28 January 2016

Anti Competitive

Insurance, by its very nature, breeds an anti-competitive environment.

The "customer" pays a flat rate and the insurance pays the claims.  Because the "customer" doesn't see a price change if the claim is small or large, they don't seek the best price from the vendors.

I noticed it years ago for cars.

I wanted some rust repaired.

In the first place it took a long time to find a shop that would do rust repair at all.  When I asked why, I was told there was no money in it.  Accident repairs, however, were profitable.

Why?

Because insurance pays for accidents, not the owner of the car.

You'd think that an insurance company wouldn't pay more than a car owner to fix a dent, but most people don't have accidents.  But nearly everyone pays an insurance premium.

For example, I've been paying $300 a month (give or take) to insure my cars for the past 16 years.  That's $57,600.  I've made exactly three claims, against my insurance, in those 16 years.  Two windshields and one Harvey at fault collision.  They've paid out a mere $11,300 over those 16 years on me.  If I'd had the money in my pocket instead of paying insurance, I'd have $46,300 left over.

Even more fun is my coverage actually gets smaller every year because they devalue the price of the cars every year.  Isn't it interesting that it's $125 a month to put full coverage insurance on a Corvette when it's worth $57,000 and also $125 a month to insure it when it's worth $24,000?

So I am out $46,300 that I will never see again, unless I make a claim.

So when the chance to make a claim, say to fix a dent, I'm on that like a rat on a Cheeto.  And I don't actively pursue situations where my car is more likely to be damaged chasing that claim.  I've seen some who do (out of both malice and carelessness).

This creates a situation where the customer will authorize anything from a shop to fix their car, and no incentive at all for the shop to keep prices low.

Now, replace cars with health...

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