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Old 12-21-2005, 12:30 PM
lu_hawk lu_hawk is offline
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Join Date: Mar 2004
Posts: 6
Default Re: What is our equity in health insurance?

I once heard from an insurance guy that since insurance was invented the industry as a whole has been a negative return on capital business. Which makes sense given that it's human nature to price your premiums too low to gain market share when you are 'running good.'

This applies less to something like health insurance or life insurance where you are going to reach the long term very quickly and it's hard to really mess up on pricing your premiums. But when you insure against hurricanes and the like where variance can be huge then insurance can be a good deal when the industry is experiencing a soft market. (If you read Buffett's letters you'll see what I am talking about, a lot of his success in insurance comes from the fact that when industry-wide premiums are too low he simply stops writing insurance and his insurance business can decline by huge amounts. Then when the insurers who priced their premiums too low get in trouble in a bad year and can't write any more policies, he steps in and sells insurance that is +EV by a huge amount.)

But it's an interesting comment as I know all gamblers are very against insurance as a concept. As a concept it might be bad, but in reality when you are in a capitalist economy where insurers compete on price and they can get a false sense of security from running good then insurance might not be as bad as you think.
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