That's silly. Insurance is a great method of hedging risk. If my apartment burns down it would cost me A LOT of money to replace my stuff. But the chances of it burning down are really small. So I can purchase renters insurance for just a couple hundred bucks a year, an expense I can easily afford.
That benefits me a great deal!
Maybe when you said insurance you meant to say "health insurance" but the same principle applies. If I have a heart attack then treating it will be hideously expensive, but that's also unlikely to happen.
RISK seems to be the least mentioned word in this entire thread. "Insurance is a great method of hedging risk." Spot on. I wish we had education in RISK Management rather than what we have now.
Except a building isn't almost certain to burn down during its lifespan. Humans, metaphorically, burn down at a much higher rate. Cancer, heart disease, systemic infection ...
"Spreading the risk" doesn't work when the likelihood of something bad happening approaches a percentage in the high double digits, especially with an ageing population and falling birth rates to keep paying into the ponzi scheme.
That actually raises an interesting question: what have the changes in building fire risk been over the past 150 years or so?
Historically, instances of entire cities burning were commonplace enough to be noted: the Great Fire of London (1666), the Great Chicago Fire (1871), the Baltimore Fire of 1904, the Great Fire and Earthquake of 1906 in San Francisco.
The Oakland Hills Fire of 1991 was actually the biggest urban fire in the US since the 1906 San Francisco event.
2. Standardisation. Baltimore and Oakland Hills both saw incompatible hose-hydrant couplings.
3. Building standards. Everything from fireblocks and exits, to sprinkler systems.
4. Replacement of candles, oil lanterns, and gas lighting by electricity. Electrical fires happen, but they're far rarer. The Great Chicago Fire was caused by a lantern.
5. Safety and certification ratings of equipment, appliances, and wiring. "Underwriters Laboratories", the source of the ubiquitous (in the US) "UL" logo, was created by insurance companies.
That is: appropriately collectivising risks can result in reduced overall risk.
Sure, we're all gonna die. But the amount of money we spend on medical expenses between now and then varies by at least an order of magnitude between different people.
If there weren't risk differences then we wouldn't need insurance at all.
I was referring to health insurance specifically. I edited that in just now to clarify.
Health insurance should work exactly as you describe, but far to often I've seen it cover the little things like colds, and then fail to adequately cover big things like a heart attack.
It seems to me that 'insurance' has become more like a group pre-paid debit card for predictable medical expenses than a lower cost hedge against statistically rare events.
