I used to have a reinsurance company as a client. For those unfamiliar, that’s an insurance company that sells insurance to insurance companies. Example: You buy a $1,000,000 automobile liability insurance policy with a $1,000 deductible.
If the insurance company doesn’t sell enough of these kinds of policies to reliably offset payouts with premiums, they might turn around and buy a policy from a reinsurance company with a $10,000,000 limit and a $100,000 deductible against their entire portfolio.
Thus, reinsurance companies spend a lot of time thinking about things that don’t happen very often but can be very expensive when they happen.
And yes, they had a division that did propositions like hole-in-ones, and also they insured legal betting companies against wild trifectas and that sort of thing.
I have a small trove of stories they told me about bizarre accidents that wound up costing enormous amounts of money.
I threw up in a sink at 1am (drunk) and left the water running full-stop, then went to sleep. It flooded the room, then went down the walls to the floor below, and cascaded like a Champaign Waterfall until it reached the offices in the basement where it destroyed servers and computers.
That was the single time in my life I’ve ever, ever been so glad for liability insurance in my life. They covered everything. The hotel had to repaint and replace walls, servers, furniture, carpet, paintings, etc.
Always get liability insurance riders on your home/rental insurance. It’s usually only a few extra bucks a month. Totally worth it in the event something like a sink overflow fails to stop a sink from overflowing while you are asleep.
Anyway, I learned later that my little catastrophe coincided with a number of other little catastrophes which caused them to need to make a claim on their reinsurance company.
Interesting that your liability insurance covered everything without question since there are a few obvious points of fault/negligence with the hotel (if a stray drunk patron can destroy their IT equipment, somebody fucked up, not to mention how a sink should generally not overflow from just being left on.
I think the term you mean is comparative negligence.
Contributory negligence would decline all coverage if the insured in any way contributed to the event.
I'm guessing the hotel filed a property damage claim with their insurance, who then sued the commenter, whose liability insurance worked things out with the hotel's insurance company.
You're right, the commenter would be covered 100%, but their insurance might have only paid out a fraction.
>a sink should generally not overflow from just being left on
I once thought all bathroom sinks had a little drain hole in the side to prevent overflows. But not all do. (in places I've lived in my area of the US)
Depending on how clogged the drain is, ive seen those be useless before. The general case for those to be useful is that main drain is only blocked because the user closed it purposely. If the drain is clogged it becomes pointless-ish
Yea my bathtub has one of these that helpfully increases the window between “the right level” and “overflow eminent” by about 4x the fill rate without the overflow drain, but certainly can’t handle the extra water indefinitely. I became fascinated by this metric/window when I almost overflowed the tub when I missed a timer.
Y’all know that post about the importance of walking and getting off your phone? I’m your altogether-normal, socialized coworker that’s in the bathtub 2:30-3:00PM doing pretty much the same thing being described there. What a place to be and think!
Sorry I can’t respond to your IM right this second, I’m thinking about the fill rate of my glorious tub, it’s failsafe features, the pothos over my head, the spider friend in the corner, and - before you get too concerned - whether these new bugs warrant further review of network architecture we’re building out.
I love the tub, and I make no apologies for it. Good morning HN, thanks for reading.
That little drain feeds into the same pipe and trap. If the pipe is clogged, that little drain hole is useless. The purpose of the drain hole is saving your bacon when you intentionally plug the sink drain to collect some water and then forget to turn it off.
When people say their "liability insurance covered" something it probably means the insurance also fought whoever they could so that they had to pay as little as possible. In this case, it's possible they went after the hotel for negligence as well.
I feel like that is one of the overlooked values you have in having insurance coverage. You can resolve the issue with your provider and let them go to bat downstream, claw back anything they need to, without destroying your own life.
I had an overfilled tub that resulted in a similiar result however much smaller (~8k in damage). I talked to the people who fixed it and they had an extremely set process to document everything and satisfy the insurance company. I suspect its less that they fight but more that they set the market price for repairs. Multiple worksheets from various insurance groups to document the moisture content, square footage affected, pictures, etc.
Totally agree. There's the obvious part of insurance: If there's a 1% chance of something bad costing you $1000, you can buy insurance for $12. Then there's the less obvious part, which is that the insurance company might only have to pay $900 for the same risk that would cost you $1000.
if you look how that works it usually rejoins the main drain above the trap. so if the clog was lower than that it wouldn't help. a well-designed hotel bathroom should have a separate floor drain though.
The hotel could likely point to legally binding terms that the occupant is responsible for all damages. Insurance companies are used to dealing with "odd" events where many things have to go wrong.
> I threw up in a sink at 1am (drunk) and left the water running full-stop, then went to sleep
One of my acquaintances at Uni did the same during our freshers week, no issues with IT infrastructure, but he did manage to comprehensively flood a conference room which was located below his room in the same building. They were carrying the soft furnishings out for most of the following day after the flood was discovered.
He set a new record in being summoned to the authorities for a serious dressing down before term had even properly started. Also earned himself a nickname he never escaped.
This is something covered by the personal liability portion of either homeowners insurance or renters insurance you've already purchased for your own residence.
Protip - renters insurance is a great deal, it's dirt cheap, only a few bucks a month.
There is one small caveat which I think is far outweighed by the benefits - I had my car broken into at a restaurant where my Surface 4, a macbook and my notebook (the most valuable thing!) was stolen. Renters insurance fully covered it. but three years later in another state, one insurance company refused to offer me renter's insurance because of this incident ( per the agent). I had to go to a different company.
When the Japan Olympics were cancelled in 2020 I read that there was actually some kind of "Olympics cancellation insurace" policy that paid out over it, potentially hundreds of millions. I'll see if I can find it
The IOC had 800 Million insurance and overall was 2-3 Billion. It would be really interesting to understand how to price an 800 Million Olymoic insurace policy
in Germany there were quite some lefal battles around cancslling of Oktoberfest. If I didn't miss an uodate on that itnwas concluded that the 2020 Oktoberfest wasn't "cancelled" but it wasn't announced innthebfirst place, as usually the city councils votes for helding an Oktoberfest in spring while there isn't a permanent rule or similar about it. Thus insurances covering "cancelling" didn't have to pay.
