Comment by BugsJustFindMe | Hacker News Reader

Comment by BugsJustFindMe | Hacker News Reader

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

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

> It is risk avoidance.

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

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

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

> These are the same thing dressed in different names.

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

> Consider term life insurance instead

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

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

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

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

Yes, aka gambling.

> But they are losing you

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

> You’re saying that because these are morally different

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

> There's only no making money on health insurance

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

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

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

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

Precisely.

You/your employer pay a premium.

Then you have a deductible.

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

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

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

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

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