Insurance companies that can better predict customer risk outcompete those that don't. They can charge less for lower-risk customers and still make a profit, thus drawing them away from their competitors and leaving their competitors with higher risk people who pay too little.
Yet, the end game is that everyone can predict risk so thoroughly that insurance is pointless.
It's ultimately a weird, backwards Tragedy of the Commons, and various non-discrimination laws are sort of the regulatory response to it.
Yet, the end game is that everyone can predict risk so thoroughly that insurance is pointless.
Not true. Suppose you have a 0.01% chance of needing a $10M treatment in your lifetime. First of all you can't say, "Oh I'll just self insure" because few people have $10M. Second, you may decide that paying $10,000 over the course of your lifetime is preferable to risking a payment of $10M.
Removing uncertainty doesn't eliminate the need for insurance, it just reduces the opportunity for risky subscribers to socialize their risk, and for insurance companies to reap gross profit.
Um, in both of those cases, removing the uncertainty would eliminate the need for insurance:
In the first, the insurance company would know, with certainty, who falls into that 0.01% category, and charge them $10m for insurance in their lifetime.
In the second, the insurance company, with certainty, would know what year the treatment is needed, and charge a $10m premium for that year only.
Ok, I guess what I mean is eliminating uncertainty in risk profiles. IMO we are headed towards a world with good risk profiling- but I doubt we are anywhere close to predicting the future with certainty.
Insurance companies are identifying things like "Driving at night increases risk of accident". They are nowhere close to, "A blue corvette driven by a 43 year old male will rear-end a ford pinto today"
As of January 2014, the ACA made it illegal to base premiums on current or past health status. So at least in the US pricing like this no longer occurs.
Which means that if your current and past health status are poor, you're probably aware of this, and should sign up for the best insurance you can, since you're far more likely to reap the benefits. You should overinsure yourself, and buy some investments in the hospitals that you're going to be visiting.
Those with above average current and past health status should enrol into the very least amount of insurance they can get away with.
This is, of course, why the law against changing premiums based on a person's health status was combined with a law requiring everybody to buy fairly comprehensive insurance whether or not they want it.
A 0.01% chance means uncertainty. Eliminating uncertainty would mean that you know your risk is either 1 or 0. If it's 0, you wouldn't buy insurance, and if it's 1, they wouldn't sell it.
Insurance companies that can better predict customer risk outcompete those that don't. They can charge less for lower-risk customers and still make a profit, thus drawing them away from their competitors and leaving their competitors with higher risk people who pay too little.
Yet, the end game is that everyone can predict risk so thoroughly that insurance is pointless.
It's ultimately a weird, backwards Tragedy of the Commons, and various non-discrimination laws are sort of the regulatory response to it.