Sunday, October 11, 2009
The Predator Insurance Company
The breathless tone of statements like this one seem to suggest it is news that insurance companies want to make money. The reason we would rely on insurance companies whose business model is to "target coverage on the healthy and delay payments to the sick" is that the people buying insurance have the opposite incentives and we think that both parties in a free market will set the price at the most efficient level, the level that reflects the actual scarcity value of the goods and services being traded. It is like saying why let the prices of shares be set by stock brokers since they just want buy low and sell high? Because the people selling them have the opposite incentives and we think the price that results from their exchange will best reflect the underlying values of the goods involved.