# INSURANCE-Why are we buying this shit? **URL:** \ **Category:** The BBQ Pit\ **Created:** [February 28, 2003, 8:58am UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089 "2003-02-28T08:58:30Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![GingerOfTheNorth](https://avatars.discourse-cdn.com/v4/letter/g/cdc98d/32.png) [@GingerOfTheNorth](https://boards.straightdope.com/u/GingerOfTheNorth)\ **Post date:** [February 28, 2003, 3:18pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/41 "2003-02-28T15:18:38Z")
**kabbes** - are you a Lloyds’ Man? ---
**Author:** ![december](https://avatars.discourse-cdn.com/v4/letter/d/838e76/32.png) [@december](https://boards.straightdope.com/u/december)\ **Post date:** [February 28, 2003, 3:20pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/42 "2003-02-28T15:20:57Z")
> [@](#): > > \*Originally posted by Broadway Danny Rose \* > Why is it irresponsible for me to drive without [automobile insurance]? If I hit someone, I will pay for their damage or they can sue me. I agree. When I was young, only 3 states required auto liability insurance. Traditional common law gives an injured party the right to sue, but it doesn’t guarantee that assets will be available to pay damages. Note that drivers can insure themselves through Uninsured Motorist coverage, health insurance, salary continuence insurance, life insurance, etc. > [@](#): > > If I hit somebody drunk (I don’t do that) the insurance company won’t pay for the accident. This is just not true. > [@](#): > > If I am someone of adequate means, I should (and am) responsible for what happens to me. As **kabbes** already pointed out, you’re not rich enough to do this. However, liability insurance doesn’t solve the problem. [Minimum required liability limits vary by state](http://www.insure.com/auto/minimum.html). They range from $10,00 - $50,000 per person and twice that per accident. So, a driver carrying legal minimum coverage couldn’t pay for the the multi-million dollar claim that **kabbes** described. The situation is different in the UK, where motor liability coverage is (or used to be) unlimited. BTW, **Gary Kumquat** , insurance companies do take insurance out against losing money. It’s called “reinsurance.” I worked in that field. ---
**Author:** ![Airman\_Doors\_USAF](https://avatars.discourse-cdn.com/v4/letter/a/e36b37/32.png) [@Airman\_Doors\_USAF](https://boards.straightdope.com/u/Airman_Doors_USAF)\ **Post date:** [February 28, 2003, 3:23pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/43 "2003-02-28T15:23:28Z")
Geez, **december**. Do they then underwrite themselves? If not, who underwrites them? This is sounding more and more like some Ponzi scheme or Enron scam by the minute. ---
**Author:** ![kabbes](https://avatars.discourse-cdn.com/v4/letter/k/e99b99/32.png) [@kabbes](https://boards.straightdope.com/u/kabbes)\ **Post date:** [February 28, 2003, 3:27pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/44 "2003-02-28T15:27:45Z")
First, an errata: it should have been a _prospective_ rating system. Sorry. Now I’ll read the subsequent posts. ---
**Author:** ![robby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/robby/32/11048_2.png) [@robby](https://boards.straightdope.com/u/robby)\ **Post date:** [February 28, 2003, 3:30pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/45 "2003-02-28T15:30:13Z")
> [@](#): > > \*Originally posted by Broadway Danny Rose \* > **…I have rarely had insurance in my life. I rarely had auto insurance. Why is it irresponsible for me to drive without it? If I hit someone, I will pay for their damage or they can sue me. If I hit somebody drunk (I don’t do that) the insurance company won’t pay for the accident.** So I get to take your word that you will pay for damage done to me? I’d rather go with a company that is regulated and required to have documented cash reserves on hand, thanks. As far as you driving drunk and hitting me, your insurance company surely will not pay for damage done to YOU, but it will cover ME. That’s the point of the State requiring you to carry liability insurance–for those you may injure. In this case, however, the insurance company will certainly drop your coverage in the future, or raise your rates astronomically. > [@](#): > > \*Originally posted by Broadway Danny Rose \* > **…HEALTH INSURANCE is pure BS. I have never had health insurance in my life. If I get a cold or some minor illness or hurt, I go to the doctor and pay it myself. If I was an insurance carrier and came down with a debilitating illness, the insurance company would drop me like a stone.** They couldn’t drop you without first paying for the debilitating illness. Of course, this is a complicated subject, and heavily regulated. Besides, in the U.S., if you don’t have health insurance, hospitals will still treat you. So what you’re basically saying is that if you get sick or injured beyond your ability to pay, the rest of us get to pay for your care. Thanks a lot, asshat. (Now those who want health insurance but find it impossible to obtain are in a different category altogether–a situation that will hopefully be addressed at some point.) > [@](#): > > \*Originally posted by Broadway Danny Rose \* > **…Insurance companies pray on people’s fear. Your scared, we will help you…** That word your’re looking for is “prey.” Also, replace “Your scared, we…” with “You’re scared; we…”. (You shouldn’t walk away from this thread _completely_ ignorant.) ---
