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Comment by yequalsx | Hacker News Reader

Insurance companies don't have a great incentive to lower the cost of their biggest expense? Um, ok.

They only have such incentive if it increases their profit margins. There are a number of scenarios where this wouldn't be the case. They aren't interested in lowering cost just for the sake of lowering cost. I don't have data either way and so my belief in this is easily shaken.

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I'm confused, could you name a situation in which this wouldn't be the case? The profits that an insurance company makes are the amount it charges for its services minus the amount that it pays out, it seems that reducing the amount they pay out would necessarily increase profits.

I'm not aware of any insurance companies that charge on a cost-plus basis, and the insurance companies can't just charge companies as much as they want (or else they'd charge an infinite amount).

One situation: if they believe that their competitors will follow suit. Unless an insurance company concocts a way to lower costs that isn't easily replicable, they have little incentive to do so. Otherwise, they're just triggering a race to the bottom.

By this logic, no company in any industry should attempt to reduce costs in an easily replicable way. Since the world doesn't behave that way, there must be something wrong with your logic.

Or maybe there's nothing wrong with my logic. Maybe there are other forces at play that, when all mixed together, result in companies sometimes seeking cost reductions, and sometimes not seeking cost reductions.

Parent was looking for an example to explain a possible situation, not a dynamic that the entire world must obey at all times.

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