Woman makes $420k by buying insurance on flights she predicted would get delayed | Hacker News Reader

Woman makes $420k by buying insurance on flights she predicted would get delayed

mothership.sg

607 points9nGQluzmnq3M408 comments

I recently collected nearly £2500 from an insurance company because a policy had been mis-sold when I bought a house.

The policy was sold so the agent could get their commission. There was no credible justification for it. Worse, there was no record showing that I ever signed any paper authorising the charges.

When I talked to the investigation department, they said that off the record, between you and me, record keeping is incredibly poor, and my case was only unusual because I'd questioned the payments - and most people don't.

My partner is going through something similar, but the paper trail in her case is even more tenuous. The only justification on file for thousands of pounds in payments collected from the 90s onwards is a mortgage application she made a few years ago - and didn't even go ahead with.

This is on top of a national Payment Protection Insurance (PPI) scandal which forced insurance companies and banks to return billions of pounds.

Somehow this never seems to be labelled criminal fraud. It's always "Mistakes were made..." and no one is ever personally responsible.

So honestly, I'm finding it hard to be sympathetic to the poor exploited insurers in situations like this.

I recognize this as well.

I once didn't fill in my Dutch VAT taxes (0 euro's by the way, it was an administrative formality) and I was fined.

Another time the tax authorities didn't pay me money back for almost 9 months, and it was only because I found out and they forgot because of some administrative mishap.

However, I'm not allowed to fine them.

I find it weird, because I'm pretty sure the mistake is similar in behavior and intention. Yet, I have to pay up and they don't.

Huh. HMRC in the UK realised they owed me money back in, IIRC 2018 and kept sending me actual paper cheques as their computer worked through consequences of the mistake year by year for the next few weeks. It was tiresome actually because I had to go to a physical bank, but I guess if it annoyed me that much I needn't have paid the cheques in.

They pay 0.5% (which is better than most of my bank accounts) on all sums they owe as a result of their own mistake rather than either your mistake or some third party screwing up (e.g. your employer fat-fingers paperwork causing you to pay say £1000 extra tax, you don't notice for two years, then you point out the mistake, HMRC are happy to fix it but won't pay you 0.5% interest on the mistake because it wasn't their fault)

Yes, HMRC is generally a very good service. Will be a sad day when it gets outsourced to a contractor:(

ultimately it comes down to because they have more guns and goons than you do.

It comes down to because allowing the state to fine its citizens is necessary while allowing each citizen to fine the state would be absurd.

Why do states need to pay reparations from time to time, then?

Though you may not know it, you may still be eligible for penalty interest on the sum. State and governmental bodies often don't bother to mention loopholes that goes against their favour, however, so you'll have to look them up yourself. I don't know Dutch tax laws, sadly.

This kind of thing goes way back and used to be much easier.

Over-booking of flights used to be a huge problem back in the 90's and earlier. You'd get on the plane, someone would be in your seat already, and that's when you found out you didn't get to fly on that flight.

Airlines figured out this pissed people off and started counting tickets before letting people onto flights. If they had too many people waiting to board a flight, they would make an announcement and start offering free stuff to people willing to be bumped or take a later flight (this still happens in rare circumstances today but used to happen on most flights for a few years).

I remember listening to a gate agent threatening to call the cops on a college age guy who was picking up his third free ticket of the week for accepting being bumped off an Oakland to Las Vegas flight. He'd apparently figured out that that flight was always overbooked (which wouldn't have taken a rocket scientist given the high rate of overbooking at the time), and the only reason he got caught was the same agent kept getting assigned to work the counter for that flight often enough to remember his face.

Interestingly, I also flew on a nearly empty flight once during that era. The pilot came on the loud speakers and said "the next time you are wondering why flights are over booked, remember this flight - this plane was booked to 120% capacity (or some other number well over 100%) for this trip."

> and the only reason he got caught

Got caught doing what exactly? Booking tickets on a flight?

If he wasn't using fake names or anything, it sounds like he was just trading his time for free airfare.

He also saved one person that actually needed to be on the flight from being kicked out. Maybe the agents ego didn't like that.

For a flight to have gone from 120% to nearly empty would mean that some large group didn't show up. Maybe an entire tour bus was delayed by a flat tire or something. Statistically speaking, a hundred people simultaneously missing their flight is vanishingly unlikely.

Many corporate travelers can book and re-book with no change fees, so this happens more than you would expect.

The most common reason I've seen is a large corporation cancelling or rescheduling an all-hands / quarterly meeting that everyone above a certain level (e.g. directors / VPs) from non-HQ offices travels to HQ to attend.

For an Oakland to Las Vegas flight, I'd guess a conference, music festival, or sporting event was cancelled.

> Statistically speaking

Statistics generally (there are exceptions of course) makes very broad assumptions about independence and random selection of your samples.

For a group of people as correlated as having the same destination at exactly the same time using the same airplane I would be very wary of applying any statistics at all, even ignoring the possibility of a large group.

Hundreds of otherwise independent people can decide to not show up simultaneously due to terrorist attacks, corona, a cheaper alternative, a conference being cancelled, etc.

I think you are restating my point.

Bayesian statistics might show a more interesting answer, though.

Sorry this isn't a direct reply to your story, but I'm interested if anyone knows, does overbooking happen regularly in Europe? Becuase I'm in the UK and I've literally never heard of anyone getting bumped from a flight. I'm sure it happens occasionally, but is there just a massive divide between the US and EU here? Is there a systemic issue with regulation, is it just consumer attitude, or is the EU actually the same as the US?

Yes, it's common. It happened to me once and some of my colleagues as well.

I think they don't overbook as much as in the US. They try to avoid bumping off passengers, because the cost of doing it is much higher. They can't just give you an upgrade ticket. They have to reimburse all occurring cost and they have to pay an additional 250-600 EUR compensation depending on the length of the flight.[1]

[1]: https://europa.eu/youreurope/citizens/travel/passenger-right...

There is a possibly looser regulation on this in the US as well: https://www.transportation.gov/individuals/aviation-consumer...

I've seen airlines offering compensation worth well more than these minimums, however. Anecdotally it seems fairly common to get hundreds of dollars for a relatively short domestic flight.

It's incredibly common in Europe as well, yes, but usually the numbers just about work out with some no-shows and reshuffling people across classes.

Also, the ones they do bump off are the standbys and reduced fare, which is why you don't often hear about fully paying passengers being forced to take another flight - and in any case, if they're still over capacity, the promises of free upgrades and money mostly result in enough volunteers to prevent that from happening.

I'm not sure about any differences in US regulations vs EU regulations for this issue though.

I was offered hotel, rebooking, and spending money to give up my seat on a flight from Schipol to NYC once; it was about 15 years ago though.

I've seen it twice with EasyJet (BCN - LGW)

What could they possibly call the cops about? "This man keeps accepting our offers"?

You can call the cops about anything on anyone. That doesn’t mean they’ll make an arrest.

> I remember listening to a gate agent threatening to call the cops on a college age guy who was picking up his third free ticket of the week for accepting being bumped off

I hope the cops did nothing?

It was the airline's fault for overbooking and they offered bump compensation and the guy took it. It sounds legal to me. If the airline wanted to avoid this they could easily have done that by not overbooking.

Overbooking never went away, it's still a problem. In the US there are laws they have to follow for bumping compensation now.

I caught an airline bumping the whole flight I was on once. They told US that there were mechanical issues. Then herded everyone to another terminal. 10 minutes later they lead another large group onto the plane and it took off.

> The Paper later found out that many insurance companies have already fixed the loopholes that Li took advantage of to get rich.

> The ones they checked with now have a clause that says they will not be responsible for any payout should the insured, at the time of buying, already knows or reasonably deduces that the flight can be delayed anytime.

What kind of clause is that?

This is extremely ambiguous, the insurance company may refuse to pay any insurer at all based on this clause.

> This is extremely ambiguous,

Perhaps we should not rush to finely parse language that has gone through a double translation: from legaleese to reporter and from Chinese to English.

This may be treated as "insider knowledge" but I expect the burden is on the insurance company to prove prior knowledge.

But "reasonably deduces"... that can be used in any such case where mass payouts are a likely outcome. If I can "reasonably deduce" a payout will be needed than so can the insurance company. Under these conditions accepting my insurance purchase should be seen as the company committing fraud. They accept a payment knowing the customer can never collect.

