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Comment by Almondsetat | Hacker News Reader

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly.

In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, allows you move your odds from the ends of the bell curve towards the center. If you win, you win a bit less because you have to take into account the Insurance money you spent. If you lose, you lose less because the insurance premiums will kick in.

Basically, insurance is a PID controller.

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Having insurance is gambling, but not having insurance is also gambling. This is because life itself is a gamble. We don't know what the future holds and we have the choice to insure or gamble on just about any aspect of our lives.

Insurance companies are just like casinos in that the math always favours them if you look at a sufficiently large sample size. Even so, some things are still worth insuring. e.g. Your house. Most people do not have enough assets saved up to replace their house should it burn down. Even though your house will likely not burn down, protecting yourself against the loss of something you can't easily afford to replace is worth spending money on.

Does it make sense to insure things you can replace though? Consider the "Instant product replacement" plans that stores constantly try to sell you. If your monitor dies you can easily absorb the cost of buying a new one. If, instead of buying IPR's on everything, you set aside a similar amount of money, you'll likely soon come out far ahead. Even if you don't, you'll still be able to afford it. Buying IPR's means, on average, you lose money. Not buying IPR's means, on average, you'll save money. The choice is easy.

Insure the big, vital things you can't afford to replace. Treat insuring small things as gambling without the fun.

What about the gamble that the whole thing is a scam from the beginning? If they are going to fight tooth and nail to never payout anyway its all insanity.

Also how could insurance ever be a "for profit" business? That could never work. Profit means straight up planning scam right from the beginning, hoping that a big enough payout triggers business failure and you dont have to pay out anyone, yippee free and clear rug pull

I think thats why states usually regulate the industry

>Also how could insurance ever be a "for profit" business?

What? They plan to take in more in premiums than they pay out in claims by managing risks and underwriting.

In that sense it's like a bookmaker who plans to set a line on a game that results in bets not having an imbalance that outweighs their vigorish. In cases where they do they lay off bets on other bookmakers. It's why they tend to be concentrated on certain areas and the same is true for insurance.

Both of those are legitimate for profit businesses that use statistical modeling and risk management to turn profits and provide value to customers.

> take in more in premiums

Also, prudently investing the insurance float (excess premiums beyond that needed for claims)

> prudently investing the insurance float

More gambling! What I find interesting about this question is that insurance companies are the real gamblers. Attempting to frame their clientele as gamblers approaches absurdities such as a limited opportunity to spend, and most importantly, a strict cap on "reward" lower than the cost to "play" (entry fee for a new car is the policy rate plus a car of equal or greater value).

Whereas insurance companies are gambling on both ends: with their customers' potential losses and with their float on the investment market.

I am sure your life experience shapes that opinion but it is far from the truth. I don’t think these business ever hope for a total loss. It would make no sense.

I also don’t think a nonprofit or government can do an adequate job of offering insurance. Let’s ignore health insurance but rather define insurance in the base form as an entity paying out if an event happens.

In a for profit model you have multiple agents each evaluating risk and the costs to cover that risk. Ideally enough agents exist that they compete to keep costs low. Certainly sometimes this is not always true.

Spot the person who has no idea how the insurance industry actually operates or is regulated.

Back in the dark ages, the University I worked for had a lab full of computers stolen. I discovered that the University did not have insurance for this, or for a lot of things, because the University was a large organization with a lot of assets and could easily absorb the cost of theft. I'll assume they got the risk analysis right, since they wrote the textbooks on that sort of thing.

The math changes though if you are dealing with a non-profit insurance system. For example, becoming a member of a well designed co-op, or a genuine non-profit insurance company (one that returns excess to members rather than pay bonuses to executives). But still there are problems, since not every member brings the same amount of risk, so you get a good deal if you know you are higher risk than the insurance company believes and vice versa.

Not uncommon for universities to self-insure. I don't know if they commonly reinsure, but I would assume they do.

I think this profit-vs-non-profit thinking is reductionist. A non-profit insurer still has expenses. They have to pay their staff, rent offices, pay vendors, and so on. In fact, nothing stops them from spending more than a for-profit corporation would.

Anyway, the math doesn't change: the insured still pay more than they are getting back.

Only thing I insure is umbrellas. They never last more than 2-3 years and a 7 year replacement plan for like 8.99 is a reasonable deal. Anything else I tend to just go with credit card purchase protection and MFR warranty.

Insuring your tires at discount tire/America's best tires is always worth it too.

I expect this is true depending on where you are, and the quality of roads you drive on.

I've been driving for 36 years now and have never had a tired damaged more than the very occasional puncture.

I could go out tomorrow and damage one, but by this point I can consider myself "self insured".

> I've been driving for 36 years now and have never had a tired damaged more than the very occasional puncture.

I typically go through a tire a year. The city I live in (Seattle) will pay to replace the tire if the loss was due to a pot hole, but you have to take a picture of the pot hole, which can be a bit hard to do in many circumstances.

There have been years where I've paid more for tires than for gas. :/

That's crazy. I've lived in Seаttle for 7 years and only had to get a tire puncture sealed at Le Schwab, never had to replace one.

Why's that? They're selling the insurance plan for a profit, after all. The expected return, from the buyer's point of view, is negative.

If your financial situation is such that you'd be in trouble if you had to replace a tire, then sure, but tires aren't that expensive.

What credit cards offer protection these days? All of mine seem to have done away with it. For umbrellas, I bought a Tumi, which is insanely expensive (was $40 when I got it; I think it's closer to $60 now), but which has a lifetime warranty.

>>Having insurance is gambling, but not having insurance is also gambling. This is because life itself is a gamble. We don't know what the future holds and we have the choice to insure or gamble on just about any aspect of our lives.

You could say insurance is an attempt to stop the fortune to gamble against you for a specific case (like flooding your house). You are already the party in a gamble and insurance is a way out.

