For unique, poorly-estimable risks the insurance industry had strong incentive to overprice them
Plausible, and one should certainly beware of biases like this. On the other hand, given conventional assumptions regarding the competitiveness of markets, shouldn’t prices converge toward a rate that is “fair” in the sense that it reflects available knowledge?
On the other hand, given conventional assumptions regarding the competitiveness of markets, shouldn’t prices converge toward a rate that is “fair” in the sense that it reflects available knowledge?
That requires a market. And even if you have one, the further that real-life market is away from the abstract free market, the less prices converge to cost + usual profit.
I suspect that there is no market for unique, poorly-estimable risks.
And even if you have one, the further that real-life market is away from the abstract free market, the less prices converge to cost + usual profit.
True.
I suspect that there is no market for unique, poorly-estimable risks.
That’s probably true for most such risks, but it’s worth noting that there are markets for some forms of oddball events. One example is prize indemnity insurance (contest insurance).
Fixed, thanks.
Plausible, and one should certainly beware of biases like this. On the other hand, given conventional assumptions regarding the competitiveness of markets, shouldn’t prices converge toward a rate that is “fair” in the sense that it reflects available knowledge?
That requires a market. And even if you have one, the further that real-life market is away from the abstract free market, the less prices converge to cost + usual profit.
I suspect that there is no market for unique, poorly-estimable risks.
True.
That’s probably true for most such risks, but it’s worth noting that there are markets for some forms of oddball events. One example is prize indemnity insurance (contest insurance).