I worked in insurance and they all seem intent on tailoring everyone's insurance policies based on any minutiae they can dig up on them. For example they found out for life insurance that people who live in greener areas live longer, so they were trying to obtain geographical data for "greenness".
I asked them what the end game is. What happens when everyone's insurance policy is exactly tailored to them? What is the point of insurance then? If they get it too right they put themselves out of business. They didn't have a good answer.
I expect that marketing, regulation, and accidents will keep insurance companies around indefinitely. The upside of near perfect information seems great, for the insurance companies. They can ensure that the premiums they charge are higher than the expected payout for 100% of their customers. That won't be so good for the folks who need insurance the most though.
>If they get it too right they put themselves out of business.
No, they don't. Getting it too right just means they are able to more effectively compete on pricing since they know the lowest price they can offer while still making profit.
The point you missed is that when insurance is hyper tailored to specific people, you are basically paying for your own healthcare and can cut out the middle man
Uh, no. Insurance is paying for unlikely events, as it was said above. Greener area or not, you can still get run over by a car, event for which you definitely didn't pay. Or you house struck by lightning, or any such insurance cases might arise. The green area only affects the probability of such events, thus the tailoring.
But my point is by hyper-optimising for individuals it will at some point cross a line where it's not really insurance as you understand it any more. The unlikely event is that the insurance company gets it wrong, for example your house floods in an area that was not predicted to flood for millennia. As the insurance company gets better, the chance of an unlikely event gets smaller. How small can that chance get before you decide to just take the risk yourself?
That is assuming all health related costs can be predicted 100% correctly. If there is a 1/3rd chance to incur a cost then insurance lets you get away with only paying 1/3rd of the cost.
In that hypothetical in the best case the insurance company will never lose money by charging someone less than what they will have paid out to them and they will be able to sell this service to other companies, in the worst case they become essentially a bank.
Insurance makes money by ensuring their income (premiums) is greater than their outgoing (payouts).
The value of insurance (and why we pay for their profits) is in spreading risk across populations. They already target particular demographics (when the law allows them to), but I'm talking about targeting individuals.
If the insurance company can predict exactly how much they will be paying out to you in the next 10 years, say, then they just become a glorified savings account with a cost attached (their profit). The value is then essentially telling you how much you need to save. Data companies like 23&Me could then offer this without bothering with the savings account part.
My feeling is people won't accept this and will want actual insurance policies that actually spread risk across populations because people don't want to be told "you need to save twice as much as your neighbour because of your cancer in 15 years time".
Unless they have a crystal ball and can tell you whether or not you will be involved in an accident leading to serious injury (and the nature of those injuries) then you still need health insurance.
I know a guy who was robbed and shot. Had to have surgery and spent a few weeks in the hospital.
I have a neighbor that was jogging, tripped over a bump in the sidewalk and broke his arm. Few weeks in a cast.
I know plenty of blue collar workers who had on the job injuries that required medical treatment.
Your DNA isn't going to help with that. And in America, a simple 4 hour visit to the ER can result in a multi-thousand dollar bill. And if you're unfortunate enough to need a surgery and a multi-week stay then we're talking 5 figures minimum.
As insurance risk estimation errors approach zero, the value of having insurance instead of just a medical savings account approaches zero. Rates for higher risk individuals will become prohibitively high and those people will have no choice but to be uninsured. Insurance companies would be essentially only covering black swan events, as individual premiums would match individual health costs with high fidelity.
As a result the incentive to get comprehensive health insurance rather than just disaster insurance would plummet, as an MSA would be more cost effective and you also get to take advantage of better than predicted health outcomes in the form of interest earned and at EOL a potential inheritance gift.
Sounds great, except you jhave to understand that this would mean that society would somehow need to deal with the burden of the least healthy, who would be very unlikely to purchase, or be able to afford, insurance under this scheme. It’s like trying to charge up front for building roads. You just end up with no roads. Socialism (or in the case of insurance,capital funded socialism) is extremely beneficial to society in certain specific verticals.
I asked them what the end game is. What happens when everyone's insurance policy is exactly tailored to them? What is the point of insurance then? If they get it too right they put themselves out of business. They didn't have a good answer.