Reminds me of a time that me and a co-worker stayed in late on a Friday night figuring out how to make our email alerts seem convincingly human through “random” typos in alert messages by performing human like keyboard adjacent miss-presses, extra key presses (either duplicate or keyboard adjacent), and occasional whole word omissions for things like “the” or “and”- but only for alerts sent between midnight and 2am on weekends. This of course, only after dissecting and trying to characterize what kind of typos we thought were common by drunk people using QWERTY keyboards.
It was a simpler time, before autocorrect errors dominated, and it was also a fun Friday night. The somewhat regular “Adam bot” in “party mode alerts were just little bit more amusing to be woken up by late at night when things were broken.
maybe but I regularly do that x<space>y oh no I hit xny and the auto-corrector will not split wordx and wordy. And I am pretty sure I have managed to add andnthen to my auto-correct dictionary.
One thing that I had to learn the hard way after switching to full-time remote is to never open slack or anything work-related while drunk or under the influence of other substances.
Especially if use the same messenger app both for work and for personal use. And by "personal use" I mean sharing porn with your significant other.
> The All England Club reportedly updated its Wimbledon insurance policy years ago to include the infectious disease clause following the worldwide SARS outbreak in 2002.
Wimbledon took out insurance against a pandemic after the SARS outbreak in 2002, so maybe the Olympics also paid to insure against pandemics specifically.
If you are insuring against the Olympics being covered you are insuring against a lot of things that are normally covered by Force Majeure (wars, revolutions, pandemics, terrorism etc).
In this vein, one of my favorite financial vehicles is a catastrophe bond[0]. They are essentially short term debt instruments that pay a coupon normally, but in the event of a specified disaster, forgive the principal (thus removing the liability from the bond issuer's balance sheet).
The typical point of a hurricane bond is that it tends not to correlate with other investments so much. A reinsurer is going to need a lot of cash if a hurricane hits but the rest of the stock market likely won’t be very effected. If you’re a pension fund it reduces risk because the stock market going down is unlikely to affect your hurricane bonds and a hurricane is unlikely to affect your regular bonds/equities. However sometimes they are correlated. If you’re the WHO you might issue cat bonds that don’t pay out the principal if there’s a pandemic, and then you can use these to help surprise the next Ebola outbreak that affects some poor countries a lot but global markets little. But then if you have a global pandemic and everything is shut down, the pandemic bonds still keep the principal but the equity markets also go down a lot, which is not what the typical investor in those bonds would prefer.
Economically speaking, (bank) loans and bonds are almost the same thing.
There's a bit of a legal difference. And bonds are expected to be traded relatively easily, but your creditor selling your loan to someone else is not quite as common.
A re-insurer is someone who insures insurance companies. Many insurance contracts for you as an individual have you pay for the first few (thousand..) dollars of damage, and the insurance companies covers everything afterwards.
Of that liability, insurance companies cover the first few (million) dollars of damage, and often pass on the excess liability afterwards to yet another specialised company. The re-insurer.
Catastrophe bonds are a way for bond investors to take the liability that would normally go to re-insurers. Of course, in return for taking on some liability, they get paid. Just like you pay your insurance company a premium.
On Mythbusters, every now and then they would say something like "We would like to do X [e.g. something crazy like jump out of a plane with a duct tape parachute], but our insurance company wouldn't let us."
I've always how that worked. Like, who is the employee at the insurance company who takes that call, and how do they decide what's just too risky, when there can't be much historical data on risk?
The question that's asked is "would XYZ claim be covered under the terms of our current policy". Usually the best answer I've been able to get is "probably so". The unique challenge in the case of an intentionally planned dangerous stunt is that most such policies are intended to cover "claims of negligence related accidental liability."
If you planned to do something you knew had a high likelihood of being dangerous, that's not an "accident." Many such policies have specific limitations, stipulations and requirements to remain in force. For example, purchasing a liability insurance rider to cover a large corporate party may have limitations like limiting the number of people, stipulations like all the bartenders must have training on not serving inebriated guests and requirements such as having hired paramedics present.
When you file a large claim on such an insurance policy, they will check that you were in full compliance with all the policy requirements before paying out. Source: I know an attorney who works in a law firm specializing in policy holders suing their own insurance company when they refuse a claim. I'm sure there are good insurance companies and bad but based on the stories I've heard you definitely want to make sure you're in compliance under any policy you're substantially relying on.
> Like, who is the employee at the insurance company who takes that call, and how do they decide what's just too risky, when there can't be much historical data on risk?
I suspect that it is the underwriters, who are responsible for assessing risks and determining what constraints and requirements must be met to claim insurance. Their work can be highly mathematical and, other times, they will just look at the underwriting guidelines and say "No, we won't let you test a homemade parachute on a living human because your team are not professional parachute manufacturers with valid indemnity insurance we can mitigate our risk against."
Most likely the management would prefer the hosts didn't hurt themselves, so took the hint from the insurance company when a show plan got too dangerous.
Young man riding a motorcycle, accident, suffers catastrophic but non-fatal head trauma. Problem 1, part I: Requires assisted living for the rest of his life. Problem 2: He has the hormones of a young man, the muscles of a young man, but the intellectual capacity and emotional regulation of a baby. Requires a very specific type of assisted living care that can handle violent behaviour and possible sexual assault. Problem 1, part II: His lifespan is estimated to be longer than usual, because he can no longer do things like ride motorcycles, smoke cigarettes, or have a stressful job.
Put those things together, and the estimated total payout was well into eight figures. The motorcycle insurance company was on the hook for his care, and they had insured their portfolio, so everything over their $1,000,000 deductible (or whatever it was) fell on the reinsurance company.
Story #2 (also, 3, 4, 5, and so on, it’s a common thing for reinsurance companies):
Flood happens in a place where floods are uncommon, e.g. Tornado hitting Barrie, Ontario. Home insurance companies are hit with hundreds, even thousands of claims. Most are not in the eight figures, but insurance companies don’t just buy insurance against exceptional claims, they also buy insurance against single events like floods triggering unusually large numbers of claims that would otherwise fall below the deductible.
