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Comment by jopsen | Hacker News Reader

Probably an unnecessary one...

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)

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> Most jurisdictions won't enforce a contract entered in bad faith.

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'.

> 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?

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.

That's interesting. My personal reasoning has been that insurance is a bad deal unless either:

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)

https://en.wikipedia.org/wiki/Credit_default_swap

Not to defend the insurance companies, but I think it is bad faith because the intention of the insurance is to protect the insured from risk from an unforeseen situation, not to attempt to gamble or arbitrage against the insurance company.

I've come to the conclusion that the "protection" most insurance companies offer, are scams. Hear me out. While there are one-off insurances, most insurance is monthly or annually. So each year you pay a set amount. Now, consider saving that money instead. Usually, if you can go only a few years without an accident, you would have saved up more than enough to cover that incident yourself with your insurance savings. On top of that, you'd most likely save yourself the hassle of going to court if the insurance company for some reason or another contests your claim, and let's face it, they often do. So not only is the saving a great alternative, but it also insures a payout. The only instance where insurance might be good, is if the amount covered is far larger than you could ever hope to afford yoruself. In this case it might be smart to sign up to an insurance, if there is a high enough risk that you might need it. Even then, simply saving the insurance fee might be a better option, becuause you then have the option to draw interest on it (if it's high enough), or even invest it.

I agree with you. Its not in the insurance companies best interests to pay out when they can, they have no incentive to "help" you. Sometimes I wonder if home insurance is even worth it. Barring the house burning down from a lightning strike they'll try to clause their way out of almost every situation and even if they can't paying the deductible and insurance increases aren't even worth it except in the most extreme cases.

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.

Have you ever calculated how much you've paid in insurance fees over the years, and the interest you'd earn if you simply saved the money?

protecting against the zero-bound is the value - that's not a scam. As the ratio of potential loss to net worth drops, that's less interesting and so is the insurance.

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.

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