So far, I have made use of my car insurance policy two times. Each time I regretted it. First was for a rodent that somehow got into the space between the roof and the headliner, then died and made a mess. The second was for hitting a pothole at highway speed, which damaged a wheel and its control arm.

In both cases, the insurance company paid the minimum they had to. For the rodent, sure they paid for the ceiling to be disassembled, fixed up, and reassembled. But did they pay for the interior detail that was necessary because of the rodent guts that had dripped from the ceiling? No, of course not.

For the pothole, they paid for the wheel and control arm replacement and even one new tire. But did they help me pay for a tire on the other side so the wear could be reasonably symmetrical? No, of course not. How about the alignment I obviously got, which isn’t strictly necessary but really should be done after such an incident and installing a new drive wheel? No, of course not.

Oh and they categorically consider hitting a pothole to be the driver’s fault, no matter the circumstances, so they raised the insurance premium on me. They made all of their money back within 18 months and now I’m still paying the higher rate.

Insurance is such a scam. The company makes a profit despite their team of employees because they always price the premium above your level of risk. If the math made any sense for the customer, the company would break even or go bankrupt.

I wouldn’t have insurance but it’s required in my state.

The one good thing I can say about it is it helps ensure victims of car accidents get their medical bills paid for regardless of the financial status of the driver.

> I wouldn’t have insurance but it’s required in my state.

Does your state require comprehensive/collision insurance? I've only lived places where you would be permitted to get liability-only insurance which would specifically not cover either of the situations you think you got screwed on.

(Neither of which is why most people get insurance anyway. You get car-insurance beyond the legal minimum because while you will likely pay more in the long run, you won't have to deal with a surprise tens-of-thousands replacement bill out of nowhere if you accidentally total your car. Or because you have a loan and your lender doesn't trust you to go without it - of course, if you truly don't need insurance for something, you likely don't need a loan for it either. This is generally non-controversial and the "obviously it's a bad deal because the insurance company exists and pays salaries" hot take is... duh? well known? not an insight?)

Insurance is primarily for major events. The things at the extreme upper end of the bell curve.

For example, you've hit another car (possibly an expensive one) and caused tens of thousands of dollars in damage. Or you've inured a passenger and caused hundreds of thousands of dollars of hospital bills.

The kinds of events that would financially ruin you, or at least seriously set you back on your life goals. Or, in the case of state-mandated insurance, where there's a high likelihood you wouldn't be able to make the other party whole.

You can use it on smaller things if you insist (and your rates will go up), but that's not really what it's for.

Personally, both the events you described fall under my definition of one-off maintenance ("things that are an unpredictable yet unavoidable cost of owning a vehicle") and that I'd expect to pay for out of pocket.

> Insurance is primarily for major events. The things at the extreme upper end of the bell curve

That's how it should be, but isn't because all insurance contracts cap the maximum insured amount. So that's absolutely NOT the "extreme upper end of the bell", not at all.

There are unlimited umbrella policies, but practically past 1 million or <net worth> it is probably cheaper to declare bankruptcy than pay the additional premiums.

Wouldn't you rather not lose $1+ million? It costs something like $400/year per $1M coverage which is hardly breaking the bank.

$400/year is a new laptop or something, if you spend the money then the creditors can't take it.

And that is one of the reasons why medical insurance is so crazy in the United States nowadays - it’s no longer used to hedge catastrophic unpredictable events (which used to be called “major medical”), but instead is used to pay for normal, minor consumption or for chronic conditions.

In other words it’s no longer like a bet, it’s like a discount plan. But the problem is that the complexity of introducing a third party payer who doesn’t want to pay, and a consumer who has no incentive to self regulate consumption, means that the costs spiral up and up.

> But the problem is that the complexity of introducing a third party payer who doesn’t want to pay, and a consumer who has no incentive to self regulate consumption, means that the costs spiral up and up.

The first part is correct but a consumer that “doesn't self regulate consumption” is not a thing in medicine. People don’t take drugs for fun. People don’t injure themselves more in public healthcare systems. In fact, a huge problem in medicine is getting men to go to the doctor before issues become critical (and more expensive).

People eating more than they should, getting diabetes, and then consuming more medical services is a form of poor regulation of consumption.

The overapplication of OxyContin is another form of unregulated consumption.

Now we have the semaglutides and will see the same effect.

The USA has a 38% obesity rate vs the UK at 29% (for men). Given both exist quite far apart on the public/private healthcare debate, I don’t see how this supports your argument at all.

Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7670332/

I’m not going to debate the others because I don’t know much about them and, since your argument fell apart at light prodding, I don’t think you do, either.

I was not making an argument about the public/private healthcare debate. I am objecting to the assertions 'a consumer that “doesn't self regulate consumption” is not a thing in medicine' and 'People don’t take drugs for fun.'

I was similarly convinced that moral hazard in healthcare was not a problem because consumers don't get more healthcare than they need. I know now that this is not the case.

I’m not making a public/private argument either. The full sentence was:

Obviously, people do eat to excess, engage in activities that have risk (and die as a result).

Whether you pay or someone else pays does not factor in these decisions, which is why I pointed to obesity rates in UK/USA to demonstrate this. If such moral hazard existed, you’d see lower obesity in the USA than in the UK. You don’t, ergo, it mustn’t.

EDIT: By “take drugs for fun” I’m specifically referring to medical drugs in my original message so removed it from this one (where I conflated with recreational drugs).

OxyContin is a medical drug. I have unfortunately had to assist my mother with visits to the "pain clinic" and seen firsthand many patients with a problem with self regulation of consumption.

Maybe I am interpreting your assertions too literally.

Ok but I’m guessing you’re in the USA where you’d have to pay significant sums for that in some form, as long as you can convince a doctor to sign off.

I’m not aware of a similar problem in England, where prescriptions are currently £9.90 per prescription.

This is my point: the financial cost, as with obesity, is not regulating the behaviour.