This is what reinsurance is for, so the interesting bit to me is what my client related: It seems that a statistically improbable number of people just happened to have all their furniture in the basement while they were painting their house or some such, and it all got ruined, so the insurer is on the hook for replacing furniture that wouldn’t normally be in the basement (we are not talking about people with furniture in finished basements, we are talking about people claiming they were storing furniture in their basements).
Normally they have the bandwidth to investigate such wild claims and reject most of them, but when they all come at once, the insurance company looks very bad if they tell everyone to wait a month or three while they work through a backlog of investigations. So they lay off their losses on the reinsurance ompany.
After regaling me with stories about improbable events and how much the reinsurance company had to pay, the GM of the office I dealt with told me that he owned two cottages:
One “entertaining” million-dollar cottage on a lake in Muskoka, Ontario, where one could jet-ski and power-boat.
And one “get away from it all” cottage on a different lake that had a 5km/hr speed limit, effectively barring motorized sports.
From this I deduced that for all their wild payouts, they were running a good business that could afford to pay its management quite handsomely.
To be clear: Floods, wild fires, and earthquakes are special, as they tend to impact a large area, instead of a single property. In many places, the gov't acts as the final re-insurance because no re/insurance company can possibly cover all possible damage without risking bankruptcy.
That reminds me of my parents putting my recently-died laptop in a particular place in my bedroom and pouring some water on it, after our hot water cylinder broke and leaked its contents above my bedroom destroying the roof (when I was a young teen).
They were known in the 90's for insuring pro wrestlers bodies if they were injured to the point that they could no longer perform. It was pretty common to hear about a wrestler retiring with a "Lloyds settlement".
Well, there's always the strategy of 'take the payouts, go insolvent in case the event really happens'. But, on the other hand, such a high possible payout would probably come with insane premiums that might make it viable (for the insurance, not the country).
For nuclear reactor incidents there are reinsurance pools. A collective of insurance companies. For example the nuclear reactor in Borssele, The Netherlands, is insured backed by 26 of such collectives (one national, and 25 foreign collectives) together they consist of over 300 individual insurance companies.
This particular (small) reactor is insured for liability up to 1.2 billion euro.
The problem is, the followup costs for a nuclear reactor disaster can easily reach multiple trillions of euros - and no plant is adequately insured. In Germany, they did the maths [1] in the wake of the 2011 Fukushima disaster and found out that decent insurance would cost 72 billion euros a year in premiums - a move that would raise electricity prices from 20 ct/kWh to 4 euros/kWh.
We have been ignoring that massive risk in favor of "cheap" electricity for decades, and every time something happened, in the end the taxpayers had to cover the bill.
Nuclear simply is financially unviable once externalities are properly accounted for. Add to that cost and time overruns in projects, the still unsolved questions of where to dump the waste, of nuclear weapon fuel proliferation... and just forget about fission-based nuclear projects, please.
Yes, but, you could also say the same of fossil fuel power plants as well. The world has been getting "cheap" electricity from fossil fuels for many decades now while ignoring the environmental (and other, like nuclear waste problems from Coal) externalities that taxpayers ultimately have to face one way or another as well. You'd need a comparative analysis of the externalities of both to make sense of the trade-offs and pick one that's "better".
Renewables like solar and wind are great of course, but they're intermittent and cause weird issues like the Duck Curve. You still need base load from either nuclear or fossil fuels for a stable, reliable grid.
> the still unsolved questions of where to dump the waste
This isn't an unsolved problem, just an uneconomical one - there isn't enough waste for any of the possible solutions to be economical. The solution to getting rid of nuclear waste, is to produce enough of it to make R&D worthwhile.
> of nuclear weapon fuel proliferation
But how does this relate to power plants? The military will get its nukes, whether or not the plants are built.
> But how does this relate to power plants? The military will get its nukes, whether or not the plants are built.
The problem is that the plutonium will be created in the first place and needs to be taken extra care of to make sure the stuff doesn't get stolen or "misplaced" and then diverted off to terrorists.
It's not just the direct cleanup costs - the number goes up extremely hard if you also attempt to account for externalized costs that are rarely grouped together:
- loss of life and the economic productivity of people who died early (not just the liquidators, but also everyone who got radiation damage!)
- loss of sellability of goods - to this day, Bavarian shroom collectors and hunters have to check fungi or wild animals for radiation, and in particularly bad years up to 70% of wild pigs have to be discarded due to irradiation [1]. That's an economic loss for the hunters and for all subsequent economic activities (butchers, restaurants).
- healthcare cost associated with dealing with the fallout - cancers are the most expensive illnesses known to mankind
- loss of quality of life in those who were displaced by the Chernobyl and Fukushima disasters, additionally also the cost of relocating and the loss of opportunities, social networks etc. caused by the relocating
- loss of economic potential that could have been realized in the area around Chernobyl, had it not been contaminated
But are these the kinds of costs that are accounted for by an insurer? Have local hunters/butchers/restaurants managed to get compensation for loss of revenue?
Also, these costs seem specific to a melt-down. Fukushima wasn't just poorly insured, it failed to heed studies warning about its location.
The poor have a tough enough time just keeping their head above homelessness.
I have been required to pay for automotive insurance in California for approximately 20 years. (In CA mandatory insurance was required, but not mandatory forever. There is a weird legal difference. I white knuckled my college years while driving. I got lucky except onetime. A wealthy women slammed into me, and the minute she, or actually her lawyer husband, found out I didn't have insurance, I was putty in their hands. I paid $1000 for an 1982 Volvo bumper. It was the last of my student loan, but they had me. A call to DMV and I wouldn't be able to commute to my school.)
Every year if I want to drive my old truck I needed to come up with $600.00 plus. Even with a perfect record since 15.5 years of age.
I only can afford the minimum. I never made much money even as college graduate. I believe it's 15-30-5. (this means if slam into you and you are a vegetable; you will get $15,000 for injuries, and $5,000 for your Tesla. Great payday? If you have money you can go after my assets.).
My point is it's not enough if we are being honest.
The insurance industry loves these minimum mandates because they make billions off the poor, and middleclass.
It's no wonder the insurance industry is always the number #1 Lobby group on every political fund.
It's a racket, and I believe the bigger boys are colluding on rates, but can't prove it.
"Buy the per mile insurance dude--you low income loser!"
