The two main issues with insurance are:
- Insurance fraud
- The way it is sold
What is the inefficiency associated with identifying fraud in the insurance industry?
Thousand of pounds could be saved on the part of honest insurance clients, if it was not for the thousands of people who claim fraudulently - or worse, don't have insurance. They therefore leave open opportunities for businesses who then ask the wary to cover themselves against this eventuality, too. So the inefficiency here is that everyone feels cheated by insurance and, therefore, when people see an opportunity to put in a fraudulent claim,
they make the most of it. The insurance company pays out; then because of
all these false claims, the cycle continues. Just like gambling, many people pay in, one person takes the money.
As there is so much fraud, the insurance companies then need to employ more staff to investigate claims - the end result, of course, being that those buying insurance have to bear that cost, too!
The second inefficiency is that the whole idea of insurance is based entirely on fear: fear of what might happen, fear that you will suddenly have to spend lots of money unexpectedly, even though in many cases the one outlay of money would be cheaper.
In many people's opinion, the whole insurance industry is built on conning people, kind of like paying the lunch-time bullies to stop the pocket money bullies stealing your money - the lesser of two evils. The problem with this is that this holds no true value to people. We are basically paying for a service we don't want to have to, for the sake of an easy life, and to not be conned out of more money should we lose something or have an accident. Thus, there is no true feeling of lasting value in this product.
When does insurance work?
I believe holiday insurance works really well. You pay for the period you want to be covered for and based on current health, where you are going and what activities you'll be doing there. It is not based on:
- Did you ever claim before?
- Which airline are you flying with?
- Which hotel are you staying at?
- How long have you had a passport for?
If this can be revolutionised, I would be very impressed - operating this as another tax might really be the only way of addressing the issue fairly, and without allowing big insurance companies to charge more than necessary. It's crazy now that you can insure your insurance. Oddly, if I don't have an accident for 5 years, I don't get my money back because they didn't need to bail me out or buy me a new phone!