Ah, now I understand why you are confused. No, most people with health problems in the U.S. are paying, at most, only a copay for a visit. They are getting medical treatment at no cost to them directly. It is paid for by an insurer or the state or Federal government.

This moral hazard is fundamental to our problem and why many have problems regulating their consumption.

Except this simply DOESN’T HAPPEN in the most famous free healthcare system on Earth, so clearly it can’t be a moral hazard. I also know for a fact these people aren’t getting this for “free.” I just checked and copay is subject to the deductible. Also, I seriously doubt insurance companies aren’t ramping up premiums on these people once they get a chance.

Are these people seriously going “well it’s only $26 a pop so I may as well.” Do you think the (apparently) low price is what’s causing this?

I believe that you have strong opinions of the system with which I have too much experience.

Many of these people are, in the case of pain clinics, getting their pills paid for by workers’ compensation carriers.

That the UK has avoided some moral hazards does mean that they cannot exist elsewhere. Maybe the UK doesn’t incentivize doctors to hand out more pills.

No, I have a strong opinion that the moral hazard of affordable healthcare doesn’t exist based on the lack of evidence. Americans (and the hard right of British politics) are the only group that even consider such an argument.

If there were a moral hazard to affordable healthcare, I posit that you’d see lots of it in a system where healthcare is mostly free at the point of use (prescriptions aside). The fact that obesity and opioid addiction happen in the USA at far higher rates than in the UK points to a strong indicator that this moral hazard simply does not exist. The fact is that the only examples you can give point to issues unrelated to “moral hazard.”

You have failed to point to a systemic pattern of risk-taking behaviour that is higher in a system with socialised healthcare than in privatised systems to convince me otherwise. You cannot because it doesn’t happen. Human beings, on the whole, do not engage in obviously dangerous behaviour more if it’s free to get treatment because we’re simply not that stupid.

I would very much like to move to live amongst the people that are simply not that stupid.

Now I don’t know if you’re just deliberately misreading my comments. At no point do I say “people don’t engage in dangerous behaviour,” I merely point out such behaviour is UNRELATED to the cost of healthcare. You’ve yet to show me any data that shows a link between affordable healthcare and moral hazard.

On the contrary, your only examples come from within a system famed for being the opposite.

I never claimed that there is a link between affordable healthcare and moral hazard. I argued only with two of your assertions which I have found to be unfortunately untrue, in my experience with the U.S. healthcare industry.

> I was similarly convinced that moral hazard in healthcare was not a problem because consumers don't get more healthcare than they need. I know now that this is not the case.

Except for… you know, right here.

I did not claim that the moral hazard problem is linked to affordability. You seem to want to argue with things I have not said.

That’s the “moral hazard” in healthcare that’s used against affordable healthcare. It’s the only context it’s used in.

Obesity and opioid addiction aren’t “moral hazards” in healthcare, they’re literally things healthcare and society need to deal with. We’re far off the topic of insurance and I don’t even understand what you took issue with apart from nitpicking a sentence at this point.

Your assumption about context is not relevant to my argument.

You’re right, it was my mistake for assuming words mean what they’re commonly used to refer to /s

Moral hazard has a well understood meaning outside of affordability. I would very much like to see the system in the U.S. make more sense. Any time spent in an emergency room or waiting room in the U.S. makes the moral hazard obvious.

And that is why the insurance model should not be used for healthcare. For example, why should an insurance company charge you anything less than the cost of treating a chronic illness after diagnosis? Why should the minimum price of giving birth not be the exact premium you pay? None of those are surprises (after the initial diagnosis or conception, of course, and it can obviously be argued that birthing complications can be insured against too), so there is no reason to use probabilistic models to pay for them.

The problem is price fixing deals between hospitals and insurers, where the insurer pays only a tiny fraction of the retail price. It's not economically viable for consumers to not have the "discount plan" as you aptly put it. That benefits the insurance company so they like it like that.

One way to solve this problem is to be part of mutual insurance instead of a private company. Not sure if that is an available option for you.

You can get a liability only policy.

> I wouldn’t have insurance but it’s required in my state.

As long as you have a few million set aside in case you cause one of the 45,000 deaths, or even more injuries, that happen on US roads every year, I agree with you.

But then you say exactly my point in your last paragraph… you’re all over the place here.

Insurance isn’t about pot hole damage. If you use it all the time, it’s a membership fee, not insurance.

In the UK we have multiple insurers competing fiercely on price, to the point where many lose money year on year. People still say it's a scam though because their experience when making a claim doesn't play out like they expected.

I think part of the problem is the unseen costs of long-term hire cars, injury compensation and outright fraud that has become an everyday expense that someone has to pick up the tab for?

> People still say it's a scam though because their experience when making a claim doesn't play out like they expected.

A friend of mine had her insured bicycle stolen.

It was locked up with an extremely heavy chain and lock, which were rated 'gold' by insurance companies for locking up motorbikes. Her insurance denied the claim, because the chain wasn't gold rated for locking up bicycles.

By all means get insurance - but when their marketing talks about being on your side or providing peace of mind, you gotta realise that weaselling out of paying claims is a big part of their business model.

Weasel? How do you expect it to work? There is a contract and the company is going to follow it.

They have lawyers preventing customers getting paid. One of those couldn't take it any longer and switched sides.

Perhaps in your narrative. I don’t believe that to be true for the vast majority of property claims.

Bicycle insurance is mostly useless unfortunately. We really need to do something about it if bicycles are going to be practical for more people. Cars get probably 100x the Police resource dedicated to them compared to bikes.

Bikes were not meant to be $1000+. Get a cheap one and set aside a monthly amount for replacing it. Don't get insurance on it. Get into an accident? You should already have health insurance to cover it.

They definitely don't need to be that expensive, but anything less than 500 credits isn't going to be very nice to ride. The sweet spot is something like 600-700 which is non-negligible.

I think one of the problems in the UK is too much of the competition is just on price. People buy what is cheapest on a price comparison site. They do not consider reputation for trying not to pay, or customer service very much (because there are either no metrics or unclear ones).