(1. Work out the low income insurance on a yearly basis, and it's not copasetic. Plus my old Toyota does not have a computer other than a rudimentary computer that was suspose to control the main plunger in the naturally aspirated carb that never really worked. Meaning there's no computer to plug a mileage indication in. So there's no per mile insurance I can get.)
My point is mandated insurance is kind of a racket like this two year mandated Smog check, especially on vechicles that that we only use a few times per year, or under 1000 miles/per year.
You wrote: <<Car insurance seems like a good thing>>
In /some/ places, car insurance is required by law. How does it work in places where it is not required by law? At first thought, it appears more financially risky to drive! I guess that insurance would be even more expensive because it is more likely that the other side is insured.
>> In /some/ places, car insurance is required by law.
Looking this up for the US (the country where I live), it seems that only NH doesn't require car insurance (ninja edit: Virginia as well). So for me, this is an interesting hypothetical, but not in a way that's a part of my reality as I do not live in either of those two states.
>>At first thought, it appears more financially risky to drive!
As someone who does not own a car, and does not drive (and is poor - very poor in HN standards as well as in the city I live in), I would like drivers that I share the road with to have insurance, rather than drive without insurance. Getting hit by an uninsured driver would be an absolute nightmare that I doubt I could even afford to bring to court.
Texas technically doesn't require auto insurance either, but you need to leave some crazy amount of money in bond with your local sheriff, essentially proving you're rich enough that you can insure yourself.
American insurance is so freaky. In Nova Scotia, everyone has minimum $1 million liability coverage. Everyone also has uninsured driver coverage, to cover them if they're hit by an uninsured driver.
The fact that everyone must have insurance does not mean that everyone has it. I mean, someone can cause an accident while not having a drivers license with a vehicle that's not street-legal.
I'm not from Nova Scotia, but we have the same principle of mandatory insurance that has to cover also the accidents caused by people who are violating the requirements, which doesn't add much since the requirements are strictly enforced and violations are not that common, but mitigates those rare cases.
Just thinking off the top of my head here, there are more drivers then those registered in Nova Scotia. Not all of them have insurance.
And I know how OP worded their post, but legally in my state you have to have insurance and despite that not every driver actually has insurance. It's not like anyone checks your insurance when you put the keys in the ignition...
> Even with a perfect record since 15.5 years of age.
Each driving session is statistically independent. The probability of you getting in a vehicle accident resets every time you get behind the wheel. The actual probability in each session varies based on things like your alertness level, vehicle condition, weather conditions, traffic levels, and so on.
Something you can do to reduce your premiums is to shop around every 3-4 years. Most of the big-name insurance companies will start raising your rates around that time-frame because they assume the hassle of changing companies will keep you with them (i.e. human inertia). Another way is to drive "old man" cars. They're usually bigger & heavier, and perform better in accidents than something small & zippy. So they get lower rates because the chance of high medical bills is reduced.
not evidence, just basic statistical reasoning based on a set of necessary assumptions.
I'm going to assume you are a reasonably competent driver. Also, that your driving routine is pretty stable. Now these assumptions may not apply to you, but they do apply in general, which is what you need to set insurance risk.
Traffic density on your Wed commute to work is pretty stable week over week, with approximately the same percentage of over-tired or over-stressed drivers.
Your driving ability has probably not significantly improved over the last 6 months.
Thus, your chance of getting into an accident this morning on the way to work is independent of the chance of you having an accident next Wednesday.
Likewise, your chance of getting into an accident this morning is independent of the chance of your co-worker who lives on the other side of town but has a similar risk profile to you of the commute (same type of roads, same distances).
Yes I realize that. But why should my insurance premiums go toward paying for someone else without car insurance?
And what good is it trying to sue a “poor person”?
While I never had to sue anyone, I looked into all of the hoops you have to jump through to collect damages when I was a landlord. It wasn’t worth the time or the effort.
An uninsured driver hydroplaned on the freeway and broke off the front passenger side wheel of our 2020 SUV. Our insurance paid out about 20k to fix everything. They waived the deductible on the comprehensive collision coverage. We paid another 1k or so on top of that for a rental car, since it took about 3 months and the rental coverage ran out. Our premium didn't go up since we weren't at fault.
The insurance company was going to look into suing the driver, but it's not like there was even enough money there to pay for the lawyers.
And theoretically, how much more would insurance cost if states didn’t enforce every driver have insurance? As soon as you cancel insurance in my state, it gets reported.
And in my original comment i was speaking to the nomenclature of "everyone has $1mm liability insurance" rather than anything else. I hadn't eaten all day and it shows in my comment history full of snark and toeing the line of being a decent person.
A reinsurer would, of course, be crazy not to themselves be insured. So there must be companies that insure reinsurers, and then companies which insure companies which insure reinsurers. How deep does this rabbit hole go?
I assume re-insurers use Lloyd's of London to split/sell very large risks. This is similar to syndicate loans, where a group of banks agree to split a single very large loan for huge construction projects. Although, these days, syndicate loans are much less popular than directly issuing debt via capital markets (if possible).
Usually there are a few deep players Berkshire Hathaway(who happens to own a reinsurance business or two) has about $150 billion in cash just laying around, so they can pretty much insure anything they want and backstop it themselves.
But for those without such a deep bench, they, like other commenters mentioned do a round robin sort of thing.
Insurance coverage is typically limited. So even if you caused a billion dollar in damages, your insurance would only be on the hook for, say, a million dollar.
So there's a limit to how much they need to re-insure.
Someone already said that the rabbit hole ends with eg Berkshire Hathaway. But it also ends with eg (retail) investors who hold catastrophe bonds or shares of insurance companies.
Catastrophe bonds, which impose losses on holders in the event of a catastrophe, are an increasingly popular way to re-insure or re-re-insure. Because they can be widely held and each holder can hold them as part of a diversified portfolio, the risk can be dispersed much more widely.
Back in the 70s one of my mother's friend had his car to fail on a level crossing. A train arrived, crushed the car, the locomotive derailed, fell into the river, destroying the railway bridge over the river, then the following wagons derailed and fell into the river too (fortunately it was a freight train so nobody was killed).
The cost was mind-boggling, millions upon millions. It nearly bankrupt his insurance company.
