> The ones they checked with now have a clause that says they will not be responsible for any payout should the insured, at the time of buying, already knows or reasonably deduces that the flight can be delayed anytime.
What kind of clause is that?
But "reasonably deduces"... that can be used in any such case where mass payouts are a likely outcome. If I can "reasonably deduce" a payout will be needed than so can the insurance company. Under these conditions accepting my insurance purchase should be seen as the company committing fraud. They accept a payment knowing the customer can never collect.
So it's not like the insurance company can say "you should have cancelled the night before because everyone could see the storm coming".
If a regular consumer can "reasonably" deduce (using logic, not some "illegal" insider knowledge) at the time of buying the insurance policy that the flight may be cancelled then the insurance company employing experts and very accurate statistical models can more than reasonably make the same deduction.
Now since we agree that both parties deduced the flight will be cancelled but the company still went ahead and took the money for the insurance contract, this can only be fraud. The company took the money under false pretenses since they implicitly know even before the transaction that the claim is null and void under the "reasonable deduction" paragraph.
I get why the first one is unacceptable but the wording in their agreement fits the second one.
I hope they are reserving this clause for such obvious fraud cases where they can prove prior knowledge and intent. Like the case of this woman who even created fake identities to carry out the plan. Otherwise I see them being stuck in court forever either trying to prove that a random customer had some sort of insight that they didn't despite literally being their job and investing (tens of) millions in this. Or trying to prove that they didn't knowingly sell a policy with the expectation that they will never provide the payout, which is misrepresentation of the service at the very least.
Perhaps we should not rush to finely parse language that has gone through a double translation: from legaleese to reporter and from Chinese to English.
That doesn't mean there's no grey area, though. Is it unreasonable to buy tickets and insurance under an assumed identity? Probably, but part of getting your day in court having the ability to suss this out.
Most jurisdictions won't enforce a contract entered in bad faith.
I'm no lawyer, but I would guess the hard part is detecting this behavior and/or getting the money back, not so much denying the payments. (Though flight insurances probably don't have much infrastructure for fighting fraud, as there is few ways to do insurance scams)
What? What exactly is bad faith here?
How is buying insurance on things you expect to fail any different than, say, buying options on the stock market, or some other form of intelligent betting?
You have expectation X, you find a third party that disagrees and has expectation Y, and agree to make a bet on the outcome with odds relative to X:Y. If your assessment of the situation was closer to the truth than the other party, you can stand to make money.
The assumptions of the insurance company is that they have superior models and can amortize losses among many people and thus charge only a small margin. They don't always have the best models though, and I really don't see how calling them on it is 'bad faith'.
Insurance, unlike options on equity stock or indexes, require an insurable interest. The pricing of insurance assumes that the buyer of insurance would rather not use the insurance policy; the options contract on stock makes no such stipulation. They are a bit similar in practice but both are structured, regulated contracts and are defined differently.
This lady did not have an "insurable interest" in the flights she was purchasing insurance on, since she did not actually intend to go on on the flight (she bought the insurance to profit from the insurance). Had she bought an "option" and not "insurance" on the flight, fraud maybe would not be in play. However, expect an "option" to be priced differently.
1. you believe you are at higher risk than the typical person buying the insurance (or more practically, that [cost of insurance] < [payout amount] * [likely of payout]).
2. the outcome you're insuring against would otherwise be financially ruinous (e.g. life insurance on family breadwinner, homeowners' insurance on expensive house)
Varying levels of deductible choices hard code this notion even further into the system. If you're farther from zero-bound worries you can essentially buy less insurance with a high deductible.
I pretty much pay them just so I don't have to experience the social ramifications of telling people I didn't have home insurance if something did happen.
When such a contract is made in advance knowledge of likely occurrence of the event, the risk is fully shifted over to the insurer. Thus in absence of shared risk this subverts the contract into an unequivalent monetary transaction, which reasonably amounts to fraud.
Similarly, if there's an advanced knowledge from the insurer on almost certain unlikelyhood of the event, then it's defrauding the policy holder of their premium.
So the insurers must pay off time to time to maintain the perceived fairness of contracts. Meanwhile doing their best to balance their share of the risk... and most importantly price in the 'administrative overhead'.
In this case, continual purchasing of insurance on the flights likely to be delayed would be evidence you knew it was going to be delayed.
Without clear condition / clauses, it is possible that they'll deny valid claims by saying that the insured has already know beforehand. Maybe there are more specific information?