Not sure why downvoted, if the clause actually reads like that it seems like insurance companies stacking the odds in their favor. Like a casino that reserves the right to kick you out if you're winning. Even if I can deduce it might be delayed, that's far from certainty. I take insurance only when I reasonably expect to encounter incidents. Does this make all my policies invalid? When the company "reasonably deduces" that there will be no delays do they give me the money back?

I hope they are reserving this clause for such obvious fraud cases where they can prove prior knowledge and intent. Like the case of this woman who even created fake identities to carry out the plan. Otherwise I see them being stuck in court forever either trying to prove that a random customer had some sort of insight that they didn't despite literally being their job and investing (tens of) millions in this. Or trying to prove that they didn't knowingly sell a policy with the expectation that they will never provide the payout, which is misrepresentation of the service at the very least.

Note that it's "reasonably deduces" at the time of buying the insurance contract.

So it's not like the insurance company can say "you should have cancelled the night before because everyone could see the storm coming".

I think I addressed it pretty clearly before.

If a regular consumer can "reasonably" deduce (using logic, not some "illegal" insider knowledge) at the time of buying the insurance policy that the flight may be cancelled then the insurance company employing experts and very accurate statistical models can more than reasonably make the same deduction.

Now since we agree that both parties deduced the flight will be cancelled but the company still went ahead and took the money for the insurance contract, this can only be fraud. The company took the money under false pretenses since they implicitly know even before the transaction that the claim is null and void under the "reasonable deduction" paragraph.

The reason people buy flight insurance is because they reasonably deduce the flight might be cancelled.

There is a line (fuzzy line, granted) between the general possibility and specific knowledge. An example might be: flying to the southeast coastal areas during hurricane season. There is an increased likelihood based on historical evidence of the weather canceling flights. But nothing specific. Once a storm is a named, has tracks with predicted (but still not certain) dates and locations, there is much more specific evidence. This type of situation is very difficult to write rules to handle every case, but we can create rules of thumb that the courts at least will tend to be even-handed about.

Is there any legal definition/precedent of "reasonably deduces"? Have companies attempted this kind of blockage before?

There is a definition. https://www.trans-lex.org/902000/_/standard-of-reasonablenes... https://en.wikipedia.org/wiki/Reasonable_person

That doesn't mean there's no grey area, though. Is it unreasonable to buy tickets and insurance under an assumed identity? Probably, but part of getting your day in court having the ability to suss this out.

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)

> 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.

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.

I think the main point is about risk distribution. In a normal insurance contract the main risk of an uncertain event (the damage) is assumed by the insurer, while the policy holder's risk is tied to losing the paid premium.

When such a contract is made in advance knowledge of likely occurrence of the event, the risk is fully shifted over to the insurer. Thus in absence of shared risk this subverts the contract into an unequivalent monetary transaction, which reasonably amounts to fraud.

Similarly, if there's an advanced knowledge from the insurer on almost certain unlikelyhood of the event, then it's defrauding the policy holder of their premium.

So the insurers must pay off time to time to maintain the perceived fairness of contracts. Meanwhile doing their best to balance their share of the risk... and most importantly price in the 'administrative overhead'.

One that is extremely narrow in scope.

In this case, continual purchasing of insurance on the flights likely to be delayed would be evidence you knew it was going to be delayed.

IMO, the problem is how to prove / what is the condition.

Without clear condition / clauses, it is possible that they'll deny valid claims by saying that the insured has already know beforehand. Maybe there are more specific information?

It's a bit like the clause about how you shouldn't be buying fire insurance for a house that is already in the process of burning down.

It's not an unreasonable one.

You analogy is incorrect as it would mean that she would buy the insurance when the flight is officially delayed. Here she is making a prediction, which may or may not be correct. It is exactly the same as when you are buying option or contract on the stock market. Here the issue is that the insurance company has a fixed premium which not based on the likelihood of delay. This is completely on the insurance side. Otherwise the stock market will have big issue if you apply the same analogy. This new clause is in effect a blanket one to not pay anything... if you pay for an insurance you have the conviction that the flight might be delayed... otherwise there would be no point to buy it....

I'm guessing you don't have this woman's inside knowledge of the airline system in China. You're assuming here that a person can't reasonably know or deduce a flight will be delayed, but her track record says different.

Sometimes, often in fact, it becomes pretty obvious a flight will be delayed but they just haven't bothered to officially announce the fact yet. Such as if the plane isn't even there because they are delayed on the previous leg, and boarding time is about to start. Or when the airport cancels all flights for an indeterminate time due to incoming bad weather and the airlines wait to update times because they don't know what to say yet.

A certain flight out of a certain airport (I won't say which one) was routinely delayed to the point that passengers waiting for the inevitable compounding series of delay announcements (always after the predicted departure time had passed, and before the plane had showed up much less been boarded) would make small talk about it. Predicting that these flights would be delayed every. damn. time. was not difficult. However, if the insurance companies eliminate this face-saving measure for airlines then they may be forced to be realistic rather than maximally optimist in their departure estimates in the future (or simply be blacklisted by these kinds of insurance).

Yes I do know by experience that it is very easy to deduce if a flight will be delayed. By experience in Europe, last leg of the day of an Easyjet flight -> 75% chance that your flight will be delayed. Snow during the night (look at the forecast) -> 90% your morning flight will be delayed etc. etc. No need for an advance ML model. Of course what she did was more like insider trading, but I'm pretty sure that you don't even need that.

The difficulty to make money out of this might be to determine the delay with some accuracy, not just that there will be some delays. Flight are routinely delayed by tens of minutes (has a low-cost flight ever left on time?) and that won't award compensation.

European laws define mandatory compensations when a flight is delayed or cancelled. This starts after 30 minutes if I remember well and depends how long the delay is and how long (distance) the flight is.

Also, delay is measured on arrival time, not on departure time. Planes frequently depart late then arrive on time, because they fly faster to catch up.

There's a big difference between buying a flight ticket and insuring it because of the possibility of its delay increasing your costs which you want to avoid and buying a flight ticket and insuring it because of the probability of its delay earning you a reward which you are actively seeking out in your choice of flights

It's the difference between buying flood disruption insurance because you operate in an occasionally flooded area, and moving your stock to wherever there's a flood warning. Particularly in this case, where the woman cancelled her expected on-time tickets because the tickets had no value to her except as a source of insurance payouts.

Consumer insurance is not exactly the same as stock options: it's not supposed to be a perfectly efficient market. Insurers are often operating under rules which prevent them from denying or repricing insurance due to relevant risk factors and likewise premium holders are usually bound by far more terms and conditions preventing them from taking actions which might change the value of their policy than stocks or futures markets.

Perhaps it's more likely getting life insurance when you know you have a disease that is likely to be fatal (but not 100% guaranteed). Most life insurance policies would disallow that. At the very least they require you to disclose it, and if they still agree to insure you the premium would be much higher.

The insurance company isn't a math problem; they are offering an explicitly bad deal. They are offering insurance on the basis that they will make a profit. Making that explicit in the contact is reasonable.

If somebody thinks they are making money out of their insurance contract it is probably fraud or very close to.

My understanding is that insurance companies operate on pricing the contracts to cover their potential losses while making profit on investing the insurance premiums.

More like buying fire insurance for a house as you see an arsonist walking slowly toward it.

You know what the expected outcome is going to be and are securing an agreement deliberately in bad faith. That's not to say insurance companies are always good faith actors (oftentimes not), but it's a very one-sided information flow.

If there has been a rise in arson cases in my city that finally convinces me to get fire insurance, is that in bad faith? I have a reason to believe my house is now more at risk of burning down, so I'm buying insurance. It seems a much more realistic scenario than the one of having a arsonist slowly approaching a house (and even then, arsonist in general do not burn down most the buildings they approach throughout their lifetime, and even more so when you could individual approaches that result in arson).

What about someone who notices that they are getting older and are starting to develop aches and pains and decides to start buying health insurance that they had avoided when they were younger because they seemed to have been made out of rubber back then?

> What about someone who notices that they are getting older and are starting to develop aches and pains and decides to start buying health insurance that they had avoided when they were younger because they seemed to have been made out of rubber back then?

