You need a capital base in proportion to the policies you sell in order to pay them out without going bust, to a certain confidence level. The time sequence of premium payments vs when the risk is expected to come due for a payout is factored in.
The 50 states regulate insurance in the US and issue rules about how to do this, some of which affect competition and pricing in heavy handed ways, sometimes it's overtly political.
In general though insurance is an extremely competitive field. Margins for the most part are similar or lower than other industries.
Not sure where the popular impression that it is not competitive comes from. If anything I think the sword cuts both ways, the friction in the process is probably more a symptom of competitiveness more than its absence.
> Not sure where the popular impression that it is not competitive comes from
The fact that it goes up 20-30% every year (no claims, obviously), that I cannot raise my deductibles to significantly lower my premiums, the whole skin-job of "agents" that provide an illusion of choices to confuse the market, and that they've bought a friendly regulatory regime that lets them price discriminate by capping coverage maximums when the whole point of insurance is to cover long-tail risks. Never mind that their chief "innovation" over the past few years has been pushing surveillance devices that track your driving, finding reasons to cancel policies, and whatnot.
I've also bumped into a few different people who shut down their small businesses over untenable commercial rates. The whole industry is a massive drag on our economy. I've no doubt that the accountants/actuaries find places for the money to go that isn't just executives' pockets, but that's of little consolation.
Insurance companies don't invent anything, they don't control interest rates, don't risk much of their owners' money, and in many cases the state obligates people to buy your service, so in that sense it's easy.
To me, the hardest part is competing for the small number of intelligent people who are interested in such a dull, fundamentally scammy business.
Multiple resources on the internet put the startup costs at $500K or less. That's not much more than fast food or other high touch retail startups by comparison.
There are certainly a few steps on the learning curve but it's mostly high school and undergraduate math that is needed. That puts it out of reach for some but the field is pretty flat once you get there, is my perspective having considered and opted against getting into it.
It is a commodity product but, again, the regulatory and capital hurdles to get started are significant. As you scale you need more and the exact reserve requirements are often at the discretion of regulators. Opening a McDonalds franchise it is not.
Yea, and medical costs - including those paid for by medicare, often for people who aged into the program with worse health, which in turn is partially attributable to a tendency to avoid preventative care earlier in life due to higher costs - in the US are drastically more expensive than elsewhere, primarily because of this exact pump: Providers, insurance, equipment manufacturers, and various middleman orgs have arisen to deal with a system that is riddled with cost-inflating private-public partnerships and regulatory band-aids to mitigate small parts of the mess that end up having second-order effects that mostly also raise costs.
I believe some functions are simply best performed by non-profit-motivated government agencies. However, I would usually prefer an actual unregulated or black market over the corrupt frankenstein of private-public partnerships
Works in progress also had a great article recently (also discussed on hacker news) about how Japanese railways are private, profit earning real estate development corporations. [1]
Unfortunately, people from western countries have very negative views toward the privatization of mass transit despite the wild success that Japan has experienced. The model makes so much sense: if trains are just a way to get people to the real estate that you developed, then you’re going to make sure that the trains AND the destinations are really nice, which also turns out to be very lucrative (at least in densely populated areas) as a cherry on top.
And even worse, like this commenter above alludes to, it is trendy in the West to believe that real estate developers are evil, and that corporations that make money are sucking the life out of society. This kind of degrowth populism pretty much guarantees that the successful Japanese model is out of reach for most countries, because it is exactly the pursuit of profit that makes Japan’s system so nice - not some edicts from a benevolent and extremely capable government.
> Unfortunately, people from western countries have very negative views toward the privatization of mass transit despite the wild success that Japan has experienced
Japanese culture would frown heavily on enshittifying the transit experience to earn more profit. Western culture mass transit is already often shitty, and I cannot imagine how shit it would become if a for profit corporation took it over and started to squeeze it to make more money
Did you read what I said? The whole Japanese system is for profit and the one of the biggest reasons for Japan’s system being so pleasant is that it is done for commercial purposes.
If the incentives are right American companies can make good things, but usually they are not so because of poor policy.
> If the incentives are right American companies can make good things, but usually they are not so because of poor policy
I disagree. The incentives are never right for American companies because the only incentive they care about is making money at all costs. They don't even care about their reputations anymore if they can sell their rep for money
That's the point, you need to make making money = improving society. If you think that's impossible in the USA, then the USA is doomed and maybe you should look for the door. I am not that pessimistic.
