have you ever asked a doctor or nurse (not dentist) what a procedure will cost before consenting to it?
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me, an idiot: "I bet I get sick" insurer, a genius: "I bet you don't, pay me $7000/year for counterparty risk premium"
does it also apply to other insured things? the level of fucked upness seems peculiar to medicine
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*nodnod* i'm poking around other things because i suspect there are yaks to be shaved here, insurance is obviously a bad model for the domain that has been driven by perverse incentives into greater heights of dysfunction, but i feel like there's a structure of factors
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I think that's a yes. Credit default swaps, for example, are a type of insurance that nuked international credit markets into smithereens in 2008. Different particular pathology, same general cause: insurance is an inappropriate finance model for very many things.
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in the case of CDS the market that was distorted was home mortgages. other forms of insurance have to be very particularly regulated to avoid some of the obvious insanely perverse incentives (life insurance is the canonical example).
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