That's exactly the reason the ACA made health insurance mandatory, to avoid that scenario which would require insurance companies to make the policies more expensive in order to compensate for the higher average age and worsening average health of the insured pool, which further incentivizes the avoidance, and so on, until we're right back in the same situation with a high-risk pool and unaffordable premiums.

Incidentally, that doesn't mean that avoiding health insurance if you are young and healthy with no dependents is actually a good idea at the outset, since many common health conditions like injuries from car accidents don't particularly discriminate by age.

The fact there's so many ifs and buts shows this can't be a clear line. In the eyes of the law, it's about the intent of the action - which is why the ambiguity at the Terms and Conditions level is probably for the best.

Yeah, your first argument makes a lot more sense to normal situations, but mine was aimed at being an analogy to the example at hand from the article.

As the sibling said "it would mean that she would buy the insurance when the flight is officially delayed"

I think it's more like, you shouldn't buy fire insurance if you are having a bbq or similar. Or at least somewhere in the middle of these two statements.

You shouldn't be buying fire insurance if someone has said they were going to burn your house down.

Or well you should, but if you wilfully had your house burn down anyway to get insurance money, that's insurance fraud.

If the insurance companies were so consistently mis-pricing their contracts, instead of calling the police they should have hired this woman and used her expertise to design dynamic pricing algorithms.

The article says the insurance companies have now closed the loopholes she exploited. To me, she deserves every dollar she made for making the insurance market more efficient. I'm sure those errors would have cost these companies much more than $400k over the long run.

Its kind of sad that the #1 comment right now is basically saying "the company involved here should have been charging its customers far, far more money", instead of protecting their customers and looking out for the best for them.

Insurance is NOT a financial instrument. Insurance is supposed to be a safety mechanism that protects you if something bad happens.

We can think of insurance as a call and/or put option. Financially, they behave almost identically to options. But that's not the intended use for the product.

--------

Where you see inefficiency, I see humanism. The company believes that its users wouldn't act like this, and for the most part... citizens do not commit large scale fraud involving 20+ fake identities.

> Insurance is NOT a financial instrument

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.

I can't speak for insurance markets everywhere but in Denmark, you are simply incorrect. Insurance companies have existed as consumers' co-operatives since the first insurance 'company' in Denmark, founded after a city-wide fire in Copenhagen in 1728.

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.

In the US there's basically a 110% chance that whatever insurance policy you took has become a part of some derivative contract with swaps or whatever.

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 it's not traded doesn't mean it is not a financial instrument. You are paying into a pool of money that promises to pay you a certain sum of money above your contribution if something happens. That is defined by a monetary contract. It's a financial instrument, by definition.

Just because the insurance companies have higher capital requirements and treat customers differently doesn't mean it's not a financial instrument.

It sounds like you have a very specific history of insurance and way of thinking about it in your country, but insurance goes back to the Ancient world and was one of the first financial instruments if not the first. When you take out a policy, yes you are mitigating the risk of “something bad” happening, to you, and of it does happen, then the insurer makes you whole as far as the contract was concerned.

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.

Finance: the art of trading money now vs more money later

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.

Parent meant that it's not an arms-length transactional investment. It's meant to be a fiduciary service like an accountant or finacial advisor. They are supposed to make money by helping you and taking a percentage fee, not by tricking you or outsmarting you.

The American capitalistic perspective tainted the nature of insurance. The comment

> 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 would like a word...

OP said “one of the most...”

Debt is certainly the most common and insurance is the one of the most common

“Insurance is not a financial instrument”

That’s just not correct. There are plenty of insurance policies where people buy them as an investment with the hope of profiting off the payout when the insured asset has a loss. Credit default swaps being one such instrument.

Not saying that’s a good thing, but it certainly exists.

The scores of fake identities was clearly wrong but just “gaming the system” is generally not a crime. Look up the story about chocolate pudding and airlines.

Back when CDs paid a real return and credit cards gave free cash advances with 6 plus months no interest (neither of which exist anymore) had a lot of friends that would just use their good credit to get a bunch of cards, get “free” cash for 6 months, buy a CD with it (Sometimes from the same bank that gave them the free cash!) and just sit back and let the bank send them free money... then pay off the card when the CD matured after 6 months.

It was totally gaming the system but if the banks were dumb enough to let it happen then it’s sort of on them at some level.

>> The scores of fake identities was clearly wrong but just “gaming the system” is generally not a crime.

Buying an insurance product - financial instrument or not - under a fake name most likely is a crime or at very least a disqualifying act. It's not "gaming the system" as you describe. Gaming would be a novel approach or changing the scale/magnitude of what a normal person would do; normal people don't fake their identity to buy insurance. Your CD example is gaming the system until I start apply for credit cards with a fake identity; that crosses a clear and obvious line.

Companies will buy life insurance on their employees if they think they can make money on the policy. Walmart famously made the news for this.

https://online.wsj.com/public/resources/documents/april_19.h...

I've had two cards with 18 month interest free promotions recently. If you invest the cash you would have normally used to pay the card off, than that's a free 8-15% gains!

Kills your credit score due to high utilization until the promotion is up and card is paid off though

Your first example was an abuse of insurance that crashed the economy, which says something about what should be.

Your last example is a contract of adhesion where the person setting the terms (and profiting from them on average) assumes responsibility for those terms.

Reminds me of that bit from The Simpsons:

Marge: "I'm sure your insurance will cover the house."

Maude: "Uh, well, no. Neddy doesn't believe in insurance. He considers it a form of gambling."

That's not really so much a Simpsons bit as it is a reference to the Amish and Mennonites, who both consider insurance to be immoral because they see it as a form of gambling. As an aside, this is why they are generally exempt from Social Security and the associated taxes (though they do by law have to have their own pension scheme).

A curious way of thinking. I would say insurance is exactly the opposite of gambling.

How is a "pension scheme" different from "social security", in any way that matters?

Also, if Amish are allowed to opt out of social security, why can't Libertarians?

“ Insurance is supposed to be a safety mechanism that protects you if something bad happens.”

Virtually all financial instruments are used this way. Insurance is about buying/selling a particular form of risk just like any other financial instrument. The reason we treat it as one isn’t just because it can be modeled that way.

That said this seems like fraud. Using assumed names isn’t removing an efficiency in the market it’s being duplicitous.

> That said this seems like fraud. Using assumed names isn’t removing an efficiency in the market it’s being duplicitous.

I agree this seems like fraud, but why can't it both remove an inefficiency and be duplicitous? From the standpoint of the insurance company's financials this isn't any different from coordinating with 20+ individuals to execute the same scheme. If the latter removes an inefficiency it should follow that this woman did the same.

I’m not nearly the economist to know what counts as an inefficiency.

But it largely doesn’t matter from the pricing point of view. If fraud becomes a big enough risk it will get priced in.

That doesn’t mean it’s legal though. Car insurance is very efficient at dealing with fraudulent claims. Some get paid out some get prosecuted and every thing in between.

But there is a basic agreement that some law is going to be respected otherwise it’s just who has the biggest army. In my personal opinion using assumed names puts you over the line.

> Insurance is NOT a financial instrument.

How is a tool to manage financial risk NOT a financial instrument?

>Insurance is NOT a financial instrument. Insurance is supposed to be a safety mechanism that protects you if something bad happens.

Tell that to insurance companies.

>Insurance is NOT a financial instrument. Insurance is supposed to be a safety mechanism that protects you if something bad happens.

You will have an unpleasant surprise ...

You're getting slammed for saying insurance is not a financial instrument. I hope what you meant is that it's not supposed to be highly profitable for the insurer. Even then while most customers would like to agree, most insurers would not want to.

> Insurance is NOT a financial instrument. Insurance is supposed to be a safety mechanism that protects you if something bad happens.

Insurance is fundamentally a financial construct designed to manage risk. And if it's priced too low, it cannot function as a safety mechanism. Funds will be exhausted, and nobody will get their safety.

Where you see kindness, I see financial malfeasance of the sort that undermines the very goal of the thing.

You really weaken your argument about insurance not being a financial instrument by comparing them to call and put options in the next paragraph, saying they behave almost identically. On hacker news, no less "not the intended use" isn't a solid argument about what something is or is not.