Why does insurance as a business feel like legalized gambling? “I’ll give you 1000:1 odds that you won’t crash your car” “I think that person will win that bet and I’ll give you 100:1 odds”.
Because economically and mathematically insurance and betting is the same.
It's just that morally we treat insurance differently; and society has developed some moral and ethical rules around this topic. But because the mathematical structures are so similar, you can guess that the moral rules have lots of grey areas.
(Similar for financial derivatives. Eg farmers use wheat futures to lock in the prices for next year's harvest today. Speculators use the same futures to 'gamble' on prices.)
Yeah but what about life insurance? It's not the deceased who gets the payout, it's their survivors. It's a real grey area ethically, as you can think of it as the survivors taking a bet on whether a family member will die soon, and profiting off of winning that bet. You could argue that the dead person approved and paid for it, but that's not always clearly the case.
Some whole-life policies carry cash value and are an investment vehicle as well, so you can potentially make money on them surviving as well. This seems ethically-better, but most life insurance is term life that doesn't have this investment upside.
Because they are. In fact, there's an entire trifecta.
If you take bets on how companies will do in the future, it's called finance or investment services. If you take bets on human misery, it's called insurance. And if you take bets on sports, it called gambling.
Businesses in all three have, for good reasons, the reputation of being predatory.
I actually had a chat with a friend about prize indemnity insurance, he's a Lloyd's guy.
In the end it's the law of large numbers, pretty much what a casino does: take lots of small positive bets, don't let one bet dominate. If you do get something too big, syndicate it with some of your competitors to spread the risk. Of course also make sure everyone who comes for insurance is actually what you think, like the guy in the article says it's not necessarily a hugely detailed check but it is enough to stop the worst frauds.
You want a model that's robust, and you only have so much data about how often some guy hits a hole in one or a half court shot, and there's only so much you can know about whether they are a pro and the distance to the hole.
The big problem seemed to be competition. You only get to write the insurance if you're the best price but the best price is not necessarily one that makes sense for the business. If some guy is buying market share with a loss leader, what do you do? Every segment of the market could be affected by this at a given time.
The big problem seemed to be competition. You only get to write the insurance if you're the best price but the best price is not necessarily one that makes sense for the business.
A friend of mine worked for an insurer, their job was to model the risks and calculate insurance costs for various things. The problem was, it didn't really matter how clever or detailed their modelling was. If their risk model came up with too large a premium, management demanded that the pricing be made more competitive. So they ended up overriding their calculations with a whole heap of 'fudge factors' to move their prices to be more in-line with the rest of the market. Kind of defeated the point of the modelling, really.
Well, except for the "all models are wrong, some are useful" thing.
They knew where they had fudged, which meant (if management was smart) they had some clue on when a client was slipping into a risk area and the policy should be hedged.
Even more subtly, if there is one insurance company that makes a lot of extra return on their "float" (the money that has been paid in premiums but not yet paid out in claims), they may actually sell insurance that is a "bad bet", i.e. is expected to have underwriting losses, but that the time value of money makes profitable for them.
In that context other insurance companies can't compete unless they also are making huge returns on their float. It drives risky behavior by insurance companies in exactly the opposite way you'd prefer.
In some sense, the two sides of the insurance business are decoupled.
When insurance companies agree on a 'bad bet', that just means that they are essentially agreeing to pay a high interest rate on their float.
A profit driven insurance company should only agree to such an expensive float if other funding sources are also expensive. And that's independent of the risk appetite of the investing managers of the insurance company.
To be explicit: a profit driven insurance company should issue more equity or a bond to finance their investment, unless the float is cheaper for them.
(Of course, this all goes out of the window, the moment you have legal rules that restrict insurance companies from issuing more bonds or equity. Then they might rationally agree to an expensive float.)
Warren Buffet talked about this extensively during the run-up to the 2008 Global Financial Crisis. A large part of his portfolio is insurance companies. Insurance premiums had fallen so much in 2007 (or became so competitive/stupid), that it was seriously affecting the revenues of his insurance companies.
It seems like the more predictable something is, the more the market will squeeze insurers' margins on insuring that risk.
Holes-in-one probably follow a pretty regular probability distribution, which makes me think this is probably a very tough market for smaller players, even without the loss leader thing you mentioned.
> The big problem seemed to be competition. You only get to write the insurance if you're the best price but the best price is not necessarily one that makes sense for the business.
That's straightforward - your insurance product needs reputation. Sure you could go with "that other guy" but we're Lloyd's! You know we'll pay out if it's a legit prize winning.
Also marketing - lowballer needs to spend to get visibility that would cut into margins. The market player that has the most data knows exactly how much to spend on marketing and how much to charge in premiums.
“Among the weirder things he’s insured? Cow patty bingo (video here).
“It’s big in the Midwest,” says Gilmartin. “You divide a big field into, say, 100 squares, give each one a number, then let a cow loose. If the cow poops on a preselected number, the person wins a prize.””
I burst out laughing at this one. Can any Midwestern HNers confirm? Are people watching the cow with bated breath? Are plots closer to the gate considered better?
In Texas and can confirm as I've been to one. My mom was a participant of cow patty bingo in the late-80's/early-90's. It was part of some radio station contest for a car. Everybody that called in and won a minor prize over a quarter was invited to a party with the bingo as the big event.
They had a large pen, say a quarter acre (about the size of 2 basketball courts) divided up into squares. The participants drew a number, went into the pen to find their spot. After all the participants found their spot they let the cow out to roam around. (You need a fairly docile cow to have people on the field when this happens)
In our game the cow started and did most of it's business on my mom's square, but finished on an adjoining square of young single blonde. I'll let you guess how DJ ruled who won the car. (hint: wasn't my mom)
> Are people watching the cow with bated breath?
Kinda? I mean if the prize is good it's fun to watch.
> Are plots closer to the gate considered better?
Might be worse actually. Usually they run the cows into the pen instead of letting them just mosey in. When and where the cow does its business isn't even known to the cow. The cows can take a while to go too, better part of an hour sometimes.