The same applies to things like internet connectivity. People look only at price and download speed.

I also think it is not worth claiming for minor things and you keep your no claims bonus - therefore you might as well get a policy with a higher excess.

In the UK damage caused by potholes can be claimed back from the local council. It's a pain in the ass but worth pursuing. I'm surprised the USA doesn't have the same. (Assuming you are in the USA!)

I believe most states have some ability to do what you describe. It’s a PITA too though.

Of course insurance companies need to make a profit. That does not mean they are scams. Hitting a pothole will almost always be either your fault or the local governments fault. Insurance companies are incentivized to make competitive quotes when possible.

Your thought of not having insurance demonstrates you are not thinking about this the right way at all. Your state requires liability which will pay out claims against yourself.

> Oh and they categorically consider hitting a pothole to be the driver’s fault, no matter the circumstances

Because it is your fault. How can someone force you to drive into a pothole at speed? Smooth roads build complacency, but you need to be on the lookout at all times. Most drivers are disastrously bad when it comes to understanding speed. Modern cars encourage awful habits.

> Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly.

Counter: your belief about insurance is inverted from reality because your notion of what constitutes winning vs losing at insurance is backwards.

You lose at insurance by not having any circumstances that lead to payout. You win at insurance by having it actually do something for you. Dying is losing at life, but it's winning at life insurance.

Buying insurance is very literally betting that something expensive/bad will happen sooner rather than later or never, where the expected payout exceeds the expected cost to you. Selling insurance is betting the opposite, while, exactly like a casino, making sure that the sum of inflow stays greater than the sum of outflow.

> Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that

This ignores the fact that many (most?) personal insurances are paid over and over and over and over again, because when you stop paying they stop paying too, and they all always cost more than they expect to pay. Every month you pay for health insurance and you don't get sick, that amount you spent is lost. Every time you insure an electrical appliance that doesn't break, the money you spent is lost. This is exactly like any other gambling loss. You gloss over that part by saying "but you have your health and that's good", which is absolutely true, but perversely not what you paid for.

You can choose to live your life without insurance, in which case you have to bear all the damage from bad events but you also benefit fully from good events, or you can live your life with insurance, taking less losses from bad events and getting less from good events.

As said, it simply reduces variance in your life/business. You have to choose if that's how you want to live your life.

> it simply reduces variance

Mostly I agree. That doesn't make it not gambling though.

> That doesn't make it not gambling though.

Yes, it does. As I said in response to you elsewhere, insurance means not accepting huge variance in payoff, whereas gambling means you do accept it. They're opposites of each other. The fact that the counterparties in both cases--insurance companies and casinos--end up making money from all of their customers on net does not mean the two things are the same.

If gambling and insurance were the same you would be able to both frame insurance as a form of gambling and gambling as a form of insurance.

I believe I said that insurance is gambling, not that all gambling is insurance. If not I apologize. So I should be covered by what I already said elsewhere, that buying insurance is betting (aka gambling) that a bad thing will happen sooner rather than later or never.

Now is all gambling insurance? Hmm. Maybe betting that something will happen is equivalent to insuring against its happening not financially benefiting you. Boom.

IMO the main difference is that insurance provides two good outcomes while gambling only one.

So you're buying car insurance. There are two outcomes: either your car will survive another year or you'll crash. First outcome: you're happy because you've got a survived car. Second outcome: you're happy because you've got insurance payout.

Now you're buying lottery ticket. First outcome: you won the lottery and you've got the prize. Second outcome: you didn't win the lottery and you lost your money spent on lottery ticket.

There are multiple comments in this thread doing exactly that.

> You can choose to live your life without insurance

No, in many cases you can't. Health, car, homeowners, and renter's insurances are mandatory until you are wealthy.

Health insurance isn’t mandatory in the USA. It’s a bad idea not to have it though. You might get away without insurance when you are young, however, assuming nothing bad happens. Without being able to price discriminate on pre-existing conditions, however, it’s not really free market insurance anymore.

Liability Car insurance is mandatory only if you use public roads, which most people do. Collision insurance is only needed if you have a bank loan. Homeowner’s insurance is needed for a mortgage, renter insurance is required by a landlord. You can avoid most of these insurances if you are really rich, but most rich people carry even more insurance because they have more to lose, so they will have umbrella policies, for example.

Ironically, it’s the really poor who can get out of having insurance: many states aren’t going to throw you in jail if you drive without a license or insurance, so now other people need uninsured driver insurance. Heck, it’s way too common where I live that many people have no insurance, even if our state requires really low levels of coverage. Health insurance is only needed if you have assets the hospital can sue for, but you will be going to the ER for everything so that sucks.

Well sure, if you are willing to violate a few laws you don't have to get insurance.

Insurance (outside of health insurance, which is not insurance in the typical sense) hedges your "bet" so it's not gambling to me. Your bet is that you'll drive a car without an accident. Insurance hedges that bet to reduce downside risk if there is an accident.

You're paying a small amount to avoid a large loss, on purpose, knowing that it may not happen. You're not trying to get more out of it than you put in (at least on purpose) because that's fraud. Doesn't sound like a bet to me...

> Your bet is that you'll drive a car without an accident.

That's the ideal outcome, but it is not the bet being made by the person buying insurance. In fact the opposite. If you believed that you wouldn't have an accident you would not buy insurance. You buy insurance because you believe that you will likely have an accident at some point and that the accident will happen either soon enough or seriously enough that the cost of covering the accident will be greater than the total cost of insurance up to that point.

> You lose at insurance by not having any circumstances that lead to payout. You win at insurance by having it actually do something for you.

You are misunderstanding what insurance is for. The benefit that insurance conveys for the person insured is not that it is supposed to make money. It is risk avoidance.

Without insurance, you might pay zero, or you might pay a very large sum that you can't afford. With insurance, you pay a predictable sum periodically, no matter what happens, and the insurance company is the one taking the risk of either paying zero or a very large sum, which hopefully the company can afford.