More importantly, why does what is or is not a financial instrument according to your rather specific definition matter?

If you see humanism in underpriced flight insurance, do you see exploitation in overpriced flight insurance? Someone making that much money on well chosen flights means most likely other flights are very much overpriced for insurance.

One of the most useful things insurance does is expose real values for risk and put financial incentives on reducing risk behavior on both the holder and the owner/maker/operator or the insured asset.

For example, fire sprinklers and renters insurance. The owner of the unit is motivated to have sprkinklers present and in working order to lower the total cost of the apartment (insurance would have higher premiums without), the renter wants to pay lower premiums so they will insist they are installed or look elsewhere, and the insurance company will have a motivation to have a good sprinkler inspection program that finds out if they're really installed, done properly, and maintained in a way that provides actual risk reduction. Everybody wins as long as the insurance price is not just "humanitarian" but actually reflects the real risk.

Debt is such a common financial instrument that other financial instruments (like credit derivatives) refer to themselves as buying and selling insurance.

Your argument would make perfect sense if we were talking about insurance coops or government-issued insurance. But as long as we're talking about for-profit insurance companies, they can get fucked. There is literally no difference between for-profit insurance and gambling. They knew the risk they were taking, and now they're trying weasel out of paying.

Insurance is precisely a financial instrument.

"Financially, they behave almost identically to options. But that's not the intended use for the product."

It is absolutely the 'intended purpose'.

It just so happens, for some products, there is a 'humanist element' i.e. fire/life/home, but it's still a financial instrument.

You may be thinking of public goods, like healthcare, fire departments, etc.

I advocate government provided universal healthcare. That cost is just table stakes for a civil society.

Insurance is more properly relegated for elective decisions, where a person's interests are not (yet) universally shared, and they want to hedge their risks.

This is perhaps a rather pedantic point, but do you really mean government _provided_ healthcare, or simply government _funded_ healthcare?

Very few countries have the former (the UK famously does), and many societies would be considered civil have the latter.

I'm ambivalent about the implementation, who signs the paycheck.

It's the government's job to lift the floor, set standards, drive progress. There's "no one size fits all."

We will always need room for innovation, experimentation.

Sometimes top down, like ratcheting performance standards. https://www.vox.com/energy-and-environment/2019/5/31/1864690...

Sometimes bottom up, like the neighborhood buurtzorg clinics in the Netherlands. https://en.wikipedia.org/wiki/Buurtzorg_Nederland

Because better is better.

You would get more sympathy for your argument if the insurance companies acted like they were humanistic and not financial companies

The insurance companies themselves treat their product as a financial instrument in almost all cases

They do not act very humanistic when denying claims for all manner of technical 6point font on page 186 of terms and conditions document of the policy that says they will only pay out if the event happened on the 8th Tuesday of the month under a full moon during a eclipse...

Today insurance seems more like a protection racket than actual risk mitigation, given that more and more insurance is required by law for a person to get it becomes less of a voluntary exchange where I pay a small amount to hedge my risk and more a mandated extortion for which I will likely get little value in. Granted that does not apply to travel insurance as it is not (yet) mandatory but the industry of insurance is impacted by these external factors

Just look at all of the excuses insurance companies are using to refuse to pay out on Business Interruption Insurance due to COVID-19, or when insurance companies refuse to pay out after large scale storms due to various technical justifications, or any number of 1000's of examples I could cite that highlights the unethical behavior of that industry.

No Insurance companies get exactly zero sympathy from me

The technicality in six point font is the risk you're not allowed to take because it would cost you more. The whole point of it is to spread this risk out as broadly as possible for the cheapest price possible based on known risk. Known risk requires some boundaries.

(I'm not talking about trying not to pay legit claims that clearly are within the threshold) but the reason these boundaries are there is so they can accurately price the risk.

It would be much more expensive to get a policy that covered "everything" without the fine print, but you certainly can. It's just out of most people's price range.

That is not to say I think insurers are acting in good faith all the time, just that I empathize with the actual purpose of insurance and the complexity of the risk calculations for insurance actuaries.

While I understand that, the risk IMO needs to be more generalized

For example I am from the Midwest, we get tornado's here and one of the routine ways that insurance companies try to get out of paying is to classify the damage as "strait line winds" because apparently if wind is traveling in a strait line insurance does not pay but if it moves in a circle then we have a winner.

My Insurance for Storm Damage should cover all storm damage not have these weird exclusion based on the type of storm

Insurance is like Microsoft Licensing, no one can understand it and no matter what you buy you do not ever have the "right" insurance

If I have Fire Insurance, it should cover me if my house burns down. if I have Pandemic Insurance it should cover me during a pandemic, if I have business interruption insurance it should cover me if my business is interrupted, etc etc etc

I understand that a policy can not cover "everything" but I also so not believe that the insurance company should be allowed to sell "Storm Damage Insurance" then proceed to fine print out many many many types of storms... That should be considered deceptive business practice if not fraud

We have a real problem with Truth in Advertising for Insurance (and many other industries). IMO we should be seeing billion dollar fines coming out of the FTC on a weekly basis if deceptive business practices were aggressively enforced as they should be, instead i can not recall the last time the FTC even investigated anyone... Probably was the "strongly worded letter" they sent to electronics manufacturers about their illegal void if removed stickers

I’m not sure I’d pick either efficiency or humanism to describe what’s going on here. Personally, I’m not as optimistic as you seem to be about the nature of the service that insurance companies provide but I can still see why the case isn’t clear cut.

In my mind, the insurance company neglected a particular outcome of their service, and she enacted the loophole. It’s their mistake for not catching it and they’ve now made sure it can’t happen again.

I agree with you that insurance, as a concept, isn’t a means of making money as this woman has treated it. I also think the notion of insurance isn’t as sacred: the company is providing a service not some fundamental right, so this woman isn’t necessarily in the wrong for taking advantage of a “bug”

I expect that any resemblance between an insurance company's behavior and "humanism" is transient and illusory.

Where you see a good point, I see virtue signalling. This has threads of communism / socialism to me. The whole point of capitalism is market efficiency. When we choose to go in favour of “humanism” rather than efficiency, is when we choose to be “soft” just so that we don’t offend each other (and by soft I don’t mean the real, actual, genuinely helpful kind of soft).

Everything is a financial instrument. Some are simply not labeled as such. This is how humans operate.

It's hard to look at her work as anything but criminal when she used 20 fake identities to pull this off. Once she ran out what she could do under her own name and started using fake ones, she crossed a line.

On a moral level, how does this differ from companies spinning up LLCs to gain advantage in deals being made? Consider Disney doing it so that they could buy land without people realizing who the buyer was.

LLCs are traceable by ownership. In most cases it's an obfuscation, not straight up fraud. The man on the street isn't doing M&A work so they're not going to chase down the history and pedigree of each brand.

It doesn't, they're both wrong.

She impersonated real people.

> Once she ran out what she could do under her own name and started using fake ones

How do you know this? This may be a pre-emptive strategy

Also, as mentioned in other comments: She didn't use fake identities, she booked on the behalf of family and friends.

Did they get the money?

It says in the article that the insured traveller need not collect it. This was probably not a mistake in the terms, I.e. an employer buys employees and candidates tickets and wants to limit their own losses when the logistics fall through.

Even without the fake identities, she committed insurance fraud. She found a loophole and abused it; that's not the fault of the loophole being there or the insurance companies, but the person abusing it.

I am not a lawyer... couldn't the same argument be made about tax loopholes and companies 'absuing them'?

A tax loophole is legal by definition. A loophole refers to an element of the law that allows some behavior. Insurance fraud is not legal.

If she lived in a western democracy and had a limitless legal team she would unlikely be in any sor tof trouble as well. The tax system does a terrible job going after the Apples but a very good job getting it's way with small business owners.

Free Advice: if you run afoul of the tax system, pay first and challenge later. You're likley to lose and the punative penalties can bury you.

Legally speaking there is a big difference between technical fraud (using fake identities etc) and so called tax loopholes, because those often refer to clever tax avoidance. Tax evasion is illegal obviously. But the usage of tax avoidance is often even required because companies would otherwise be liable in relationship to their shareholders.

Edit: Reading your comment again, maybe my statement was already implied.

