Pros & Health Insurance

[eggzz]

I'm sorry but I have to disagree. In today's economy what type of investment return do you think you could get on a safe/sound investment? You certainly can't believe that an insurance company is going to invest in a risky investment opportunity because the board of directors would never approve.

Now I do agree that even a conservative return of 2% on an incredibly large investment would reap a large sum of money, but investments are only one part.

I will talk with our CFO tomorrow. Our company (large group life and disability carrier) made fifteen million after taxes last year. I'll ask him how much was due to investment income and how much was due to sales/premiums less claims and administrative costs.

I still say we made 80% of our nut from the latter and only 20% or less from conservative investments.

[magithighs]

Yes, investment income is a large part of revenue. (see http://www.manulife.com/corporate/co.../2003Q4SIP.pdf )

However, an average investor can get a similar rate of return as Insurance companies are extremly conservative investors.

So, it is still a negative EV proposition IMO.

Cheers
Magi

[magithighs]

Well, I didn't mean to trivialize health care insurance or imply pros were making a bad decision when purchasing heath insurance.

You hit the nail on the head. I read so much about making postive EV plays that I think we get too wound up in thinking that should be the basis by which we judge every hand. I'm not advocating that it should be the only consideration. However, I believe judging a hand by only postive EV isn't the way to go. I think we need to factor in risk tolerance (1).

More importantly I believe risk tolerance is the underlying driver behind most players to bet/call/fold. (2)

(1) judging our own play -- in NL tourneys when you know an opponent will make a mistake and call your bet, it may not always be correct to bet the maximum, even though it is postive EV. This is especially true in the middle stages of a large tourney, when you can cripple yourself on one hand. If you have a small edge and will cripple (catastrophic event) yourself against a large stack or smaller stack, then it may be free card for you. This is strange thinking and may be akin to my early days of thinking there was little difference between A2o and A2s. However, it's a thought.

(2) judgeing opponents. I think the weak / strong categorization works well. However, I always felt something was missing. I think risk-tolerance of my opponents really helps me assess if they will call/fold/raise. If someone is risk-averse they try and conserve their chips -- the farmers. Many strong players will become risk-averse after some bad beats. And weak players who just won a couple of hands will increase their risk tolerance. I've seen this in tourneys where large stacks built on sound hands like AA, AK, KK, will quickly bleed by taking chances on some flyers like T9o on the button.

I guess I'm advocating using risk-tolerance to better assess our own play and that of our opponents as I believe it underlies our play.

[BadBoyBenny]

Yes, it is most likely negative EV for some of the reasons that Eggz listed, like the salaries of all the employees, as well as having to cover fraud and fraud investigations.

This may be mitigated by discounts that insurance companies get. I don't know enough about the healthcare business to know if they do but I would imagine by affilaiting themselves with hospitals they can get cheaper rates than a single person would. If this is the case, it may cover what is paid in peripheral costs.

To me though its like going all in at the beginning of a tournament when you know you're a 52% chance to win. I'll pick a better spot to save money than taking the risk of leaving myself bankrupt or getting lower quality healthcare during in an emergency.

[BadBoyBenny]

I just noticed magithighs posted a similar analogy 3 hours ago. I apologize in advance for beating a dead horse.