In other words, just as the GP said, insurance is the opposite of gambling. In gambling, you accept the huge variance in payoff. In insurance, you transfer that risk to someone else.

> Every time you pay and nothing bad happens leading to payout, that amount you spent that month is lost

No, it isn't. You are getting something of value to you in return: risk avoidance. If that is of no value to you, then don't buy insurance. You might not regret it. But then again, you might.

> The benefit that insurance conveys for the person insured is not that it is supposed to make money.

Presuming you mean ending with more money than you started, gambling isn't either. Pay in vs pay out has no relation whatsoever to that except in passing.

> It is risk avoidance.

These are the same thing dressed in different names. There's only no making money on health insurance in the sense that you don't get to keep the money, but the only reason you're not "making" that money is because you have just incurred medical debt that the given money is obligated to cover per the terms. It's exactly the same as giving the money directly into your pocket on the condition that you use it immediately to clear your medical debt. You "made" all that money. You just also owe the full amount to someone else too. Consider term life insurance instead, where there is no extreme debt obligated to cover and your next of kin does just actually get a fat check.

> Presuming you mean ending with more money than you started, gambling isn't either.

That's true, but it doesn't mean insurance and gambling are the same thing.

> These are the same thing dressed in different names.

No, they're not. In gambling, I accept the risk involved in a wide variance in payoffs, for the entertainment value involved (since I can imagine that I might be a big winner); on net I am paying money for entertainment. In insurance, I transfer the risk involved in a wide variance in payoffs, for the peace of mind of not having to worry about being bankrupted if a rare but catastrophic event occurs; on net I am paying money for peace of mind (since I don't have to imagine that I might be a big loser).

> Consider term life insurance instead

But your next of kin only gets a payout if you die during the term. If you don't, nobody gets any payout and all the premiums you paid are lost. Which, since insurance companies make money selling term life insurance, is the expected average result. So on net, you do not make money buying term life insurance--but, as above, you might still do it if the peace of mind involved is worth it to you.

> your next of kin does just actually get a fat check.

But they are losing you--and even if we go to extreme cynicism about that, they are losing whatever income and other goods and services you provided, for which the check will hopefully be enough to compensate them. So it's not a pure gain with no offsetting loss, even leaving out the premiums paid.

> But your next of kin only gets a payout if you die during the term. If you don't, nobody gets any payout and all the premiums you paid are lost.

Yes, aka gambling.

> But they are losing you

That is true AND it is not what you paid for. Just like health insurance isn't paying for health but rather for coverage of bills related to loss of health. Being healthy is a win for health but not a win for buying health insurance. Being alive is a win for living but not a win for buying life insurance.

> That is true AND it is not what you paid for.

You're qubbling. You paid for replacement of the income and goods and services you can no longer provide, in the event of your death. Sure, that doesn't replace you in the eyes of your beneficiaries (assuming we're not taking the extremely cynical viewpoint about that), but of course nothing can replace you in that sense.

However, if your beneficiaries are financially secure enough that they do not need the insurance payout, i.e., if they're not depending on you for income or goods and services, then you should not be buying life insurance: you should be spending the premiums on something with a positive expected rate of financial return. The only reason to buy insurance in the first place is if your beneficaries are depending on you and will need something to replace you financially if you are no longer there.

No, the other poster is actually right. In betting on outcomes, there are two roles - bet (“long”) and lay (“short”). An insurance company is exactly a bookmaker; they are buying a bunch of risk and being paid a vig (or in the case of long-duration bets and life insurance, getting the carry) on each of those risks.

This is indistinguishable from insurance, particularly when the beneficiary of insurance isn’t the subject (key-person insurance, for example, which you can view life insurance as a form of).

You’re saying that because these are morally different - which I don’t actually believe, given that options trading is another equivalent form of hedging/speculation, but I will grant - these are different things. But “fire which I use to cook dinner” and “fire which I use to torch a car during a riot” are both fire; the goal is different, but the object used is not. Let’s say I hedge a bunch of political risk by betting on politics. How is that different from buying a custom insurance policy from Lloyd’s or engaging in a bunch of interest rate swaps?

Drawing a distinction between betting and insurance on those lines is the same thing as saying “being long in a stock is morally good, being short in a stock is morally bad”, and I don’t think that position holds up.

In your scenario, you are using gambling as insurance, and that's different. If you bet $20 on the Greenfeet it's not because something bad happens to you if they win.

Isn't the fact that you cand use gambling as insurance and insurance as gambling support the idea that they are the same? If it all depends on the context, then it's not the activity that is different, but the context.

To me it sounds like you're saying whenever you like it, you will call it insurance, and whenever you don't like it, you will call it gambling. "It" is not apriori anything, until you have decided what you want to call it. That makes it all the same thing, pretty much.

You can use some gambling products as insurance, but insurance products are designed so you cannot use them as gambling. At least in terms of products sold broadly to the general public, which is the main situation where people worry about gambling being immoral.

As other commenters mention, the main way this works is by making it impossible to "win" at insurance. You aren't hoping for the rare payout event to happen, like you would be when gambling. Having your house burn down, or getting into a car accident, or needing treatment for cancer, or dying are all really bad even if insurance reimburses the monetary costs involved.

This is probably why the concept of "insurable interest" exists; without it, it would be possible to use insurance products as gambling.

You’re using a tool and choosing to give the tool different names based on how you feel about it.

If I’m the landlord of a pub in Glasgow, and Scotland get to the finals of Euro 2024 (we won’t, but work with me here), betting on Scotland losing the final is a reasonable hedge against the profits you’ll lose when everyone goes home depressed after the final rather than buying another round. Is that a contrived example? A little bit, but it’s structurally reasonable. (If you’re a sponsor of the Scotland team, gambling on the result could be hedging media risk).

Can you leverage yourself up? Yes, but you can do that in the stock exchange or futures market too. They’re all the same thing.

