Unless you are attempting to redefine the word insurance you are simply incorrect. Insurance is one of the most commonly used financial instruments in existence. If insurance was somehow not a financial instrument, it would not be insurance, but something else entirely.
These agreements were never meant to be traded between insurance companies and in most cases simply weren't. The only major exemption from this rule are for companies offering life insurance but they aren't allowed to offer regular insurance.
Instead of acting as financial instruments, insurance companies are required to have, on-hand, the necessary liquidity to pay-out enormous sums.
And everyone financially engineers insurance if they have anything resembling a free market.
Reinsurance in denmark: https://www.lexology.com/library/detail.aspx?g=654d1fd4-cffc...
First result for Denmark insurance swaps: https://books.google.com/books?id=XsbFBgAAQBAJ&pg=PA34&lpg=P...
Just because the insurance companies have higher capital requirements and treat customers differently doesn't mean it's not a financial instrument.
> Financial instruments are assets that can be traded. [0]
> Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. [1]
And my point about about life insurances being financial instruments:
> The asset classes are cash, vehicles, real estate, business, directly held equity, indirectly held equity, fixed income, pension equity, pension fixed income, cash value life insurance. [2]
> Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments. [3]
[0]: https://www.investopedia.com/terms/f/financialinstrument.asp
[1]: https://en.wikipedia.org/wiki/Financial_instrument
[2]: https://www.sciencedirect.com/topics/social-sciences/financi...
Regular insurance doesn't accumulate cash-value and therefor is not a financial instrument.
Here’s what the Financial Accounting Standards Board says: (https://www.fasb.org/cs/ContentServer?c=Page&cid=13510272100...)
Imposes on one entity a contractual obligation either:
A) To deliver cash or another financial instrument to a second entity
B) To exchange other financial instruments on potentially unfavorable terms with the second entity.
Conveys to that second entity a contractual right either:
A) To receive cash or another financial instrument from the first entity
B) To exchange other financial instruments on potentially favorable terms with the first entity.
Sounds like insurance fits in this category. I die next week, you pay me a million dollars, and I’ve only paid you $100 (or whatever small premium)
Furthermore, any agreement can be traded if someone sees an advantage in the trade and can rely on the agreement to hold. Just because someone’s not doing the trade doesn’t mean it’s not trade-able. I guess it could be explicitly prohibited but even then I could see a Dane in the above insurance example securing a home loan because they have this insurance, and would be able to pay out upon death (for example) as a normal thing.
But that means you’re gambling, and so is the insurer. You’re making a bet on a certain outcome and so is the insurer. If you “win” that bet, e.g. the cargo on your ship was stolen by pirates and you insured against that, then your insurer “loses” and has to pay out. If nothing happened during the voyage though and you safely delivered your cargo, then the insurer “wins” and you “lose”, but what you’ve “lost” is a fraction of the value of the cargo which is better than the loss of the whole cargo. The insurer makes money by pooling these bets, betting that it will win more bets than it loses.
Insurance: the art of spending money now to avoid spending more money later
Seems like an open and shut thing -- insurance is a form of finance, whether consumer cooperatives, for-profit companies, or the government itself.
Unless we're debating the "instrument" part.
> Insurance is supposed to be a safety mechanism that protects you if something bad happens.
is a better vision of the way we should approach insurance IMO. My views are not to abolish capitalism at all, but am commenting on one of the pain points of its selfish tendencies.
Debt is certainly the most common and insurance is the one of the most common