It's not an unreasonable one.
Sometimes, often in fact, it becomes pretty obvious a flight will be delayed but they just haven't bothered to officially announce the fact yet. Such as if the plane isn't even there because they are delayed on the previous leg, and boarding time is about to start. Or when the airport cancels all flights for an indeterminate time due to incoming bad weather and the airlines wait to update times because they don't know what to say yet.
European laws define mandatory compensations when a flight is delayed or cancelled. This starts after 30 minutes if I remember well and depends how long the delay is and how long (distance) the flight is.
Also, delay is measured on arrival time, not on departure time. Planes frequently depart late then arrive on time, because they fly faster to catch up.
https://europa.eu/youreurope/citizens/travel/passenger-right...
If somebody thinks they are making money out of their insurance contract it is probably fraud or very close to.
If it is a particularly high premium line, and especially if there is a lot of competition, it's more likely that the underwriting profit will be kept minimal or even negative, as the investment profit is so much more lucrative. This is common in the car insurance lines of business, for example.
For retail insurers there are a lot of moving parts here, and they will often not hold much of the final risk, so can't make money from investment anyway. For example, the retailer (sometimes an underwriting agency) may be underwritten by some bigger insurer.
That insurer may have a quota share arrangement with another insurer (I'll take 10% of the risk, you take 90%) with a corresponding premium share.
At each level reinsurance is bought, sometimes on the whole portfolio of risks and sometimes on particular classes of risk or specifc policies, and the costs associated with the reinsurance are priced into the retail premium.
Additionally, when working in an intermediated market with brokers, there are often credit terms of up to 90 days where no payments are made. Anecdotally, it does seem like some brokers do make a large amount of their money on this float.
Adding it all together, there are two main numbers to track from an underwriting profit point of view - your loss ratio (claims incurred / earned premiums, often extended to include projections for future claims and premium for future insured periods) and your combined operating ratio (COR) which includes expenses.
There will be a loss ratio at which a line of business becomes profitable, and final premiums are often calculated by taking the expected losses and grossing up by this loss ratio. For individual accounts it might literally be that simple - "over the last 5 years this account has averaged claims of $100,000 a year, we need a 60% loss ratio so the premium should be $166,667." If there are extra reinsurance costs you might add those, and you might also add a loading for large infrequent losses that aren't captured in your underlying loss ratio (and another loading for catastrophes, a level above that).
The combined ratio needs to be under 100% to be 'underwriting profitable'. I've seen CORs as high as 105-110%, but typically those portfolios were being very closely monitored/remediated/exited. If there is a strong market the COR is allowed to drift higher, but when the market tightens so does the COR.
It's the difference between buying flood disruption insurance because you operate in an occasionally flooded area, and moving your stock to wherever there's a flood warning. Particularly in this case, where the woman cancelled her expected on-time tickets because the tickets had no value to her except as a source of insurance payouts.
Consumer insurance is not exactly the same as stock options: it's not supposed to be a perfectly efficient market. Insurers are often operating under rules which prevent them from denying or repricing insurance due to relevant risk factors and likewise premium holders are usually bound by far more terms and conditions preventing them from taking actions which might change the value of their policy than stocks or futures markets.
I think it's more like, you shouldn't buy fire insurance if you are having a bbq or similar. Or at least somewhere in the middle of these two statements.
Or well you should, but if you wilfully had your house burn down anyway to get insurance money, that's insurance fraud.
You know what the expected outcome is going to be and are securing an agreement deliberately in bad faith. That's not to say insurance companies are always good faith actors (oftentimes not), but it's a very one-sided information flow.
What about someone who notices that they are getting older and are starting to develop aches and pains and decides to start buying health insurance that they had avoided when they were younger because they seemed to have been made out of rubber back then?
Yeah, your first argument makes a lot more sense to normal situations, but mine was aimed at being an analogy to the example at hand from the article.
That's exactly the reason the ACA made health insurance mandatory, to avoid that scenario which would require insurance companies to make the policies more expensive in order to compensate for the higher average age and worsening average health of the insured pool, which further incentivizes the avoidance, and so on, until we're right back in the same situation with a high-risk pool and unaffordable premiums.
Incidentally, that doesn't mean that avoiding health insurance if you are young and healthy with no dependents is actually a good idea at the outset, since many common health conditions like injuries from car accidents don't particularly discriminate by age.