Did this in north Alabama back in the mid 90s for a school fundraiser. They hired a surveyor to plot the squares on the football field. We discovered that the field was narrower on one end by about 7 feet! The cow plopped on a square boundary with an unsold square so the winner only got half. As I recall it was a whole lot of standing around and waiting. Funny for the first 20 minutes, then very, very boring.
It's a thing, yes, but I think the novelty of it makes it get more attention than deserved. IME it is by no means common, or the sort of thing you would expect to come across, but it does occur.
Can confirm. I'm from BFE Michigan, and I've heard of it, too. It's funny and kind of fun, but I wouldn't expect the average Midwesterner to have participated it. A born & raised urban-dweller might not have even heard of it.
I can't speak to this particular practice, but as a kid, whenever we would go to the parades, people would organize grids in the street to bet where the horses would poop. And then inevitably try to convince the people on the horses to stop over their square and force their horse to go.
I was generally not interested in my town parade/party day, but we had cow-chip bingo where I'm from in Iowa. So I don't know the "strategy" but it exists.
I mean, I was introduced to meat raffles since moving more into the Midwest but this is next level to me. Granted I live in a metro region so only turkeys roaming around, no cows.
In the early 1990s, I went on a bicycle tour in Ireland with a friend for a couple of weeks. At a fair somewhere in County Mayo there was such a lottery. After that, when my friend asked me something I did not know, I always replied: "Do I know where the cow poops?"
This is still a thing in the UK at some village festivals. In the US I've only come across 'chicken shit bingo' though I'm sure the larger format variant also exists!
> The cost to insure against a hole-in-one is dependent on 3 factors:
> 1. The number of golfers in the tournament
> 2. The length (yardage) of the contest hole
> 3. The cash value of the hole-in-one prize
> Once a client provides this information, Gilmartin plugs it into an algorithm that computes the odds, factors in his risk and margins, and spits out a dollar amount per golfer.
This seems like it could work as a simplified example of how all insurance pricing works, although with many, many more variables involved I'm sure. It'd be fascinating to look at the details of one of these algorithms.
I'd love to see the weird trends they find on some of the bigger more complex algorithms. Like people who drive red cars born July 2000 with a pet bird are 8 times more likely to get in an accident if they primarily drive near Chicago or Miami. I'm sure it's not that granular but I can dream.
One of the things that swings the price a fair bit in the UK is your job title which has always intrigued me as a signal. I could understand if it's someone using their car for deliveries or as a race car, but I'm unsure why a "counsellor" could be paying double the premiums of a "Web developer" on standard insurance.
I've been told by an agent before that a "web developer" at a contractor/wordpress body shop-type will be less likely to take risks, while a "web developer" at FB or G would be more likely to do things like rock climb, drive into the middle of nowhere, drive faster.
Ach, there may well there be signal in there (and the insurance companies do enough stats modelling to tell if there is) - I mean, isn't the car color a well known example where the people's tendency to drive recklessly is correlated with their choice of buying a boring color or a flashy one?
Hole in one probability can vary by a large factor depending on hole location and green contour. If that's all they consider, either they're heavily profitable or some tournaments could break even.
From the article, a 100 golfer tournament with a hole in one prize of $7500 costs $187 in premiums. If the hole in one probability of each golfer is 1/12500, the expected payout is only $7500/12500*100=$60, so I'm going with "hugely profitable".
I was responsible for cutting cups the morning on one of these tournaments (long, long ago). On the par three in question, it was due to be a middle front (red) pin (we rotated a 3x3 grid). I gave it a little over a pin length off the fringe, not being generous at all, because there was a water hazard about 2 feet off the front fringe.
They didn't like how hard it was so someone had to fix my work. The only thing else I remember was the hole in one was for nice car and they had a witness that sat their all day, who could attest/validate if one occurred.
That's exactly what I thought as well: build a golf course that's effectively a giant funnel, with the hole deep down in the bottom spot where the ball inevitably ends up. The entire thing must be large enough to have enough "yardage" to get a low insurance premium.
Register that course for a nice 10m$ hole-in-one insurance. Profit!
True. Approximate skill of the golfer could also be an important factor - the article even mentions three LPGA golfers getting holes-in-one in the same tournament. Presumably they were quite a bit more talented than your average entrant.
> 2020: Wimbledon to receive $141 million in pandemic insurance payout
> For each of the past 17 years, the All-England Lawn Tennis Club has paid for an insurance policy to guard against losses if Wimbledon should have to be canceled in the event of a worldwide pandemic. That preparation will finally pay off this year.
Probably yes. Though objectively, they probably shouldn't be? I mean, the world is better prepared now to avoid and deal with pandemics than we were 3 years ago.
Most of the hole-in-one cover payout do not happen for contest, but for individual that are insured against a hole in one. (source: I work for an insurer)
It is a common provision on the kind of insurance that come attached to a credit card, and you probably are cover for it if you own a premium card in the US or Europe. It generally come with different variation: only on registered games / all games, fix cash amount or expense of the drinks at the club, ...
A common exclusion is that you can not own a professional golf licence.
If you're travelling and play a round of golf at a resort where it is customary for any person who lands a hole-in-one to buy everyone in the clubhouse a round of drinks, then if you land a hole-in-one and have to buy everyone a round of drinks, AMEX travel insurance will reimburse you for the cost of the drinks.
It's a completely different thing from the insurance described in the main article.
As the friendly article explains, it's traditional to buy a round of drinks for the entire clubhouse if you get a hole in one. Since this can get expensive, you can opt to pay a small fixed sum to the insurance company to pick up the tab if this happens.
"If a sponsor wants contestants to throw a ping-pong ball through a hole in a watermelon, he’ll go outside with his employees and re-create it himself, recording the results."
Kind of funny that he ends up doing some "market research" himself. I also wonder what this is like for the employees. If you really want a good statistical average to base it off of how much time do they spend doing it? Is is "yay, we get to have recess and go do some silly activity in the middle of the day" or "come on boss, I've been throwing this ping pong ball at a watermelon for 9 hours, can I go home yet?"
Well that's also something you want to model. You don't just track the numbers you achieve all day, you track the first minute, the next 29 minutes, the next 7 1/2 hours, and see how it changes.
Then that tells you whether someone at home who knows they're gonna be throwing pingpong balls into watermelons tomorrow, and does some practicing today, can measurably improve their chances.