The reason it’s fraud is because you’re buying plane tickets and insurance to make money rather than actually travel. The loophole itself isn’t fraud. It’s also fraud to purchase a lot of things, with the intention of returning them after you use it.

I don't doubt it's criminal the way she did it, but I'm not so sure it would have been criminal had she done similar things to securities on the stock market. I mean, isn't this exactly what those people do?

Nobody is claiming that if she did something similar in a completely different market it would have been criminal.

Perhaps we should talk about what actually happened - this woman defrauding companies using fake identities - and not hypotheticals we're making up.

I don't see what's so much better about paying a hobo to sign some papers compared to using a fake ID. End result is identical.

> paying a hobo to sign some papers compared to using a fake ID

Both are equally illegal in most parts of the world. Intentionally muddying your identity to defeat mechanisms put in place to avoid abuse is fraud.

Contrary to what some people on HN seem to believe, most legal systems in the world don't look too kindly on people intentionally abusing contracts. If it can be shown you signed a contract knowing that your understanding of it differed from that of the other party with the goal of exploiting this difference of understanding, which is to say in bad faith, you are very likely to lose in court.

Both are fraud

This is one of the clear evidences that the insurance industry is a dolled-up, glorified gambling industry, and they want to be able to play as a casino, without losing if someone other than the house games the system.

It's clear evidence that the insurance industry is based on risk assessment and probabilities. Of course it is the same as gambling, except that the "game" is not necessarily biased in either direction.

Actuaries spend their careers making these bets. That's why no insurance company will take a policy on a "sure thing".

If she had taken on a similar bet in a market where insurance policies were bundled and sold, instead of a "credit default swap" you'd have a "on-time default swap" and it would be completely legal.

But there isn't such a market, so she effectively made one for herself by using false identities and the arbitrage of being able to pick and choose when she would take her side of the swap.

> except that the "game" is not necessarily biased in either direction.

The insurance industry wouldn't exist if that was true. The whole profit there comes from the bias for the insurer.

Large insurance companies have ten figure net incomes on top of paying out lavish executive salaries, paying out dividends, etc. But the game isn't biased. Right.

>except that the "game" is not necessarily biased in either direction

Such a bold statement

You're right in some particulars, both gambling and insurance let customers enter transactions with an uncertain payoff that favors the house, and both are relatively aggressive legally when customers try to get an edge.

But the purpose of healthy gambling is to have fun, and the purpose of insurance is to pay a small amount in most future states of the world to avoid very bad outcomes in some future states of the world. These are both reasonable things to spend money on, but they're very different objectives.

Agreed. Insurance will always look somewhat like gambling, by its very definition, but its role is very different. Someone did a better job of estimating odds than an insurance company did. They then defrauded the insurance company, using fake identities, and were discovered and arrested. This doesn't delegitimise the idea of insurance in the slightest.

If the person hadn't used false identities, but had still been arrested, that would be a more interesting case (more analogous to legal professional gambling). When false identities are used, it's clearly not above board.

I would assume that in such a case, the insurance company could refer to their terms-and-conditions, and then contest their obligation to pay out. I don't imagine it would be a criminal matter though. (Needless to say I'm not a lawyer.)

> Someone did a better job of estimating odds than an insurance company did. They then defrauded the insurance company

how come it's not fraud when insurance companies calculate the odds better than you, and yet it is fraud when you do it to the insurance companies?

> Someone did a better job of estimating odds than an insurance company did.

Eh, I'm not sure that's really true, even.

Flight insurance -- at least, all of the flight insurance I'm familiar with -- is a fixed-cost product. I doubt it is so much that the insurance company couldn't create separate risk pools, from their own analysis, but that it doesn't make sense as a business.

Insurance policies such as these are priced very simplistically for practical reasons allowing the product to be distributed widely on systems that may not be internet-connected at the time of sale. The pricing can be made more accurate reducing the potential for arbitrage but that needs to be traded off the additional overheads and ease of sale. Its not that insurers are stupid its more that we know some things are easier-solved with anti-fraud measures than fancier Rube Goldberg machines

Can you explain more about how web apps may deal with 1/3 or 1/4 lapsed internet-connection? What sort of processes can you delay or smooth over? What kind of improvements do you see?

There is no simple answer to this.

A thousand times no.

Just like a stock market is undermined by insider trading, so insurance markets are undermined by fraud. Insider trading and fraud don't mean stocks or policies are mispriced. Insider trading and fraud are breaking the social contract of what the products are meant for, which is why they're illegal.

The article quotes:

> "she was able to receive relevant information beforehand that tells her if the flight was going to be delayed or cancelled."

Which sounds exactly like the insurance equivalent of insider trading. Buying insurance on something you already know is going to happen or not is fraud, plain and simple.

The insurance company had loopholes too, but the loophole that prevented the company from finding out sooner was that she got payment from the airlines directly, rather than the insurance company. That's not mispricing. She was arrested because she committed insurance fraud, plain and simple.

Insurance companies don't exactly respect their social contract when refusing to pay out legitimate claims on technicalities. She was arrested because she angered a wealthy institution, not because she did wrong by a virtuous one.

Unfortunately, this article leaves the exact nature of information she was relying on vague/confusing.

> "she was able to receive relevant information beforehand that tells her if the flight was going to be delayed or cancelled. Thereafter, she would purchase the tickets to the flights that are likely to be delayed or cancelled, before checking if there is any extreme weather along the route the flight is going to take that day."

Specifically, I'm not sure what the "before checking for extreme weather along the route" bit is supposed to mean, especially since it seems to imply that she checked for extreme weather after she already purchased the insurance? Something is odd with the grammar here. Furthermore, the quote never specifies what the "relevant information" actually was.

So... does this mean that she received inside information (e.g., from a former coworker) that the flight had been cancelled?

Or does it mean that she was looking at publicly-available information (e.g., weather data) to make the call?

I think the ethics and usefulness of some aspect of this are dependent on the answer to that question, and I'm not sure the article says definitively one way or another.

With that being said, I think the ethical problems with the fake identities seem more clear...

>Which sounds exactly like the insurance equivalent of insider trading. Buying insurance on something you already know is going to happen or not is fraud, plain and simple.

Well, from the description of the events, it sounds like she didn't "know" the events were happen, just that they were more likely in a way that's not captured with a sufficient premium. That's not the same as e.g. insuring against your car getting dented, knowing you plan to dent it.

So what she did was more analogous to reasoning that, "Oh, man, people always seem to rear-end you when you're driving a red sports car. Since I drive one, I guess I'll pay extra for the no-deductible option for accidents involving getting rear-ended." She doesn't know she'll be one to get rear-ended, she didn't cause the rear-ending, she just recognizes it as being super-likely and thus a good deal.

With that said, I think there is a sense in which this is fraud. Generally, insurance requires you to have an "insurable interest" -- i.e. independent reason to value the insured thing -- to prevent the kind of asymmetric info/moral hazard situation that breaks their ability to model the risk and which leads to cases like this.

So the contract almost certainly had a clause like, "I am going on this flight for business or pleasure reasons" (or something more lawyer-screened). That would establish the insurable interest: the insured wants to go on this trip, and wants it to go well. So she'd be entering the contract on fraudulent terms if she bought the trips/insurance solely to profit off the payouts.

Still, I have to agree with the OP's comment. If someone is this good at assessing risk, you should hire them to tune your risk model. She did pretty darn good with far less info than the insurer had to work with!

>Which sounds exactly like the insurance equivalent of insider trading.

Only if the information she was using was non-public, e.g. if she were getting information from former colleagues, or had access to such data herself that a normal person would not have. Otherwise, it is not comparable to insider trading.

> Buying insurance on something you already know is going to happen or not is fraud, plain and simple.

Is it though? Isn't this just arbitrage based on asymmetrical information (i.e. exactly what insurance companies do)? If she caused the flight to be delayed somehow, that would certainly be fraud, but so would anything the insurance company did to make the delay less likely without adjusting premiums.

> Buying insurance on something you already know is going to happen or not is fraud, plain and simple.

I don’t think that’s quite the right definition. I know I’m going to die. I bought whole life insurance. I have not committed fraud.

Wasn't the problem here that the insurance company didn't know these facts as opposed to she knowing them?

While it sounds like insider trading, the situation here is quite a bit different. With insider trading, the company has very real and legitimate interest to keep some information private. Private from the general public, including their competition.

