In a very abstract way there's not much difference between this and betting on sports.
With an insurance (especially something like travel/home insurances) you are not trying to game the premium, you are rather protecting risk of a preexisting situation.
Sure you can use it to gamble, like buying a few dozen houses and hoping they catch fire sooner than later.
Similarly with the stock market, stocks unlike a casino chips do produce value and represent real quota ownership of an asset. It can be misused in similar ways but it posses distinct qualities.
I would reserve gambling for something offered to some kind of a consumer/costumer market.
The point is that one party says to the other "I will give you $X once a month, and if event E doesn't happen in that month, you get to keep this money, otherwise you must give me $Y (s.t.Y >> X)".
You can replace E with "my house burning down" or "The red team wins". In either case, I would call this a bet.
Insurance is just a specific type of gambling where you do it because E is bad and you want to be safe in case it does happen.
Gambling is priced as a game, a personal luxury. You pay quite little for a vanishingly small chance at a payout. Notice how there are very few people who actually ever "count on" a lottery ticket to pay out.
Insurance, on the other hand, is priced for the market. People will simply go somewhere else if the insurance company is taking too large of a slice.
In some cases, gambling can start to become insurance, if the gambling market is efficient enough. For example: "Matress Mack" when he insured himself against his "Free matresses if the Astros win the World Series" promotion using phone-in sports betting. Even in this case, however, the "insurance" seems costly at 13 million dollars!
Insurance and gambling have very different legal regulations in almost every jurisdiction.
I see also this one as needlessly reductionist. By that logic also taking a day off from work to interview for a new job is gambling.
The difference I gave are also more than just motive. With insurances you are supposed to desire the risky activity (owning an house, booking a trip, driving) independently from the payout, and moreover the transition to insurance in meant to decrease the variation in outcomes. Two characteristic entirely adverse to the nature of gambling.
In a Russian Roulette analogy, gambling is betting money on who wins pushing people to play more and more as the payout increases hoping to leave a winner; insurance is more complex, it is taking an already running game that you had already chosen to play for your own reason with no money involved and introducing a fee that will payout to the loser's family. You are not supposed to want to "win" that bet, actually it is part of the insurer job to make sure of that.
It is still in the category of "financial probabilistic interaction" which is just one of various requirements for gambling.
In gambling, the unlucky losers pay the lucky winners. The people who picked the winning horse, who threw the better roll of the dice, who invested in the right stock get paid.
In insurance, the lucky winners pay the unlucky losers. The people whose house burned down, who came down with a really expensive disease, who lost their jobs get paid.
However, in theory insurance is more about pooling risk, where payouts from claims do not exceed premiums collected from the risk pool. Though sometimes insurance companies overextended themselves into places where they are not collecting enough from the pool to cover claims.
If you are lucky, you will never be seriously sick in your life, never lose your job, and never have your house burn down. If you are so lucky, all of that money you pay for insurance goes to the people who are less lucky.
Insurance companies achieve the same thing by setting your premiums according to whatever they assess the risk to be. Again, asymptotically, people pay more in insurance premiums than the insurer pays out.
The house always wins.
This nicely aligns with what the practice of insurance actually involves: they do a lot to ensure that the client doesn't want the insured event to happen.
You actually used to be able to purchase life insurance on any other people, although you’re correct on why that’s a bad idea. The darkest examples would be companies in high risk work buying life insurance for workers, which reduces the incentives to provide adequate safety equipment.
That's generally the reason for why it's treated differently, by law.
Aren't hedge funds (nominally) doing the same thing?
It's actually completely different to sports betting...
Trading instruments like mortgage-backed securities does not constitute "gambling with people's homes." It's not like someone's taking your home away just because of some CDO trades.
"Activist investing" (think Icahn) might, albeit indirectly. But that certainly doesn't make up a big chunk of the market and its activites.
I'm not saying that the GFC wasn't massive (it was) or that people didn't lose their jobs and homes (many did), but MBS were not at fault. Subprime lending was, among other factors.
Arguably the originator banks deserve a lot more blame for that, since they actually were the ones willingly handing out bad loans and/or encouraging bad consumer practices.
Answer: unemployment went from 4.6 to 10%, and it took eight years to recover: http://infographic.statista.com/normal/chartoftheday_8974_us...
Betting on sports is insurance if and only if you bet against your own team for an amount not greater than the winnings.
Of course it gets murkier when people talk about the “rush” of gambling, which is I think what you’re alluding to, but it’s not as straightforward as you make it or the most popular gambles would be those with the longest odds or the highest chance of complete ruin.
Insurance is about spreading loss around to make costs more predictable. Your house burns down, but since we're all paying into our insurance we all cover your costs so you can rebuild and not have your life irrevocably destroyed.
It's the opposite of gambling. It's about reducing randomness, insecurity, and financial shocks.