So now you price the insurance differently depending on whether the challenge is announced to the contestants in advance, or if it's a surprise when they arrive at the event. How differently? You now have data for that.
The most famous example I'm aware of is when Warren Buffet insured the "Billion Dollar Bracket" challenge for QuickBooks, which would pay off if someone had a perfect NCAA bracket. That's 63 correct binary choices, so the odds that anyone gets it are incredibly low.
Of course, they were using his fame to help sell the challenge, but I wondered what premium he got.
From what I remember, Buffet stated that the main risk for him was of someone somehow hacking the system and changing their bet after the fact. All without being detected, of course.
Naively going by expected value, 1e9/2^63 gives about $0.12 per participant as a reasonable starting point. But it is a weird one: the risk is really small but the required payout is massive.
A 50-50 result for every sporting event is an absurd assumption. For instance, 4 of those 63 are 1-16 matches of which I think one or two in history have gone the 16's way.
I'm guessing they needed to estimate the number of participants, but I don't know that either.
"Too good to be true" is definitely a problem we run into. We make money the same way any bank does, via lending out the deposits and via a small interchange fee charged to the merchant when customers use our cards. Our net prizes paid out are comparable with other high yield savings accounts / rewards credit cards but the random reward makes it (hopefully) more engaging
Funny that in one of the info cards it says "MILITARY-GRADE SECURITY" and then inside that same card: "Your account is protected by bank-grade encryption and authentication."
> Gilmartin has also had to pay out at least 4 $1m prizes, which are typically awarded in annuities. Hargett, who landed that shot in Utah, got $25k/year for 40 years
Why would anyone accept that payment schedule? Sure 25k*40 is a million, but there is a non-zero chance that the insurance company will fold in that time. Plus 25k in 40 years is worth a lot less than 25k today due to inflation.
If they advertised a million dollar prize, I win it and then they tell me it is actually 25k over 40 years I would be calling my lawyer there and then to negotiate with them.
As someone else noted, typically they buy an annuity to pay you out, so risk of non-payment is not a significant factor. The annuity is better for them because they don’t have to carry your payments as a liability.
The annuity is often better for the recipient as well if their jurisdiction taxes the winnings. The recipient could be collecting winnings in their retirement when their income including the annuity would be low.
I am not an insurer, banker, or tax consultant, so don’t take my word for how to proceed should you win such a thing!
> The annuity is often better for the recipient as well if their jurisdiction taxes the winnings.
Compounding interest of doing a lump-sum now heavily outweighs the tax savings. There's also nothing that prevents you from just buying an annuity using the lump sum (I'm not a tax lawyer but I'd bet there's a way for a trust to claim the ticket to avoid paying xx% taxes on it in such a scheme).
As your link shows, when both annual payout and lump sum are taxed at the same rate (the maximum in PowerBall’s case), the NPV of the annualized payout is less than the lump sum (working backwards) or the FV of the annual payout invested conservatively and compounded is less than the FV of the lump sum invested on the same terms.
But if we’re talking about $25,000 a year for forty years versus a lump sum,
it’s considerably more complicated when dealing with a sliding tax rate. $25,000 is taxed at far less of a rate than some huge lump sum, and if it’s invested and compounded yearly, the tax rate on the interest is not going to hit the max for quite a while.
Whereas if the lump sum is something like $500,000, the tax rate on the lump sum is at the max, and within a decade the interest on whatever’s left will hit the max too.
I should set up a spreadsheet. It may still be true for the 40x$25,000 example we’re discussing, but I need to run the numbers against a specific tax scale.
Jason didn't have the option for a lump sum so it doesn't exactly matter.
But, the Powerball example was 1.5B annuity or 930M lump sum so a reduction to 62%. The same thing for 1M would be 620K.
Assuming 40% of it goes to tax for the lump sum it gets reduced to 372K and fiddling around with the numbers in a spreadsheet still shows that as long as the interest is >6% you'd come out ahead even assuming 0% tax for annunity (which is the same results as the BI [1] article the previous money link was based on).
> If they advertised a million dollar prize, I win it and then they tell me it is actually 25k over 40 years
This is pretty much how almost all of these things go, including the state and multi-state lottery jackpots.
You can choose your $300M Powerball payout to be paid over 30-40 years, or you can take $125M (very loose numbers) today. Most recipients choose the cash payout, even though of course the jackpot is advertised at the annuity value.
A large furniture store in Houston does this with almost every large sporting event (Super Bowl, World Series, etc) - purchases over $3500 are free if X happens.
The first Xprize was awarded through a hole-in-one insurance policy, sometimes with the monthly fee just barely paid on time out of someone's personal pocket and set to expire shortly after the prize was actually awarded (so there was no simple extension possible).
I was playing golf on Sunday and a player in a nearby group made a hole-in-one. Everyone at the course got a free drink that day. I later found out that the club had insurance. Funny to see this on the HN front page a couple of days later.
I guess the difference is not in the transaction itself.
The key part is that insurance counteracts a risk on your part: If it lowers the variance of your final balance, it's insurance. If it raises the variance, it's gambling.
When I was at Microsoft about 15-16 years ago there was a fairly big poker setup. Where I was, and I'm sure across the board, the advice that was given was that we were free to have tournaments on company property, however, one of the rules were that you could never actively bet truly blind, i.e. you had to see your cards first. According to whomever decided that, that was sufficient to keep your poker game a game of skill, and not gambling, since if you didn't know your hand, you were just relying on luck, not playing odds.
Well, that line mostly boils down to whether the expected value of the bet is positive, and the insurer in the article seems to do pretty sound analysis to ensure his expected return is positive. I don't see where it gets close to gambling.
One should keep in mind that the literal "best odds", as far as i know, at any casino are on "Don't" bets on craps, after the shooter lands a number and the button says "ON". With odds on your Don't bet, you can take the house edge down to 0.13%, or 13 cents for every $100 you bet. If you don't feel like "laying odds" you can place "Come" bets with odds behind them for 0.16%. I rarely play don't, but when i do, i'm the shooter!
I am not sure insurance v. gambling has anything to do with expected value. Typically, I see the distinction as protecting something you already have compared to getting something new.
