Insurance companies essentially work by the Law of Large Numbers: that in a large enough number of trials, the average value should approach the expected value. In real world terms, if the chance of a house burning down in a fire is 1 per year per 1000 homes at an average cost of $200k each to repair (totally bogus numbers), then an insurance company can break even by charging a homeowner $200/year to insure the home against fire.
Over a large enough number of homes, that should be reasonably close to the actual amount they have to pay out. Tack on a profit margin, and you have a business model.
Edit: Fixed numbers a bit. Thank goodness I'm not an actuary.
How do they make money? http://seekingalpha.com/article/419731-buffett-on-insurance-...
Basically they invest your premiums during the time you are paying them and make money off of holding your money. Then the other insurance agencies might lower their costs and end of paying out 104% (or whatever) of what you've paid in. This competition pressures the market to close the gap between what you can make on the float and what you can charge your customer, but there is going to be some gap and that is the profit margin.
If the insurance company can make a high ROI on the float, they can charge less in insurance rates and still make money.
However, GEICO is not a good example, because it is the exception to the rule. GEICO usually makes an underwriting profit -- often a very large underwriting profit.
In fact, all of Berkshire Hathaway's insurance operations make a long-term underwriting profit. Unlike GEICO, the reinsurers do not make a profit every year, because hurricanes and earthquakes are unpredictable. (Whereas car crash statistics change very slowly from year to year.) But averaged out over a long period of time, they make a profit.
This is the secret of Warren Buffett's success as an investor. He is essentially buying stocks on margin, at a negative interest rate.
Data collected from Berkshire Hathaway annual reports:
2012: $680 million profit on $11,578 million float
2011: $576 million profit on $11,169 million float
2010: $1,117 milion profit on $10,272 million float
2009: $649 million profit on $9,613 million float
2008: $916 million profit on $8,454 million float
2007: $1,113 million profit on $7,768 million float
2006: $1,314 million profit on $7,171 million float
2005: $1,221 million profit on $6,692 million float
2004: $970 million profit on $5,960 million float
Not broken out separately prior to 2004
In the game world, insurance companies wouldn't have predicted the level of claims.
But if the game's premise is that the mayhem is normal within the world, then insurance would be stupid expensive. But, assuming the market can bear those prices, insurance would be a good business to be in.
Did I say casinos? I meant insurance companies.
Seriously, insurance is a bet on something bad happening. Usually it only makes sense to buy insurance for the equivalent of long-shot "lottery jackpots". Like a catastrophic health problem. Or like the damage you might do to other people and their property in an auto accident --- but probably _not_ the damage to your own car. i.e. Insure for personal liability calamities, but not collision damage if you could pay for it out of savings.
They're related but opposite concepts.
If casinos find themselves paying out too often, they change the size of those payouts with respect to how much it costs to play, until they are back in the black. If insurance companies find themselves paying out too much, they raise their premiums. Same basic concept, the only thing that is different is the motivation of the customers.
"From each according to his ability, to each according to his need." -- Karl Marx. Not a misquote.
And since you make the explicit point that you're not misquoting: No, but the quote you give is severely out of context.
Marx very specifically did NOT believe that this would be the case for _socialist_ society, but for a well developed _communist_ society, and that in any case he makes the case that it is really a distraction.
The quote is from Critique of the Gotha Programme, a critique of a draft programme of the United Workers Party of Germany.
The full paragraph reads "In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life's prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly -- only then then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!"
This was part of Marx' criticism of this phrase in the programme:
'3. "The emancipation of labor demands the promotion of the instruments of labor to the common property of society and the co-operative regulation of the total labor, with a fair distribution of the proceeds of labor.'
Marx made the point that while this is desired endgoal in a communist society, the above programme point is largely meaningless in terms of practical policy for a revolutionary party that has communism as its goal, as the distribution of wealth can not reasonably be treated separate from the ownership and control of the means of production. Thus focusing on redistribution is effectively making an own-goal, playing right into the hands of the ruling classes and/or reformists by changing focus away from the necessity of restructuring society and the control of labor.
He goes on after the most famous part of the quote, to say:
'I have dealt more at length with the "undiminished" proceeds of labor, on the one hand, and with "equal right" and "fair distribution", on the other, in order to show what a crime it is to attempt, on the one hand, to force on our Party again, as dogmas, ideas which in a certain period had some meaning but have now become obsolete verbal rubbish, while again perverting, on the other, the realistic outlook, which it cost so much effort to instill into the Party but which has now taken root in it, by means of ideological nonsense about right and other trash so common among the democrats and French socialists.
Quite apart from the analysis so far given, it was in general a mistake to make a fuss about so-called distribution and put the principal stress on it.
Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves. The latter distribution, however, is a feature of the mode of production itself. The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of nonworkers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labor power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically. If the material conditions of production are the co-operative property of the workers themselves, then there likewise results a distribution of the means of consumption different from the present one. Vulgar socialism (and from it in turn a section of the democrats) has taken over from the bourgeois economists the consideration and treatment of distribution as independent of the mode of production and hence the presentation of socialism as turning principally on distribution. After the real relation has long been made clear, why retrogress again?'
In other words: Marx saw the focus on redistribution as largely _missing the point_. The main issue, according to Marx, is the mode of production: ownership of the means of production and conditions under which people work.
Thus the systems inside any large company, no matter how much you "spread the wealth around" is a sideshow: Unless it alters the decision process, ultimately the distinct capitalist distribution of wealth eventually asserts itself. And just how many capitalist companies do you know where an objective measure of productivity, rather than hierarchy, is used to determine what is available to most employees?
There may be socialist ideologies that might fit your idea - various meritocratic systems, such as Saint Simon's original technocratic meritocracy, for example might be a better fit. But Marxist it isn't.
Socialism's the one that thinks all men are born equal. Everyone gets the same computer and cubical. Productivity is irrelevant.
You might be muddling Socialism up with Communism (or Marxism).
"Ism's in my opinion are not good."
If you can afford to replace everything you own out of savings, good for you, but most people can't.
No clue if those things exist anymore with everything going on in the world of health insurance, though.
Therefore, you really need to buy at least catastrophic coverage. And that's real insurance, not self-insurance.
That way you insure the vast majority of things, but you are covered for the really insane stuff, plus you get the benefit of the negotiated rates.
Exactly this. The advice I was always given is that if you can afford to replace x (whatever x is) if something bad were to happen, then it's better not to bother. But if you can't, and x is necessary for your life, then you need to accept insurance as a necessary evil.
Not that it's relevant, but I can't. Anyway, I didn't say anyone should plan to replace everything from savings. My point is, whatever you _can_ replace from savings, don't waste money to insure _that_.
I'd argue the opposite, no? The 100-year-storm of destruction that we, as Player 1, unleash upon the poor Liberty City automotive world would probably make any insurance company run screaming and crying in the opposite direction of profitability.
"We had HOW MANY claims yesterday afternoon??"
:)