**Author:** ![BoBettie](https://avatars.discourse-cdn.com/v4/letter/b/4af34b/32.png) [@BoBettie](https://boards.straightdope.com/u/BoBettie)\ **Post date:** [February 28, 2003, 3:34pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/46 "2003-02-28T15:34:13Z")
People like the OP are the reason everyone here needs to call their auto insurance agent right now and make sure you have very good “uninsured driver” coverage. That way when he hits you and you end up in the hospital (if you’re in a state that doesn’t have no-fault or you are on a motorcycle in NY state), you won’t end up bankrupt from the accident. ---
**Author:** ![robby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/robby/32/11048_2.png) [@robby](https://boards.straightdope.com/u/robby)\ **Post date:** [February 28, 2003, 3:38pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/47 "2003-02-28T15:38:11Z")
> [@](#): > > \*Originally posted by Airman Doors, USAF \* > \*\*Geez, **december**. Do they then underwrite themselves? If not, who underwrites them? > > This is sounding more and more like some Ponzi scheme or Enron scam by the minute. \*\* Insurance companies use other (usually larger) insurance companies that specialize in re-insurance. The insurance company pays a premium to guard against catestrophic claims against them. It’s not a scam. It’s just another way to spread the risk. As far as being a Ponzi scheme, the point of insurance is not a return on an investment. You are paying for a service. (Don’t get me started on whole-life insurance, though. This really is a scam, and is indeed mixing up insurance with investments.) ---
**Author:** ![Maeglin](https://avatars.discourse-cdn.com/v4/letter/m/8baadc/32.png) [@Maeglin](https://boards.straightdope.com/u/Maeglin)\ **Post date:** [February 28, 2003, 3:40pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/48 "2003-02-28T15:40:21Z")
> [@](#): > > This is sounding more and more like some Ponzi scheme or Enron scam by the minute. This is probably due to the fact that you do not seem to have made any effort to understand either the principles of distribution of risk nor how the insurance industry itself works. How risk is shared and how insurance companies underwrite each other has already been explained. What is lacking? > [@](#): > > If insurance companies are running at a loss, then why do they continue to insure? No. They _sell insurance_ at a loss. This loss is more than compensated by the investments insurance companies are able to make with their huge streams of capital. Roughly, because risk is shared by so many parties, insurance companies are able to invest significant proceeds into non insurance-related ventures with the expectation that they will be able to hold them rather than liquidate them to pay every claim. So sure, you may have to buy insurance, but if you are working for a publically traded corporation, the odds are good that your insurance company invests in your business as well. The fact that you view the scientific evaluation and distribution of risk as a “ponzi scheme” or like Enron reveals your ignorance of all of the above. ---
**Author:** ![kabbes](https://avatars.discourse-cdn.com/v4/letter/k/e99b99/32.png) [@kabbes](https://boards.straightdope.com/u/kabbes)\ **Post date:** [February 28, 2003, 3:41pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/49 "2003-02-28T15:41:43Z")
OK: First off, yes I am a Lloyd’s man **Ginge**. Or, more specifically, I am a consultant working in what is known as the “London Markets” area. This includes Lloyd’s as well as a whole load of reinsurers, corporate insurers and a bunch of other stuff you don’t need to worry about. One thing it does _not_ include is, ironically enough, car insurance. So I know the theory on that but haven’t worked on the practice. Full disclosure. **Doors** , **Chance** - you’re asking the question there alright. Mad, isn’t it? Now I know about the London Markets. US “_personal lines_” insurance (i.e. auto, household etc.) ain’t my forte. But insurance in general is particularly notorious for having a strong cycle. The cycle is there for many reasons. But it basically works like this: Lots of money Others see lots of money Others start writing insurance Rates come down Rates come down even more Rates come down even more Huge losses! People start going bust/pull out of market Rates go up Rates go up Profits! Start again. Now the speed and nature of these cycles is somewhat bizarre. I’m going to focus on Lloyd’s and the LM for a moment, if that’s alright by you. My field is also notorious for what is known as _naive capital_. This, basically, consists of companies who know nothing about insurance who see it as easy money - think of the Vegas gambler who “has a system”. So they think they can write it better than anyone