The insuree feels like a gambler to the insurer/house, but they never get the money. Their goal is the exact opposite of gambling, to pay a fixed fee to remove variance.
The jewelry store I worked at for a decade still sponsors a hole in one at the annual golf tournament next door. Get a hole-in-one on a specific hole and you get a Rolex. We had our own insurance policy for that to cover the cost of the Rolex should someone hit it. Which they did once every few years.
I used to work at a place that ran a hole-in-one competition at many golf courses around North America. Can confirm that we used insurance to cover our ass.
I was accompanying a friend of mine around a golf tournament years ago when he got a hole in one. The tournament prize was a brand new Mercedes. Unfortunately, my friend was the trainee golf pro at the club, and was playing as an employee of the club. This invalidated his win. He was actually pretty cool about this, but the tournament sponsors decided that they could then cancel that prize offering for any subsequent players. This was contentious amongst the other players, but no one else managed to get the hole in one, so no one had a valid reason to initiate an official protest. I still wonder about the technical validity of the sponsor's argument.
I love these longform Hustle articles. A good portion of the time they find something fun that I would have never thought about and have an informative writing style that still keeps it fun.
There's something about the way books about gambling are written that draws me in. One i picked up at a yard sale or thrift store in the 90s, "How to Win At Cards ("21" and Poker), Dice, Races, Roulette" by Mike Goodman (1967) has a similar feel, although Goodman's book could have used an editor to make sure the storytelling went in a straight line.
as an "ok" poker player (Texas hold'em being my favorite), i would host 2 table poker games with $5-$20 buy ins a couple times a month, and I'd generally win. I had clay chips, proper felt, snacks, booze, the works.
What i always found funny, though, is if you quizzed me right now about the ranks of hands i'd probably get it wrong. I don't know the odds of an inside vs an outside straight (although with a regular 4 function calculator i could work it out directly), nor do i know what the exact odds are of any hand, really. In person, most of the time, i can tell if someone's holding or bluffing. I even took my game on the road a few times to hang out with dealers from atlantic city in vegas, toured the "Indian Casinos" like Agua Caliente in California, the river boats in Louisiana. But i don't really understand the game. I just like it. So i would get cleaned out in a hurry in any "real" tournament.
I don't play poker anymore, no one to play with. I haven't been to a casino since late 2019, even though they've been open; but not because of fear of catching something. I saw a picture of what the casino nearest me had done to their craps tables (my preferred casino game when i'm not too lazy to stand up), they went fully digital! Just give me a pair of dice, not some touchscreen shenanigans.
this went long. Oops. I'm gunna find that book and read the rest of it, for sure.
I worked in reinsurance. It is an ugly system of regulated 20% profits by law that prey on the least financially stable because by law they must buy it.
Then some suit wearing gold Rolex leasing an Audi S7 bundles them at his firm and goes and peddles their book to a bunch of overseas dark money. Like screw bitcoin investigations, there are billions of dirty dollars sloshing around in London, the Caribbean, Europe and I think Macau is getting in on it.
The industry should be dismantled and the profiteering white collar not-criminals-because-it’s-legal-and-they-pay-to-keep-it-that-way scum should finish their careers in labor camps to repay their debt to society as a whole. You think I’m kidding.
Just before college I worked as a greenskeeper's assistant on a golf course. We had a tournament, there was a big prize for a hole in one on a specific hole.
On that hole, the boss insisted on setting the pin himself. (Pin placement has a lot to do with the chances of a hole in one.) The boss put it where it was most likely to happen. He explained that the tournament was insured, they wanted somebody to win. The publicity would have been fantastic.
Alas, the luck wasn't there. Nobody won the big prize that year.
I wonder how the prices end up for very small groups. It would be amazing to be out golfing with a small group and throw down a $50k bet while standing on the tee of a par 3. There must be some requirements like having a witness, though.
I also remember reading about a few sad stories where organisers tried to renege on those prices by changing the terms ('only for registered pros'...).
> A standard tournament with 100 golfers playing a 165-yard hole with a $10k prize sets an event back ~$235.
The $235 price just seems like two high a cost. I don't think the hole in one contest adds that much value to the event experience. If you are charging $80-100 per participant, and the course is already charging you $50 per player. You are eating 5 players worth of profit. These contests are always on the hardest, 170+ yard holes, so an ace is more rare than the 1 in 12.5k statistic.
It costs you 5 players $100/player - $50/player, sure. However, if you aren't insured and they make the shot, then the tournament is instantly in the red and can't even afford to pay the course fees if it pays the prize. Bankrupt, pick who loses, the course or the player. It might even be fraud, lots of things are fraud.
If the tournament is well funded and planning to be around a while, they can self-insure and eat that cost. However, a new tournament, or a non-commercial one isn't likely to have backing like that.
I think the OP's point wasn't that one should skip insurance, but that one simply shouldn't offer a $10000 prize for a hole-in-one. He's doubting that you would get 5 extra players by offering such a prize, and that the players wouldn't have a sufficiently better experience to justify the event. I'm not sure: your advertising likely becomes a lot easier if you have "$10000 Prize" in big letters at the top of the page, and if someone does win, you probably get all sorts of free press. In the end, it probably all depends on the purpose of the event.
The OP may be right in theory: If someone ws just trying to decide whether to play your tournament or stay home, offering a hole-in-one bonus might not have enough of an effect to justify the expense.
But in practice, there might be a dozen charity tournaments in the same region as your tournament, and if ten of them offer hole-in-one money, you might be in a race-to-the-bottom to get players to play yours and not one of the others.
That’s no different than any other competitive pressure, like whether you offer free valet parking for a restaurant. In theory, it might not pay. In practice, it might be necessary to compete.
If the insurance company doesn’t sell enough of these kinds of policies to reliably offset payouts with premiums, they might turn around and buy a policy from a reinsurance company with a $10,000,000 limit and a $100,000 deductible against their entire portfolio.
Thus, reinsurance companies spend a lot of time thinking about things that don’t happen very often but can be very expensive when they happen.
And yes, they had a division that did propositions like hole-in-ones, and also they insured legal betting companies against wild trifectas and that sort of thing.
I have a small trove of stories they told me about bizarre accidents that wound up costing enormous amounts of money.