No, betting on the Scotland game to try and hedge expected profit loss doesn’t turn it into insurance. The payout isn’t tied to the thing you want to hedge, so it’s just hedging your bets (gambling payout vs beer sales).

Insurance might be a kind of “hedging” but in a limited way that makes it not gambling.

In general, you are not able to buy insurance for more than the value of something. If you could, that would be a form of gambling. But up until that line it's anti-gambling.

Buying a position out of nowhere is gambling. Buying a position to directly counteract the position you already have is not gambling.

If you short 50 shares of a stock when you already owned 80 shares, you are doing the opposite of gambling. You are reducing your position.

I would describe every single one of these as active risk management - and the difference between one sort of active risk management and another is vibes, not reality. There’s an implied moral judgment here that gambling is inherently bad.

I don’t think gambling is inherently immoral; I think mismanaging risk (in either direction) is one of the ways people mess themselves up and therefore encouraging people to take bad risks is immoral. This is not quite the same thing, though it’s close - but the difference between these two positions is what led to prohibition.

Don’t get me wrong, bookies are awful in many ways, but so are bars and crypto exchanges and E*Trade. The right approach in all cases is harm reduction.

The difference is not vibes! Reducing your position is the opposite of increasing your position, and those things are very objective.

If someone has an equal number of short and long shares in a single company, they are not gambling. Surely we can agree on that, right? We don't have to use the word gambling, we can say they're not investing either. Their money does not change at all based on the stock market or any other external factors.

Now what if they have more short or more long shares. We can say that gambling or investing is happening, right?

What do we call the process of moving from a net-nonzero position toward net zero? Isn't it the opposite of gambling? Or the opposite of investing?

They are absolutely gambling; there are various ways that position can blow up. (Consider counterparty risk.)

What counterparty risk? You own stocks and you owe stocks. How can that go wrong?

But come on, counterparty risk with big institutions is such a small thing. Are you going to tell me that putting your money in a vault is gambling because someone could steal it? Is subscribing to Netflix gambling because the servers might go down?

Having a net-zero position is the closest to not gambling anyone can get.

How about this, can we agree that having short or long stocks is a high number out of 10 on the gambling scale, but just counterparty risk with an enormous company is a 2 out of 10? What do we call the process of reducing your number from high to 2?

> the goal is different, but the object used is not.

That’s not how the English language works. Insurance is a noun (I have insurance) but gambling is not (you can not possess a gamble). In your analogy, you would “cook” your food or “commit arson.” The purpose of your action is intrinsically tied to the words we use to describe it.

Gambling is engaging in a game of chance to get a favourable outcome. Insuring is paying money now to mitigate the risk of losing more money later. The fact that both are financial activities doesn’t mean they’re the same thing.

> In betting on outcomes, there are two roles - bet (“long”) and lay (“short”).

I have no interest in the Humpty Dumpty principle of word usage. My point was not about the names we use for things, but about the things themselves. You can't make what has been called "gambling" in the discussion up to now the same thing as what has been called "insurance" in the discussion up to now by changing the words you use to describe them.

> You’re saying that because these are morally different

I have said nothing whatever about the relative morality of gambling vs. insurance. I have only pointed out that they are not the same thing, they are opposites--gambling is taking on risk, insurance is transferring it.

Both are transferring risk. If I insure against political risk, is that any different from betting on the presidential election? No, it isn’t. The distinction between insurance and gambling is cultural, they’re both just risk swaps.

> There's only no making money on health insurance

Health "insurance" is mostly not insurance: it's a healthcare plan for periodic maintenance and minor incidents combined with an insurance plan for large and catastrophic incidences.

When I buy car insurance, they don't give me 4 free (or even discounted) oil changes a year. Car insurance exists for large and catastrophic incidences. Same with home insurance.

Actual health _insurance_ plans are much cheaper than healthcare plans, but they also only cover large and catastrophic incidences.

> Health "insurance" is mostly not insurance: it's a healthcare plan for periodic maintenance and minor incidents combined with an insurance plan for large and catastrophic incidences.

Precisely.

You/your employer pay a premium.

Then you have a deductible.

Then your "insurance" company has the unmitigated gall to also include "co-pays" (which are on top of your deductible, as well as after meeting it), AND "co-insurance" (even if you've already met your deductible)...

AND then they'll refer to it as "your contribution to your healthcare costs". I suppose that is somewhat accurate but still...

Imagine your car gets totaled. Your insurer says "Hey, we're going to pay out $25K for your vehicle. So you have a $1,000 deductible, so that's $24,000, and then your copay for a total loss is $2,000, that brings us down to $22,000, and for total losses, your coinsurance as your contribution for your vehicle coverage is 20% which is $5,000 so here's a check for $17,000."

I know it exists in certain very limited contexts, but if it weren't for all the regulatory capture, I could easily see companies that say "We'll negotiate bulk discounts with these providers. Everything else is on you. Pay for what you use."

> You are misunderstanding what insurance is for. The benefit that insurance conveys for the person insured is not that it is supposed to make money. It is risk avoidance.

I buy a lottery ticket as an insureance against the risk that I won't become rich if the right lottery number become picked. :-)

The difference between insurance and gambling is about what happens to your risk - whether it's a hedge or not.

When you buy insurance, you pay a premium to make you whole should a random event occur in the future. You exchange a payment for certainty about future cash flows with respect to the insured risk.

When you place a bet, you do the opposite. You exchange a payment for uncertainty about future cash flows with respect to the subject of the bet.

If you insure against a risk to which you're not exposed (like: you take out a life insurance policy on a person you don't know with you as the beneficiary), then yes - that's risk taking rather than hedging.

Commodities futures have similar aspects: if you're an aluminum producer then you can trade futures in order to reduce your exposure to variations in the market price. On the other hand, if you're a hedge fund trading those futures then you're probably doing the opposite - looking for exposure to risk.