In this case, however, the airlines wouldn't have to share this info, apparently known inside the organization, with the general public, but with a single (set of) well defined actor(s). Also, I'm not 100% sure if publishing all the available information on possible delays and cancellations wouldn't benefit their business. (Though, if cancellations happen because of say not enough tickets sold for a flight, it may, because maybe that would induce a self-reinforcing process. Who would want to buy a ticket that is likely to be cancelled?)

Relevant information could have been a weather report.

If the pricing on insurance isn't dynamic, and gets within the weather window, you can use a 3-day prediction to place a high-likelihood bet that the flight will be cancelled.

Particularly if the insurance sticks with the ticket such that it can be moved if unused.

1. See a bad storm coming in.

2. Buy a fully refundable ticket for the day the storm is going to hit.

3. Buy insurance on that ticket.

4. Storm hits? Cash in.

5. Storm doesn't hit? Change the date on the ticket and the insurance moves with it.

> Buying insurance on something you already know is going to happen or not is fraud, plain and simple.

what's the statute, or regulation, please. i'm not aware of that.

OT but I never understood the issue with insider trading. Obviously it's unfair to unknowing traders but isn't this essentially just making the market more reflective of reality? How does it undermine the market?

I don't think there's enough information in the article to determine that she committed fraud. What was the nature of the inside information, exactly?

> Buying insurance on something you already know is going to happen or not is fraud, plain and simple.

Better cancel all life insurance policies then.

Buying insurance on something you're going to cause to happen (cut down a tree so it falls on your car, leave flammable substances in a hazardous place in your home) is fraud.

Buying insurance on things you think are likely to happen isn't inherently fraud.

> "insurance equivalent of insider trading"

Do you have a citation for that law?

---

Yes, weather matters, and people can benefit by predicting it.

insider trading is about theft, not about social contracts or whatever. It means that someone stole information that I could trade on. Since it's stolen from me, they can't trade on it. That's what makes it illegal. It's similar to intellectual property, in a way

The difference between insurance and gambling is insurance is when the event that triggers the insurance is something one doesn't want to happen. In this case, she was indifferent to the outcome, so it was essentially just gambling.

> The article says the insurance companies have now closed the loopholes she exploited.

When I read that sentence in the article I immediately thought they closed it by optimising pricing or by challenging airlines. But no - as the next paragraph states - they closed it by adding a clause to the contract which basically forbids doing what this woman did. Go figure.

This is the only reasonable solution for them though. If you don't close it like this, you could end up spawning a whole market, and you're no longer selling a product (maybe not the most "optimized" product, but which still satisfies all parties), instead you're competing against this market of your own creation.

Any sensible person would just add a clause to the terms.

This is considerably less consumer hostile response than the realistic 'price-optimisation' alternative of excluding the flights people are most likely to need insurance for from the insurance pool [though it sounds like they've given themselves very broad scope to deny claims]

An easy loophole is to stop selling insurance to someone who has burned you for tens of thousands of dollars already. Except she used fake identities, which doesn't seem fair, or legal for that matter when it comes to air travel.

If you don't take the flights, I don't see why this would be illegal "when it comes to air travel". People book flights for other people or with fake names (as placeholders, for example, in a group booking) all the time. On the insurance side, it does sound like fraud.

I would be more inclined to agree if she didn't fraudulently use 20+ names to avoid getting caught.

> To me, she deserves every dollar she made for making the insurance market more efficient. I'm sure those errors would have cost these companies much more than $400k over the long run.

Couldn't agree more. She did nothing wrong in my book. She found a legal exploit, and exploited it. She was playing by the rules, she exposed a flaw, the flaw is now fixed. If she continues to do the exploit that would be a different story.

400k is small price to pay to close this kind of loophole.

> The 45-year-old woman, surnamed Li, used 20 other identities in addition to her own, to take out almost 900 travel insurance policies from 2015 to 2019.

So identity fraud is just totally fine as long as you're screwing over insurance companies?

Identity fraud aside, stuff like this drives up the cost of insurance for people who legitimately need it. It's clearly both illegal and immoral.

There are numerous factors in pricing and one input is the sophistication of the buyer and their common behaviors. The pricing is just fine for typical travelers who want to insure their trip and are not using their past experience to distill high-probability delays with 20+ identities.

Dynamic pricing isn't free to implement, and raising prices to account for accurately for delays may result in policies never bought by travelers who find them too expensive or a clear signal to get a better flight instead.

Of course, high cost of insurance is not necessarily a bad thing. If there are other viable, less risky flights, this would, I feel, be a healthy pressure.

I think you missed the point where it says she lied about the flights being delayed.

The Nanjing police announced on Friday afternoon, June 12, that Li had, on multiple occasions, faked information related to the delaying of flights, and scammed huge amounts of money from insurance companies.

Maybe they weren't mis-pricing. She had to use fraud and deception and fake names to buy all those contracts. Maybe they know that for one individual not trying to play pricing games, they can sell these contracts at a competitive price (don't forget they have to compete against other insurance companies) and still make a profit because most people aren't trying to game the system for a single contract for a single flight.

What kind of efficiency did it improve? Efficiency to resist such criminals? Is it really what insurance market exists for?

It seems like the contracts were not priced correctly. If they were, it would not be possible to game them so easily.

Totally right

> To me, she deserves every dollar she made for making the insurance market more efficient.

And to others, she was committing obvious fraud. Notably, to her, this was fraud, because she used fake identities to buy the policies.

The "I'm just an agent of libertarian market efficiency" excuse goes out the window once you start trying to hide your tracks.

Ignoring the identity fraud and supposing the information obtained were public, this thread seems to have a lot of people who believe that applying information arbitrage to insurance is in and of itself inherently wrong, and that's not a stance I think I can agree with.

As a litmus test, when the roles are reversed and the insurance company overprices a policy we seem fine with that as a society because even though any individual can have a hugely disproportionate premium the company as a whole has bounded profits (both legally and due to competitive forces). We might even try to argue that an individual can't possibly know their own risk better than a team of actuaries and that they should accept that the premiums are actually correct.

If an insurance company is allowed to knowingly profit 2x, 3x, or more on an individual's premiums based on their best models, why is an individual disallowed from doing the same if only using public information?

If so, where do we draw the line? Is it at a break-even point? What if the insurance company were trying to target an individual for 15% profits; is that person allowed to engage in the contract if they think the company will only earn 3% on average since that would also demonstrate a model better than the company's?

I can definitely see arguments against an individual having any _causal_ effect on the policy (e.g., like burning down a house), but I'm struggling to see why this kind of information arbitrage is inherently wrong.

I agree completely. I think it’s a super interesting discussion whether she’s actually done anything morally wrong (again, barring the identify fraud).

It’s possible that the root cause of this is simply a mispricing of insurance caused by Chinese regulations.

Well, insurance is just gambling with extra steps. Usually, you bet on something bad happening like your house getting burgled or your flight getting delayed, and the insurance company takes you up on that bet.

In a very abstract way there's not much difference between this and betting on sports.

I think this is too reductionist as an interpretation.

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.

You've identified a difference in motive between recreational gambling and insurance, not a mechanical difference. The woman in this article had different motives to the usual insurance customer.

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.

Insurance and gambling are the inverses of each other.

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.

Per narrator's comment above [1], a better way to explain the difference is that, for insurance, the insured doesn't want the event to happen, even knowing they'll get a payout, while in gambling, the insured wants the event to happen because of the payout.

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.

[1] https://news.ycombinator.com/item?id=23527972

> You've identified a difference in motive between recreational gambling and insurance, not a mechanical difference.

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.

There is also a difference in pricing.

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!

> a mechanical difference

Insurance and gambling have very different legal regulations in almost every jurisdiction.

There was a slumlord in my area that used to buy flood insurance before a major flood, and then put a bunch of broken appliances in the units, prior to the flood, to claim the damages.

That sounds like insurance fraud. At least if that person declared known broken appliances as working I am almost sure it is insurance fraud.

What you are outlining are the "extra steps" that the GP was alluding to. We call it "risks" but it turns out to be a kind of a gamble that the insurance company takes us up on, but with the house advantage.

But then it is the insurance that is betting on you. Sort of like a Mr Beast video.

