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Comment by ryandrake | Hacker News Reader

As another commenter pointed out, if insurance companies had a crystal ball and could perfectly predict each customer's probably of having an accident, and charged them an individualized rate based on future payouts, then we would not need insurance. You could just put those premiums in a savings account and pay for the accident(s) when they happen.

The whole point of insurance is it's a shared risk pool. Arguments like "Bad drivers make YOUR rates go up" just serve to pit customer vs. customer while insurance companies profit.

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That would only be true if people could expect multiple insurance events over their life time.

But, if the expected time to an insurance payout for a good driver is longer than their life time, then good drivers will never have enough money in their account to cover an accident that occurs.

If you had a perfectly accurate crystal ball and the number of accidents you would have in your lifetime is zero then your account wouldn't need to have any money in it.

It's true that perfectly accurate crystal balls would render insurance irrelevant. It doesn't strike me as that interesting of a revelation, but it is true.

I guess it's a response to people saying "They need to charge bad drivers more that they do, in proportion to how badly they drive." If insurance could accurately do that, it wouldn't be insurance--it would just be an individualized pre-paid accident savings account.

More to the point, it erodes the value of the system as insurance.

Suppose the insurance thinks that Alice has a 90% probability of an accident and Carol has a 15% probability, so they want to charge Alice six times the premiums of Carol. Then in practice Carol is the one who has the accident and not Alice, because it's not perfect.

But the pool Alice is in is much smaller than the other one, so if they were merged, the combined group would only be paying 10% more than Carol does, which would be serving the purpose of insurance -- spreading risk. Whereas if you separate them, Alice is screwed -- even though she isn't even going to have an accident -- because now she has to pay >$7000/year in insurance rather than ~$1300 when you combine these imperfect predictions with smaller risk pools.

Well now you're just saying know the future, which is different than knowing an individual drivers probability of an accident.

as another commenter said, they lose money on the policies and paying out. they make money on investing the policies before they have to pay out the claims.

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