If you're going to take the position that a known cashflow now that returns an uncertain cashflow in the future is "gambling" then essentially all forms of economic activity are "gambling". It's reductio ad absurdum.

Mind you, in the US, you are not allowed to take a life insurance on a person you don’t know (but you are allowed to buy a life insurance that person had taken on themselves)

Cue flashbacks to Walmart buying life insurance for its employees (with Walmart as the beneficiary)...

... and the oh-so-charming way they referred to it at head office: "Dead Peasants Insurance".

It is a derogatory industry term, also called janitor insurance. I can't find a source that says they called it that internally, which I think is relevant to the image being painted.

I did find that winn-dixie (a grocer) insurance consultants did use the term internally. Source: https://www.wsj.com/public/resources/documents/april_19.htm

"Gambling is all about risking it all" a blanket statement which is not true.

gambling is about risk / reward management.

there are bad gamblers and good gamblers.

a good poker player for example employs bankroll management to avoid going broke due to variance (expected downswings) [1] and their game-play decisions are driven by math.

[1] https://www.primedope.com/poker-variance-calculator/

This is mostly wrong.

Gambling doesn’t require that you “risk it all”. In this way, your entire post looks like it’s arguing against a straw man.

There is a way to gamble in which it is very similar to insurance — extremely defensive and conservative. But that means the gambler isn’t “enjoying” gambling, they are instead just being an accountant, but not earning a salary for it.

They are both games of chance, but you fail to point out why gambling is most frequently outlawed: it is a compulsive behavior that becomes addictive in some people. When 11% of a society can’t maintain a gainful living (maybe they can’t hold a job or they become a habitual liar or a thief to feed their habit), governments tend to step in to dissuade the problematic behavior.

But most people who gamble frequently tend to do it with their lizard brain and most people who purchase insurance do it with their cognitive brain (even if the underlying reasons aren’t based on facts).

Then again, the premise of the question is arguably wrong. The state lottery is one of the biggest forms of gambling and that isn’t illegal (even though the origins were to supplant similar mob-run games).

> Gambling is all about risking it all.

I would say that gambling is about paying for entertainment, much like lotteries. Your overall expectation is that you will lose money, but the entertainment value of being able to imagine yourself winning a huge pot compensates for that.

Of course the above assumes that you can afford to lose the amount of money you are gambling. The few times in my life I have gambled, that was always my approach: I set aside an amount I was willing to lose all of, and if I got to the point where it was gone, I stopped. But of course many people who gamble do not take that approach.

Insurance companies are like casinos:

Playing at a casino, I’m almost guaranteed to lose money (unless I’m a very good poker player — the house and I can both win there); if I’m lucky, I can win big. If I buy insurance, I’m almost guaranteed to lose money; if I’m unlucky, I can get reimbursed for losses.

From: The House Always Wins — Casinos and Insurance Companies — https://kriswilliams.medium.com/the-house-always-wins-casino...

Yes, you always lose a bit of money with insurance, but life isn't all about money, whereas the whole point of gambling is winning money. Insurance brings other benefits that improve your life.

> Insurance brings other benefits that improve your life.

What other benefits besides the money that covers the losses?

Hedging risk. This is often a hard concept for people to grasp: there is value to hedging risk. It (generally) cannot be turned into money. There is extrinsic value to reducing risk.

But you are only able to hedge the money part of the risk. Life insurance does not bring anyone back, and health insurance only repairs your health as much as can be done with money. You can't insure against incurable diseases, as in the risk remains. You will just get some money to hopefully feel better, or for your children.

Same with insuring some painting let's say. You can get enough money to buy a different painting, but the risk of losing that particular painting is still there. If it is a unique painting and it gets lost, how are they going to repair the non-monetary value of it? They can't.

Hedging the risk of being shot by wearing armour sounds like actual hedging. Buying insurance against being shot sounds like just betting. The non-money part is exactly the difference, and it is missing in insurance.

Yes, you are hedging against financial loss. Most of the other stuff you describe, e.g. sentimental value of one painting vs another, are irrelevant to insurance. You pay a (relatively) small amount to eliminate the risk or mitigate the effect of getting a massive (specifically financial) loss.

> Gambling is all about risking it all.

There are also plenty of people who can maintain control of their finances in the face of internal gambling biases and manipulation from the other parties (like casinos.) I don't gamble, but I do believe that most gamblers are in the middle of the extremes.

You could overcommit to insurance products/premiums, but I think there's more regulation there and less of an addictive aspect -- which is why we don't really hear about it.

"Risking it all" was not referring to being a gambling addict. It simply meant that if you put 10k on black and the ball goes on red, you lose all of the 10k

Same as if I buy a 10-year term life insurance policy and don't die during that decade. I lost all of the full premium paid.

You will live those 10 years with more peace of mind, which is the only reason to have life insurance since once you're dead you're dead

Peace of mind isn’t the reason. It’s leaving family stuff because you care about them.

No, the cost of a "jackpot" in life insurance is the premium plus literal life or limb. Only looking at the premium is penny wise, pound foolish. If you don't have the insurance and you die, your estate is out a million dollars because you skimped a few thousand.

Insurance—decrease variance. Gambling—increase variance.

Insurance for the consumer is lowering your expected value to reduce variance. Gambling for the consumer is lowering your expected value to increase variance. The profit and operating costs for both casinos and insurance companies is the lost EV of their patrons.

There is also the combination of self insuring. 0 An old boss had a dozen kids and his own personal business so he self insured his fleet as well as all the of age kids as employees. Gambling isn't about risking it all as some bets are safer than others for less rewards.

0. https://www.policygenius.com/auto-insurance/what-is-self-ins...

Both are lottery tickets if viewed from a pure financial contract perspective.

Utility of a particular contract to a buyer is subjective.

You can approach gambling in the same exact way. It's called hedging your bets.

First off thats just reinforcing the grayness of the difference. Where exactly on which exact bell curve does gambling stop and insurance start?