else. I.e. cheaper. So they do. Now in the LM, you won’t generally realise you’ve made losses for… ooh… 4 years or so? So by the time the losses are coming through, it’s already too late. You’ve written 4 years of garbage - typically throughout the late nineties/early 00s this was of the order of £2 - £3 for each £1 of premium. Meanwhile, you’ve screwed the market. Everyone else either had to try to match your rates and lose money or stop writing altogether. But here’s the rub. Insurance is very capital intensive. Furthermore, the LM is a very relationship-driven industry. You may think that it’s all guys in front of computers but you couldn’t be further from the truth. It’s serious archaic in places. So you don’t exit lightly. The tradition has been to tighten the belt in bad times and _keep on writing_ to maintain your place in the market. It doesn’t help that the underwriters essentially have no job if they don’t write the business. But losses won’t be seen for 3 or 4 years. So they are tempted to take a punt. Now all this has been seriously undermined by some clever players in Bermuda writing the risks properly - and without brokers taking a 40%+ cut of the premium too. So suddenly the good times aren’t coming and the bad times are rolling on. Things are changing. Post 9/11 some profits are being made, but the warning signs are there. THe industry is in _serious_ upheaval. But basically: since ~1988, 1993 was profit making and (from memory) 1998. 2002 looks like it will be too. Other than that: garbage. Before that: in 300+ years, the only lossmaking year in Lloyd’s history was 1963. I could now start going into the massive shift in catastrophic losses that has been seen since the late eighties, but I’ll save that as my trump 🙂 pan ---
**Author:** ![Airman\_Doors\_USAF](https://avatars.discourse-cdn.com/v4/letter/a/e36b37/32.png) [@Airman\_Doors\_USAF](https://boards.straightdope.com/u/Airman_Doors_USAF)\ **Post date:** [February 28, 2003, 3:43pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/50 "2003-02-28T15:43:22Z")
There’s no need to be insulting, **Maeg**. To my eyes it looked like a scam and I called it as such. Your explanation sufficed. It would have without the indignation, as well. ---
**Author:** ![GingerOfTheNorth](https://avatars.discourse-cdn.com/v4/letter/g/cdc98d/32.png) [@GingerOfTheNorth](https://boards.straightdope.com/u/GingerOfTheNorth)\ **Post date:** [February 28, 2003, 3:46pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/51 "2003-02-28T15:46:03Z")
**kabbes** - I know the Lloyds’ breakdown. I worked for a Lloyds’ underwriter. Just previous to your post, I wrote out a long post regarding the spread of risk and how insurance is sold at a loss, and how 9/11 has a hand in the rising costs - and deleted it. My husband asked just why I had done that, and I explained to him that it was because **kabbes** would come in and say the same thing, only he wouldn’t sound like an idiot. Thank you. ---
**Author:** ![Mangetout](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mangetout/32/19_2.png) [@Mangetout](https://boards.straightdope.com/u/Mangetout)\ **Post date:** [February 28, 2003, 3:47pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/52 "2003-02-28T15:47:44Z")
> [@](#): > > \*Originally posted by C K Dexter Haven \* > \*\ ***Broadway Danny** thinks he’d rather take care of himself. OK, but why stop at insurance? Let’s talk taxes – I mean, you pay taxes for the police and fire departments, don’t you? And you have never needed their services! Same thing as insurance!! … to be consistent, you should join the Committee to Abolish the Police and Fire Departments. > > Idiot. \*\* Just imagine dialling the emergency services - “Help, help, there’s a man outside my house trying to get in and I think he has a gun!”… “Certainly sir, is this the first time you have used the police service?..it is?.. OK, this won’t take very long, if you could make sure that you have your credit card handy…” ---
**Author:** ![Mangetout](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mangetout/32/19_2.png) [@Mangetout](https://boards.straightdope.com/u/Mangetout)\ **Post date:** [February 28, 2003, 3:48pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/53 "2003-02-28T15:48:52Z")
Is your house on fire? Call us today! ---
**Author:** ![robby](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/robby/32/11048_2.png) [@robby](https://boards.straightdope.com/u/robby)\ **Post date:** [February 28, 2003, 3:48pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/54 "2003-02-28T15:48:54Z")
> [@](#): > > \*Originally posted by Airman Doors, USAF \* > \*\*So let me ask you something, then. > > If insurance companies are running at a loss, then why do they continue to insure? Being privately (or for that matter, publicly)owned, profit-oriented companies, if they’re not profiting, then why don’t they just pack it in?\*\* You may as well ask why most airlines continue to fly. It’s my understanding that the industry as a whole has never made a profit over the last century. [Cite.](http://www.jewishworldreview.com/cols/will051002.asp) (Column by George Will I read in _Newsweek_ last year; I’ve seen the statement elsewhere as well.) > [@](#): > > "That is not the condition of the airline industry. > > It may not have netted a nickel since the Wright brothers. It certainly had net losses from 1945 to '94. After the brief boom of the late 1990s, it was hemorrhaging money even before terrorists attacked the United States through the industry…" ---
