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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: bentway who wrote (509796)	12/15/2003 12:32:55 AM
From: AK2004	Read Replies (1) \| Respond to of 769670

re: I thought (from reading the story of Lloyds of London) that insurance worked by spreading a risk among a pool, so that each member of the pool would help to cover the risk of the others, and not have to bear the entire risk themselves. well, yes, that is the basic principle of insurance but that does not help you. $1 Billion portfolio and $100 Billion portfolios would require ~ the same (%) of surplus to cover risk. So any mature block of insurance business is usually already sufficiently diversified so the increase would not yield any benefits. For example, company that issues individual policies do not charge for lack of diversification but rather for anti-selection effect. Even though that it is an individual policy companies create sufficiently large number of them so they are not that much different in size from group. So why higher premiums? 2 reasons: 1)as mentioned before - anti-selection. Statistically, if you pay for insurance out of your own pocket 100% you would see larger percentage of people needing care while healthy people may skip coverage. 2)group insurance is cheaper to sell So by increasing the number of people covered you are not going to reduce average cost of benefits per person and hence you would not be able to reduce the premiums. the best way to look at it is to look at the profits of insurance companies. Relative to insurance portfolios they are tiny. So that is all you can save without changing distribution and benefit structure.