I would reserve gambling for something offered to some kind of a consumer/costumer market.

The major difference is that insurance is not supposed to put you in a better position than you were before the loss. (This gets slightly tricky when, for example, you insure an item at its replacement cost, instead of its depreciated cost...but that's about as far as it is supposed to extend.)

Except the part where losing your house ruins your life, meanwhile your team losing just ruins your evening. That is the key difference. I agree that for easy to replace items, insurance and sports betting is the same, thou. (If you bet against your own team)

Except for the case where you have bet your house on your team...

That's one's own stupidity then. This is why gambling falls under specific rules - to prevent people from doing stupid things.

But this is the point, betting creates the risk in this case, insurance exist to reduce a preexisting risk.

Financial products can usually be traded for three purposes: speculation (or betting), hedging (or insurance) and arbitrage. The product is the same, the name of the action depends on what the buyer is trying to do.

But "insurance" isn't strictly a financial product (the kind that's traded on exchange). For example, if you buy life insurance, you can't then resell it (equivalently, I cannot buy insurance on your life) because that would cause some pretty unethical incentives.

You can buy life insurance for other people if there’s an insurable interest.

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.

You as a client may be unable to resell the insurance (for the unethical incentive reason you mentioned), but big bundles of life insurance policies are definitely traded on a secondary market by the insurance companies. This is called "reinsurance" and allows the insurance company to reduce volatility in cashflows, thereby decreasing capital requirements per policy written and this increasing the total amount of policies that can be written.

Actually, it seems like you can do that in Germany.

Insurance is gambling that reduces your risk, rather than increases your risk.

That's generally the reason for why it's treated differently, by law.

> Insurance is gambling that reduces your risk, rather than increases your risk.

Aren't hedge funds (nominally) doing the same thing?

Yes, but hedge funds have a larger counterparty risk. Their hedge is more likely to not work out, than your insurance is to fail to pay up. (And this aspect of insurance is quite heavily regulated.)

People (typically) buy house insurance to manage their risk to a level that they will tolerate. This creates security and allows for greater investment in something.

It's actually completely different to sports betting...

It's actually interesting that a lot of countries has laws regulating gambling because of how destructive it can be for an individuals economy, life and general health. Yet, it's still possible for rich people to gamble using thousands of peoples homes and jobs as insert on the stock-market.

> Yet, it's still possible for rich people to gamble using thousands of peoples homes and jobs as insert on the stock-market.

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.

2009 disagrees.

A lot of countries have laws regulating stock markets.

No, you bet on nothing happening. Nobody wants to see their holiday ruined, their house burnt, or their health go to shit, but you get insurance so that IF it does happen, and you hope it doesn't, you won't get fucked over financially.

Insurance is done to reduce risk, gambling to increase risk.

Betting on sports is insurance if and only if you bet against your own team for an amount not greater than the winnings.

Gambling does increase risk, but it is not done TO increase risk. Risk is accepted (or embraced) to increase reward.

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.

No-one gambles to increase risk. Waging a bet against a payout is only superficially different from waging a premium against a catastrophe.

What?

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.

By this logic, any industry that involves measuring probability and minimizing risk is "gambling".

Agreed wholeheartedly (I posted something similar but hadn't seen your comment before doing so.)

Isn't this a legitimate trading strategy in financial circles

Contracts like credit default swaps pay out if some organisation fails to meet their (debt) obligations

Not in this case because she used fake names to initiate the contracts to avoid detection.

Yes, but I'd compare it to - or even say that it is a form of - arbitrage.

The payouts on these flights should cause the insurance company - instead of adding terms clauses - to increase the price by recognising some of the same patterns she has, and thus reducing the difference in price (/value) between the 'markets'.

Sure, but trading with insider information is illegal in most regulated financial markets.

I don't really understand how she made money. She apparently still bought tickets. If they weren't delayed she refunded the ticket early. But wouldn't otherwise the insurance payout just offset the price of the ticket? Or was there a premium on top of that?

She received about $500 per delayed flight as delay compensation. It's supposed to cover extra travel/hotel/inconvenience arising from a significantly delayed flight. Since the amount involved is fairly small, payout is pretty automated...they're not checking if you actually incurred the additional expense, or even if you showed up for the flight...

It's unclear, but it sounds like there's insurance available in China that will simply pay you money if your flight is delayed by a certain amount of time. The amount you get paid is not tied to the cost of the ticket it's simply a feature of the contract, so obviously there's a trade-off there with a profitability = Insurance Payout * Probability of Delay - Flight Cost

I mean, I'm sure such policy could be arranged elsewhere too as a custom thing, but it's basically gambling at that point. You might as well go to a bookie and place a bet that a flight will or will not be delayed(most bookies would be happy to accept such bet too).

Is this some sort of joke I'm not getting or are there actual bookies that take bets on real-world events, and if so how do they determine the odds (in sports from what I understand the odds are determined by the amount gambled on either side, but I can't imagine there is a big enough market for bets on flight delays to make that work)?

I think the difference is mostly that a bookie might give you different odds for different flights. I assume the insurance costs the same, regardless of the current likelihood that a specific flight is going to be delayed.

Depends on the insurance, delaying a flight might mean a lot - like missing events/meetings/connecting flights, etc.

Connecting flights can be a big use case if you can't get the whole itinerary from a single vendor (or if laws/regulations/terms and conditions fail to make the single vendor responsible for missed connections).

But in a perfect world you wouldn't place those bets against an insurance company but against the transport service itself (of the upstream leg). "I see your ticket price of 50 and raise another 20 against your punctuality SLA." This would create incentives and would be so much less of a hassle than alternative approaches that somehow try to factor in actual damages.

If she had 30-40 insurance policies as it says in the article, maybe she was able to get each ticket refunded 30-40 times? And then did this with each of her 20 identities.

She received payments from multiple insurance companies for the same flight.

> I don't really understand how she made money.

Well, she had some kind of inside knowledge where she knew that insurance would probably provide a payout for the flight.

I'd like to know what this inside knowledge is? What did she know that she could use to predict that a flight would probably be delayed?

> What did she know that she could use to predict that a flight would probably be delayed?

At least in the USA, information on previous flights (on time / delayed / canceled) is public. Routes are pretty fixed. Combined with weather forecasts, that is probably enough information to turn a profit.

I guess from the article she had "insider information", but I'm not sure why that would be necessary to use this scheme?

FWIW - Flight delay insurance in China is sort of like buying a scratch-off lottery ticket. The terminal is dotted with little kiosks where you buy the insurance for 20-50 yuan and hope it pays a couple thousand yuan for a delay.

https://blogs.wsj.com/chinarealtime/2014/09/25/flight-delaye...

Wait how is that the solution at all? That seems like might be a lot worse for everyone involved, including innocent insurers. I would expect them to somehow reduce the payout to only the cost of the flights or similar, resulting on a net neutral for the insured.

I guess part of the reason people have insurance is to cover other losses, such as hotels and onward flights. Reducing to the cost of the flight might lose a lot of customers.

Yup, I've never heard of insurance for just a missed flight, but I have heard of cancellation insurance for the whole journey.

> Yup, I've never heard of insurance for just a missed flight, but I have heard of cancellation insurance for the whole journey.

If you only get insurance for outright cancellation, there is a "donut hole" between that and what the airline will cover in the case of longer delays.

BTW, it can be illuminating to read what the slightly more expensive travel insurance packages will cover; things like a helicopter medevac back to civilization, or ransom payments in case of kidnapping.

Heh, I actually did a junior version of this, myself. I play Dance Dance Revolution (video game were you press the buttons with your feet), and buy foam pads to play with. Stores loved to sell you their extended warranty, which everyone tells you is a bad deal.

Well, I noticed that this particular brand/model (Red Octane 2.0 I think) failed pretty quickly[1]. So I always paid the $3, which entitled me to a quick, easily replacement (normally $50) when they inevitably broke down.

[1] Like after a few months -- not soon enough to be annoying, but sooner than they're supposed to last.

So the police arrested her. Why wouldn't the police seize insurance companies assets when flights were not delayed? They do exactly same with people, right?

Sorry, please read the article. She was not arrested for normally buying retail insurance like how everyone does.

