Yes, in a well-regulated insurance market the winning business model isn't deceit. That's the point of the regulations.
Deceit can take many forms, and I'd argue that undercapitalization is actually one of them. "There's a trap clause on page 23 of the telephone book contract" is only the simplest strategy an insurance company can use to lemon-drop. "We ask our customers to do an impossible information wrangling task and only review the paperwork if they get cancer, so that we have an excuse to drop them" is a slightly more evolved form. Loading up sacrificial business vehicles with risk and using bankruptcy to discharge obligations is the most advanced form of deceit-based insurance business models, because it provides plausible deniability. "We just tried to compete a bit too hard!" they can claim, even if they knew in their hearts exactly what they were doing: the age old practice of selling insurance that you had no intent of making good on.
Fortunately, we have a long record of historical evil tricks to draw on when crafting legislation, because I absolutely stand by my claim that the natural incentives (the ones that happen without careful legislation) in the insurance industry are overwhelmingly bleak, both on an absolute scale and relative to other industries.
I'm not saying it's not because of regulations. I'm saying it's not just the regulations on payouts and the regulations on payouts probably aren't even the most important, because all the regulation in the world around ensuring the insurer can't skip out on payouts will do nothing for "Oops we invested badly and have literally no money with which to pay your completely valid claim".
The payouts regulations are still good and necessary because that's way better than requiring people to find out the hard way through shitty claims processes and denials and word-of-mouth reputation, but they're in no way sufficient.
I'm not sure we disagree. We just allocate the benefit of the doubt differently.
> "Oops we invested badly and have literally no money with which to pay your completely valid claim".
It's 100% possible for this to be a genuine mistake. I'm sure that it happened as a genuine mistake more than once! However, it is also possible to do this on purpose: load up a business vehicle with increasing amounts of risk and extract as much of the premiums as one possibly can before it explodes. If this is done intentionally, it is exactly the same hustle as selling policies that one doesn't intend to make good on, it just uses a different mechanism to shirk the obligation.
Every company that does it on purpose will say that it happened by mistake, of course, and just as I am certain that it has happened multiple times as a genuine mistake, I am certain that it has happened multiple times on purpose.
Undercapitalization is the evolved form of the "sell a trash policy" hustle because it provides almost perfect plausible deniability. It makes sense that the greatest legislative effort would be spent heading it off.
Deceit can take many forms, and I'd argue that undercapitalization is actually one of them. "There's a trap clause on page 23 of the telephone book contract" is only the simplest strategy an insurance company can use to lemon-drop. "We ask our customers to do an impossible information wrangling task and only review the paperwork if they get cancer, so that we have an excuse to drop them" is a slightly more evolved form. Loading up sacrificial business vehicles with risk and using bankruptcy to discharge obligations is the most advanced form of deceit-based insurance business models, because it provides plausible deniability. "We just tried to compete a bit too hard!" they can claim, even if they knew in their hearts exactly what they were doing: the age old practice of selling insurance that you had no intent of making good on.
Fortunately, we have a long record of historical evil tricks to draw on when crafting legislation, because I absolutely stand by my claim that the natural incentives (the ones that happen without careful legislation) in the insurance industry are overwhelmingly bleak, both on an absolute scale and relative to other industries.