**Author:** ![kabbes](https://avatars.discourse-cdn.com/v4/letter/k/e99b99/32.png) [@kabbes](https://boards.straightdope.com/u/kabbes)\ **Post date:** [February 28, 2003, 3:50pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/55 "2003-02-28T15:50:14Z")
Ah yes - reinsurance. Here’s the basic idea. Insurance company underwrites, say, the WTC building. Insurance company realises there is no way they can cover that thing. Insurance company takes out their own insurance, much like your household insurance. Only instead of keeping $100, say, they keep $5million. So they’ll pay the first $5 million and the reinsurer will pay the rest. So reinsurer realises they now have an enoromous liability. So _they_ keep the next $5 million and pass on everything in excess of $10 million. And yes, it gets very complicated. _Very_ **VERY** fucking complicated. So complicated, in fact, that it almost killed Lloyd’s inthe 1980s when they realised that A had reinsured with B had reinsurered with C had reinsured D had reinsurered back with A again. THis was known as the LMX (London Market Excess of Loss) Spiral and was a total fucker, since the brokers were taking 40% of each transaction, leaving a fraction of the initial premium to pay for the losses. 10 years after the spiral was starting to unwind they realised it was never gonna happen and dumped the whole shebang to a new specialist company owned by Lloyd’s called Equitas. But some bits outside of Lloyd’s are still unwinding to this day… 20 years on. pan ---
**Author:** ![kabbes](https://avatars.discourse-cdn.com/v4/letter/k/e99b99/32.png) [@kabbes](https://boards.straightdope.com/u/kabbes)\ **Post date:** [February 28, 2003, 4:00pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/56 "2003-02-28T16:00:54Z")
Bloody hell there were a lot of errors in that last post. And thanks **Ginge** for being so nice. But I’m attempting to type very quickly and think quicker, so my thoughts aren’t coming out quite as coherently as I’d like! Sometimes you can know a bit _too_ much about something to write about it quickly! One important point that may clarify things: although big losses are made throughout the industry, individual companies/Syndicates can make money. Some Syndicated made a killing from the LMX spiral, for example. Some - like my arbitrage syndicate - were set up such that the more money was lost gross, the more they made net. There’s always _someone_ who thinks they know better though. Hoo boy, is there. pan (ps about last post: £50 billion and counting so far, before anyone asks…) ---
**Author:** ![Weirddave](https://avatars.discourse-cdn.com/v4/letter/w/919ad9/32.png) [@Weirddave](https://boards.straightdope.com/u/Weirddave)\ **Post date:** [February 28, 2003, 4:30pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/57 "2003-02-28T16:30:29Z")
> [@](#): > > \*Originally posted by C K Dexter Haven \* > \*\* > And health insurance companies do not drop you because you get sick. That’s another myth. > \*\* Ahh, contrite, me amigo! HI companies can and do dump people who become sick, although they usually do it by jacking the premiums every month so that it becomes unafordable, forcing the client to drop the insurance. That way they can grin like shit eating dogs and claim “hey, we didn’t drop them”. It happens _all the time_. The solution is to get your coverage with a company like mine that makes you part of a group, protecting you from such shenanigans. It’s usually cheaper too! ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [February 28, 2003, 4:40pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/58 "2003-02-28T16:40:14Z")
This post sponsored by the WD Insurance Network. Don’t get him started! ---
**Author:** ![vibrotronica](https://avatars.discourse-cdn.com/v4/letter/v/a9a28c/32.png) [@vibrotronica](https://boards.straightdope.com/u/vibrotronica)\ **Post date:** [February 28, 2003, 4:50pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/59 "2003-02-28T16:50:30Z")
To call the American system of Health Insurance “barbaric” would be an insult to barbarians everywhere. ---
**Author:** ![jjimm](https://avatars.discourse-cdn.com/v4/letter/j/ba8739/32.png) [@jjimm](https://boards.straightdope.com/u/jjimm)\ **Post date:** [February 28, 2003, 5:04pm UTC](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089/60 "2003-02-28T17:04:31Z")
> [@](#): > > \*Originally posted by Mangetout \* > \*\*Is your house on fire? Call us today! \*\* [Viz] \*\*Raped? Burgled? Run over? Why not call the Police! The police. Tel: 999. \*\*[/Viz] [Previous page](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089.md?page=2) [Next page](https://boards.straightdope.com/t/insurance-why-are-we-buying-this-shit/158089.md?page=4)