fire. Most home owners are also (self-)insurers for the purposes of, say, a leaky faucet. The decision to procure insurance is therefore not predicated on the unpredictability of the event but on a risk adjusted monetary basis (ie, cash flow and risk hedging).