Second, the one thats even more ambiguous is insurance from the perspective of the insurer. It's just gambling with a payment plan, that HOPEFULLY doesn't turn into a ponzi scheme.

I think they are on different sides of 50% probability. Insurance helps mitigate a low-probability risk. Gambling provides a low-probability chance of a big reward.

Socially the presence of a small number of really destitute people is a problem, so we moralize the process to prevent it as “bad.” The presence of a small number of really rich people is, like, neutral or negative, so we don’t moralize the a thing they produces them as good.

It is a bit weird that we don’t moralize the rich as good in this case, given that we often do do that. Not sure what’s up there. Maybe gambling is uncomfortable because produces rich that aren’t seen as deserving somehow.

> I think they are on different sides of 50% probability. Insurance helps mitigate a low-probability risk. Gambling provides a low-probability chance of a big reward.

Trivially not true- I can wager on a heavy favorite to win at very low payouts

>Where exactly on which exact bell curve does gambling stop and insurance start?

I don't think it has to come from me that the world isn't black and white.

>It's just gambling with a payment plan

If it's all so gray, why couldn't you say "gambling is just a riskier insurance" then? You only consider one of the two possible directions, namely the one that puts insurance under a bad light.

> Where exactly on which exact bell curve does gambling stop and insurance start?

That's not the difference. The difference is that in gambling, you accept a large variance in payoff, whereas in insurance, you don't; you transfer that risk to someone else.

In gambling you pay someone to take risk for you. In insurance you pay someone to take risk for you. They are the same tool; we just give it a different name when we’re hedging from when we’re speculating.

> In gambling you pay someone to take risk for you.

No, you don't, you take the risk yourself. You're certainly not paying the casino to take risks for you; you're paying them for the privilege of you taking risks (and losing on average) by playing their games.

You’re paying them to take the higher variance end of a swap. That is exactly the same transaction as insurance, complete with the same pricing model.

There's no bell curve.

Insurance is hedging against the value of something you have an interest in (which takes the form of a bet against that thing).

Gambling is betting on a thing.

So a short option on a stock (betting against it) would be:

a) insurance if taken out by the company, or a shareholder, or someone with stake in the business

b) gambling if done by a random third party

There's a moral component to the definition.

There’s nothing moral. It’s gambling either way.

The only confusion comes from people who bend over backwards to convince themselves they aren’t gambling because of weird “it’s a sin” morals that leak into their mind.

Betting against a company by shorting has no different moral component than betting on a company by investing. Either way you aren’t doing work and are taking risk to get a higher return.

Insurance products have different risk curves but they are still gambling. Someone can buy a ton of garbage houses, buy bunch of insurance, and just hope they burn down for the payout.

I would express it differently.

With insurance, you are guarantee to lose. To insure against a 10K risk, you have to pay 20K. 50% of your premium goes towards staff, advertising, profit, etc.

But you reduce variance.

>But you reduce variance.

Yes, and turns out that having more consistent results is what keeps the economy going.

Also, the only reason gambling exist is because you are guaranteed to lose. The house always wins, statistically.

That's not how I'd express it either. Insurance is a positive EV bet on a log-utility basis

> With insurance, you are guarantee to lose.

No, you're not. There is no guarantee that your payout on a claim will be less than the value of the premiums you paid in at the time you make the claim. Averaged over all people being insured, that will be true, but you are just one person, not the average of all people.

> To insure against a 10K risk, you have to pay 20K.

No, to insure against a 10K risk, you pay some much smaller premium periodically over time. There is nothing that says you must have paid in 20K in premiums before the insurance company will pay out 10K on a claim by you. The insurance company is insuring a huge number of people; all they care about is the average result, not the single result in your individual case.

Also, all the above assumes that only monetary value matters to you. But monetary value alone is not why most people buy insurance. Most people buy insurance for risk avoidance, i.e., peace of mind. They want to transfer the risk of having to make a large payout if something bad happens to someone else who can better afford it. That is a thing of value to many people, which is why they are willing to pay for it.

> No, you're not. There is no guarantee that your payout on a claim will be less than the value of the premiums you paid in at the time you make the claim.

With insurance it’s very difficult to get more than the market value out of the destroyed thing on payout. Even if you ignore premiums you’re usually just breaking even. This isn’t a law but it’s something insurance companies wised up to pretty quickly because the incentives get pretty attractive to commit insurance fraud when there is profit involved.

> With insurance it’s very difficult to get more than the market value out of the destroyed thing on payout.

Yes, of course. But that's not what I was talking about. I was talking about whether your payout is less than the value of the premiums you have paid; it can be even if the payout is not more than the market value of the destroyed asset.

To take an extreme example, suppose you buy a house for $100,000 and insure it for that value, and the next year the house is destroyed by a covered event. Your insurance payout will be $100,000 (which will be spent in rebuilding your house), which is the market value of the house, not more, but you are certainly not going to have paid anywhere close to $100,000 in premiums, so your payout will be much more than the premiums you have paid.

Of course this situation will be very rare, but that's the point: the insurance company certainly cares about not paying out more than the market value of the asset (for the reason you give--protecting against insurance fraud), but they don't care in an individual case about not paying out more than the premiums that were paid in by that individual customer. They only care about the latter on average, and of course their actuaries get well paid to make sure their premiums are high enough to ensure that they still make money on average.

In other words, insurance is gambling's antidote. Gambling takes on a risk, insurance hedges against the risk taken.

But if gambling is wrong – implying you shouldn't do it – what do you need insurance for? If you never gamble, you don't need to hedge the gamble. If gambling is wrong, then insurance must also be wrong by association.

Perhaps it is not gambling that is wrong, but rather gambling for the sake of entertainment? That would have no doubt been seen as a diminishment of hard work under Protestant eyes. In other words, farming would have been seen as okay because it requires hard work, done for a purpose. A casino game, on the other hand, would not be acceptable as someone may gain (over and above the fun value) while having fun.

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