Re: AltInst: Legislation insurance

From: Eli Brandt <>
Date: Sun May 03 1998 - 21:26:07 PDT

Jonah Nobleza wrote:
> For a simplified scenario, two parties with conflicting interests, will be
> affected by any legislative change. Now if those two parties were able to
> insure themselves against drastic economic legislative changes, I could not
> see how any insurance agency would profit from such a venture.

This is _perfect_ for an insurer. Normally they're paid to assume
risk. Here, if I understand your scenario, they're getting paid for
both ends of the same risk, i.e. no risk at all.

Since insurance has come up, there's something I've always wondered
about -- maybe this list has somebody who knows. Why are insurance
companies' models so crude? They lump risks into classes that I find
astonishingly broad, throwing away a lot of data right up front.
Compare with, say, credit-card issuers, who acquire all sorts of data
by all sorts of means and shovel it into fancy machine-learning
algorithms that try to form predictive models of their customers.
(Too bad digital cash is dead in the water...)

Would more data-intensive techniques really not buy insurers anything?
Are they just slower than the financial industry to adopt them? Or,
as my prejudices incline me to guess, does regulation get in the way?

An immense dollar value of transfer programs are implemented through
insurance regulation, since it's so cheap politically -- the taxes get
hidden as a fraction of insurance premiums. I imagine the present
regime would break badly if risk-classes were of size one, which would
be ideal for insurers (and for consumers in the aggregate).

If this is indeed the situation, how much more efficient could the
industry be if it modeled risks better? And presuming the goals of
the present regulatory regime are to be maintained, how could
they be re-implemented while preserving some of this efficiency?

     Eli Brandt  |  |
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Received on Sun May 3 21:40:36 1998

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