> Why is it not a good thing if insurance is more accurately priced?
Another poster here, Scoundreller, recently responded to one of my comments on another topic with this insight:
> The funny thing about insurance is that as it becomes perfect at assessing risk, it becomes worthless.
> Oh, you’re about to have a $x claim this year, your premium is $x + y% admin fee.
> Just self insure and save yourself the y%.
There's likely a point where the more accurately priced a policy is the less worthwhile that policy is to purchase, which really wouldn't be a good thing for the insurance industry. The use of aerial photography probably isn't enough to put them over that threshold, but the closer they get, the less attractive their offerings will be. Considering that the insurance companies mentioned in the article have billions in revenue and assets I'm not sure they have a compelling need to resort to this level of surveillance in order to make good money. None of them appear to be going broke due to rogue trampolines anyway.
That argument is silly because it misunderstands what "risk" means both in an insurance context and in general.
Yes, if you could 100% guarantee that someone was going to have a $Y valued claim, their premium would fairly be 100% of $Y at least in order to allow for their contribution to the risk pool. Problem is, you cannot 100% predict the future, and there is no model capable of doing so, nor will there likely ever be. Nor can you predict that any other insured risk might not materialise in the meantime.
More to the point, it fundamentally misunderstands what insurance is and how it works, not least the commercial considerations involved. If there is a 100% risk of risk X materialising, the insurer won't rate your premium at the cost of risk X; it will simply exclude risk X from your policy and rate your premium based on all the other myriad risks that might arise that year in an attempt to win your business and collect premium for what, to them, is a better bet.
This already happens, incidentally; travel insurance policies will exclude pre-existing conditions or recurrences of previous illnesses as a matter of course, because if someone (e.g.) has cancer, the odds of them needing to claim on their policy - and as such draw down from the pool more than they paid in premium - skyrocket.
> the insurer won't rate your premium at the cost of risk X; it will simply exclude risk X from your policy and rate your premium
Which makes it odd that there are people who can't get insurance at all because of one factor like a tree or a roof. Instead of these companies (rightly or not) excluding those risks they're just dropping the customers or refusing to insure them.
> Problem is, you cannot 100% predict the future, and there is no model capable of doing so, nor will there likely ever be.
As insurance companies get more data about you from constant surveillance and data brokers it's possible for them to assume things with far more certainty. Worse, they don't seem to care too much about accuracy either. Your health insurance could cost you more next year because data shows more people in your zip code are spending more time in fast food drive thru lanes. People have had their DNA leaked! Predicting the future (accurately or not) is getting easier every day.
> This already happens, incidentally; travel insurance policies will exclude pre-existing conditions or recurrences of previous illnesses as a matter of course
I think that's reasonable for things that nearly certain to happen. It's easy to exclude cancer in a travel insurance policy and still provide some value. It's a lot less likely when it comes to something like flood insurance where your house either floods or it doesn't, although there are certainly houses in places that flood so regularly that they shouldn't be insurable at all and no one should live there. There's a balance that's difficult to strike because the incentive is for insurers to drop anyone who has any real risk.
Another poster here, Scoundreller, recently responded to one of my comments on another topic with this insight:
> The funny thing about insurance is that as it becomes perfect at assessing risk, it becomes worthless.
> Oh, you’re about to have a $x claim this year, your premium is $x + y% admin fee.
> Just self insure and save yourself the y%.
There's likely a point where the more accurately priced a policy is the less worthwhile that policy is to purchase, which really wouldn't be a good thing for the insurance industry. The use of aerial photography probably isn't enough to put them over that threshold, but the closer they get, the less attractive their offerings will be. Considering that the insurance companies mentioned in the article have billions in revenue and assets I'm not sure they have a compelling need to resort to this level of surveillance in order to make good money. None of them appear to be going broke due to rogue trampolines anyway.