The woman faked different identities (illegal) to not fall under regular insurance quotations, and used insider information (illegal/scam in insurance policies, just how insider info is illegal in stocks).

This is akin to someone buying car insurance, faking different identities each time, and plan in advance to crash the car every single time (the insider info part).

I won't argue with the fake identities part, but she didn't force the flights to be delayed. She didn't "crash the car".

It would be more like her driving through a known dangerous intersection, following all traffic laws, and still getting t-boned every few days because of low visibility. She didn't "make" the crash happen, she just knew it would.

Because the police only exist to protect assets and asset holders. That's why they were established so don't be surprised when they don't protect and serve the people.

Yeah, but they're big and important, so the system protects them. Not not the case for the woman.

The problem was her access to privileged information about the flights. And, misleading multiple identities. If she'd stuck to hedging and sold a service she probably would have IPO'd by now.

The arbitrage function remains useful.

> The Paper, citing Yangtse Evening Post, said she was able to receive relevant information beforehand that tells her if the flight was going to be delayed or cancelled.

Why does the title say she "predicted" they would get delayed?

I wonder that same thing. This changes it from really clever to insider trading (ie. fraud).

Could be that the relevant information is a good indicator it will be delayed without actually saying it will be delayed. Arguably still a prediction - just one with much better odds than an outside observer.

Even though it didn't end up well for her, it's nice example of how non-technical person can "hack" the system. She definitely has hacker mindset.

Grifter mindset, you mean.

And you are seeking side project ideas :)

Finally a story about a hacker in this forum

I think if burden is on insurer, then insurance can get away with any payout. They can always claim you knew weather is bad. So after all, insirance career is a big winner here.

that's not really that surprising, many travellers in Europe I know were buying lot of flights during pandemic knowing they will be cancelled and they will get bonus miles as compensation to accumulate them, you didn't even need insurance for that

I know plenty of people who made hudnreds of euros on these low cost flights, it's same people who are buying error fares

there is nothing fraudulent about it

you can do actually same thing with sending packages insured for much higher value than is content to destinations where you know they are very likely to be stolen/lost

She got greedy and got caught. I wonder how many more might be doing this.

I wonder how she predicted so accurately which flights would be delayed.

She probably wasn't super accurate about it, because the article also says she would try to get the tickets refunded if the flight ended up not getting delayed.

Maybe the insurers didn't have sophisticated algorithms, and her prediction was something like: For example on Flightradar24, etc, you could see that a particular plane on a particular date maybe flew New York - Austin, then Austin - Boston and then Boston - New York. On the next day it might be the same or a different plane. On the next day you'd just have to see if the NY - Austin flight is delayed, and you could deduce that since the airline usually uses 1 plane to do the 3 above routes, that plane will be delayed for the Austin - Boston and Boston - New York routes...

But instead of getting onto the flights herself, Li was making use of her past travel service work experience to selectively take out insurance on flights that she thought would be delayed.

The Paper, citing Yangtse Evening Post, said she was able to receive relevant information beforehand that tells her if the flight was going to be delayed or cancelled.

3rd and 4th paragraphs of the article.

“receive relevant information” doesn’t really adequately answer the question of how.

it's possible she was in talks with a co-worker who gave her insider info

My guess is she took advantage of times when the airlines hadn't announced the delay yet but had no chance of making it on time. Then occasionally got burned when they switched planes or something and cancelled a different flight instead.

She beat the game of insuring flights, what's wrong about it to have police arrest her? She played fair, rules were set by those companies.

I guess the part where she used 20 fake identities to hide her tracks is illegal?

Double insurance isn't necessarily illegal on its own, but some insurance companies will say it's a policy violation to do it. Claiming is another matter. Double dipping car insurance is definitely illegal in the US.

That said, in principle it's analogous to placing two bets from different bookies. Most of the time if you double insured, you'd just lose twice as much money. You'd probably need to look into exactly what constitutes insurance fraud. In this case it's probably fine, because the event actually happened and she was entitled to claim.

The identity fraud bit is really the problem here though.

Ok, fake identities are illegal. But why would she need to hide her tracks? Was there something else illegal in the first place, that would necessitate her using fake identities to hide? What?

You can only get one insurance policy per flight per identity and the maximum profit per policy is limited. So to increase profits you can get more identities and then get more insurance. Kinda how some people have dozens of dropbox accounts to take advantage of the free storage every account gets.

Well, if I were to do something like this one of the first assumptions I would make is if I use the same identity for each refund they will soon catch on that I have gotten a lot of refunds and shut me down.

Have you considered that taking out insurance for a flight you don't intend to take, with the intent to defraud the insurance company, might be illegal?

Yeah, sounds like she broke a few laws RE identity and falsifying information about some of the cancellations.

Nothing wrong about finding an informational edge over the insurance companies.

She got greedy!

She didn't use fake identities, she booked on the behalf of family and friends.

The insurance also didn't require the person to have checked in.

Not sure if you read the article. She was using multiple identities to take out policies, which in anyone's juristiction is fraud.

On top of all other siblings say about reading the article/identity fraud. Similar behavior might be considered insurance fraud - esp. since she had information leading her to the decision. Insurance fraud is a crime under a lot of jurisdictions too.

Creating fake identities is playing fair? In which country?

IIRC you can have as many names as you want in the U.S as long as you are not using them for fraudulent purposes.

She could not have actually gotten on those flights unless she had fake ID, so then entire purpose was to claim insurance for flights she could not get on. Surely that is fraud just about anywhere.

Excuse me, that sounds implausible. Could, say, any U.S. citizen able to drive legally get a driver's license under a made-up name, as long as they only used it for lawful driving?

Insurance fraud is its own special area in law. It's not a game to be played. It's not a free market to be exploited. If the courts say it's fraud then it's fraud and this is pretty obviously fraud. This is the same in England, the US, China, and probably everywhere else in the world.

She did not play fair, she knowingly defrauded the insurance company.

Just because something is possible, doesn't mean it's legal.

I mean you can beat the game of security tags at shops, you'd still be a thief.

> She played fair, rules were set by those companies.

She assumed she could win in a crooked game by playing fair and by the rules? This is China, the CCP own everything, and having someone take 'advantage' of a seemingly cunning and thoughtful hedging system is actually quite ingenious, but consider the follow:

> But once the flight is delayed, Li said she would make use of one of the insurance company rules that did not require the insured themselves to apply for compensation, and proceed to get compensation from the company.

Traders make the same bets all day by shorting stocks and currencies, but if you try this with the CCP I'd be surprised if this woman not only had all her money and property stolen from her, but she ended up in some labor camp in the South to appease the 'great leader' and was forced to make some forced apology that was subject to the same 1984 style two minutes of Hate.

Uh buddy the same thing happens here if you manage to find a loophole that makes you rich, you're a criminal.

> Uh buddy the same thing happens here if you manage to find a loophole that makes you rich, you're a criminal.

Really? John Corzine (a former Senator) and MF Global would disagree with your premise; as well as a long list of bankers at Citi, JP Morgan, Goldman Sachs etc...

They make the rules, we don't; they win, we lose.

Woman buys insurance to make money... and somehow she is arrested.

This reminds me of the other articles -- parents pay $500k to private university so their kids can be accepted... and then somehow they are arrested.

When articles write about people being arrest, do bother to document what is the violation.

Probably the best reading of "..." nowadays is "and making money is bad, so" or "and this made somebody higher-class than them sad, so".

> Probably the best reading of "..." nowadays is "and making money is bad, so" or "and this made somebody higher-class than them sad, so".

My understanding of the university admissions scandal was that the parents were defrauding the university by bribing the admissions staff to lie to the university about how good the candidates were. It would have been legal if they had instead been honest with the university and paid however much extra was needed to convince them to accept their children. But that would have cost them more than bribing individual staff.

So I don't think that example fits your mould.

Probably the best reading is: "Fraud is bad."

Clever woman, she should have found a legal way to bet, or working for a trading firm, because she is good at it.

How much money she would made when Corona pandemic started when all flights got delayed?!

too bad this article is so thin. i'd be interested to know how she made a dime. what insurance policies pays you back more than the cost of the travel arrangements themselves, which you are already out of pocket on?

from the article:

"Unfortunately, the police caught up with her misdeeds and arrested her..."

-20 social credit

double plus ungood

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