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Insurance Information and Biographies

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Some people consider insurance a type of wager (particularly as associated with moral hazard) that executes over the policy period. The insurance company bets that you or your property will not suffer a loss while you put money on the opposite outcome. The difference in the fees paid to the insurance company versus the amount for which they can be held liable if an accident happens is roughly analogous to the odds one might expect when betting on a racehorse (for example, 10 to 1).

For this reason, a number of religious groups, including the Amish and some Muslim groups, avoid insurance and instead depend on support provided by their communities when disasters strike. This can be thought of as "social insurance," as the risk of any given person is assumed collectively by the community who will all bear the cost of rebuilding. In closed, supportive communities where others can be trusted to step in to rebuild lost property, this arrangement can work.

However, most societies could not effectively support this type of system, and the system will not work for large risks. For very large risks, Western insurance can also run into difficulties. This is the reason why most U.S. homeowner's insurance does not cover floods. A company that sells homeowner's insurance in a given city can accurately estimate the number of claims it would have to pay due to fires, tornadoes, and other smaller-scale disasters.

However, a flood may impact a large percentage of the city and the company might be unable to deal with this. A prime example of this is the flooding in New Orleans as a result of Hurricane Katrina. For the same reason, losses due to war and earthquakes are generally excluded. In the case of floods and earthquakes (which are smaller-scale than war) homeowners can purchase separate insurance from national companies with larger resources, which are able to distribute the risk across regions rather than individual buildings.

In gaming or gambling, the game is fixed at the start so that the odds are not affected by the players. However, to obtain certain types of insurance such as fire insurance, policyholders are often required to conduct risk mitigation practices, such as installing sprinklers and using fireproof building materials to reduce the odds of loss to fire. In addition, after a proven loss, insurers specialize in providing rehabilitation to minimize the total loss.

While insurance is analogous to gambling in terms of risk and reward, the main difference is in the motivation behind the process (risk seeking vs. risk avoidance). When gambling, you are assuming risk that you would not otherwise be exposed to that has the possibility of either a loss or a gain (speculative risk). (Perhaps put differently, in a gambling transaction the relationship between the bettor and the subject is created through the bet itself; for an insurance transaction, there is an exogenous relationship, usual economic or familial, that is connected to the insurance—which is a way of restating the insurance interest requirement.) With insurance, you are managing risk that you could not otherwise avoid, and which does not present the possibility of gain (pure risk). Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. Avoiding, mitigating and transferring certain risk creates greater predictability for consumers and business, and allows people and organizations to use risk intelligently to maximize their opportunities.

Historically, gambling has been considered an uninsurable risk. Recent developments, however, have led to the invention and patenting of new types of insurance to protect against gambling losses. An example is United States Patent 6,869,362, "Method and apparatus for providing insurance policies for gambling losses"