>In my view, insurance is completely compatible with capitalism. It is simply a business, based on statistics.
Insurance that is based upon a normal distribution is compatible. Insurance based upon a non-normal distribution is not compatible because you basically can't price it. You therefore usually get a few scenarios:
* The insurer prints money during the good years and goes bankrupt in the bad years.
* The insurer prints money during the good years and somehow caps their liability in the bad years (this is why homeowners' insurance typically doesn't cover flood damage).
Sometimes the government covers the difference (e.g. the government coughing up the money AIG owed to Goldman Sachs, the nuclear liability cap or NFIP), sometimes it doesn't.
You get non-normal distributions in a lot of situations - nuclear insurance, flood, earthquake, healthcare and insuring against default risk.
tl;dr capitalism is compatible only with high school statistics.
But lots of insurance companies operate on the risks you mention, floods, earthquakes. There are insurance companies that insure other insurance companies against outliers, for example.
Sure, there is no guarantee that the whole network can not go broke. But that goes for governments, too.
Also I think health care will always have to be capped at some point, because with arbitrarily high investments, you could presumably keep people alive indefinitely (heart fails - attach heart machine. Lung fails - attach lung machine...). That is why in the UK afaik they don't pay for dialysis once you reach a certain age.
"But lots of insurance companies operate on the risks you mention, floods, earthquakes. "
Where this does happen there's usually a fairly low liability cap, some sort of hybrid private/public partnership or a combination.
"Also I think health care will always have to be capped at some point, because with arbitrarily high investments, you could presumably keep people alive indefinitely (heart fails - attach heart machine. Lung fails - attach lung machine...). That is why in the UK afaik they don't pay for dialysis once you reach a certain age."
The UK is almost entirely communist (this is a description, not a slur) in the way funds are allocated. They base funding decisions on something called QALYs - quality adjusted life years.
The practical upshot is that expensive operations that will add 6 months of painful life for an elderly patient are not prioritized under the NHS whereas operations that could save a newborn child's life have virtually no funding limits.
Insurance that is based upon a normal distribution is compatible. Insurance based upon a non-normal distribution is not compatible because you basically can't price it. You therefore usually get a few scenarios:
* The insurer prints money during the good years and goes bankrupt in the bad years.
* The insurer prints money during the good years and somehow caps their liability in the bad years (this is why homeowners' insurance typically doesn't cover flood damage).
Sometimes the government covers the difference (e.g. the government coughing up the money AIG owed to Goldman Sachs, the nuclear liability cap or NFIP), sometimes it doesn't.
You get non-normal distributions in a lot of situations - nuclear insurance, flood, earthquake, healthcare and insuring against default risk.
tl;dr capitalism is compatible only with high school statistics.