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.

Until there is a tornado or a flood then they have to pay 11 figures to cover damages.

a) that's what reinsurance is for.

b) Can you give some specific examples? I'm using State Farm as a place-holder for "large insurance company". They had one really bad year recently where they "only" made 9 figures in net income.

Insurance companies are extremely profitable. Their losses in bad years are more than offset by gains in good years.

You're from the US? US is all about profits so that makes sense. Property insurance don't even have to compensate against flood and usual risks which is stupid IMO.

In other locations, insurances are not all about profit and reinsurance. Either they're public operated by the government, or they're private and have caps on how much they can charge compared to how much they return and they don't get to choose what they can cover or not.

I am pretty sure my last insurance was directly financing the government. I suppose it makes sense to store billions of euros long term (until a disaster) into dedicated government bonds, which benefits both the government and the company. That is to say, the money fits a larger purpose in the meantime, it's not all evil.

Yes, specific to the US. That's fair :)

>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?

Because you're not buying it to win money. You're buying it to limit downside loss, because aside from the massively wealthy, we are loss averse. It's worth our while to pay $200 to insure against a 1% chance of losing $10000, even though in purely probabilistic terms that's a bad deal, because most people can't afford an unexpected expense that large. Even people who can afford that, it's still more painful to lose it than to have a 99% chance of having wasted $100. The larger the potential downside, the bigger the incentive to insure against it, even when it's a bad deal.

> Because you're not buying it to win money.

There is no win or lose, if insurance is not gambling. If it is, then either side wins money with varying payout schedules.

It's not. It's fraud when you lie about it.

> 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.