Insurance Reform

Issue

   Insurance policies are essentially pyramid schemes that may not be entirely beneficial for the policyholder when examined in greater detail.

Transparency

   Does a typical consumer really know their chances of being protected by their insurance policy?

   For example, say an insurance company had 1,000 homeowners each paying $1,000 in annual premiums for a total of $1 million per year. If the average home costs $250,000, then that would mean only 3 out of 1,000 households would actually be covered by the policy (after the insurance company takes their cut). Having only 3 out of 1,000 customers being covered per year isn't very good for the policyholder.

   Even after considering a longer 50-year term of paying the insurance company their premiums, only 150 out of 1,000 homeowners would actually be covered. That's pretty dismal. It may be better if that money was saved instead in a separate bank account to cover potential damages (e.g., 50 years results in a $50,000 bank account compared to a total loss of money if paid to an insurance company).

   To protect the consumer better, insurance companies should be required to provide greater transparency regarding the policyholder's chances of coverage, both at an annual and accumulated rate.

Forced Participation

   Due to the general nature of insurance being a pyramid scheme where there isn't a guarantee that everyone will benefit, it would be immoral for governments to force its citizens to purchase an insurance policy for any reason. For example, requiring drivers to have auto insurance or the individual may lose their driver's license is actually a violation of a person's civil rights.

   As the above example shows, it may be better if a person saved their money in a separate bank account than pay insurance companies their premiums. To determine which is better, policyholders should calculate the amount of money that they had paid on insurance and compare it to saving in a separate bank account.

   Regarding auto insurance, a person should calculate how much they paid in insurance over the years and compare it to how much they collected in claims. Which was more cost-effective? For most people, paying premiums was greater than what was collected in claims. Because of this, it should be illegal for governments to force its citizens to participate in insurance programs since they are not an effective monetary policy.

Territorial Boundaries

   Since some areas of the country may experience a greater number of natural disasters than others (e.g., California fires, flooding near coastal areas, etc.), it may be better to restrict the payout of such claims to be limited within a state's/province's boundaries. Doing so would be more fair to those who would have to otherwise pay for those who live in high-risk areas.

Financial Liability

   Nearly all insurance companies insure more than they are able to pay out in claims, which is fraudulent in nature. The problem is so severe that the global insurance market insures more than what the entire world has available in money. Which provides a false sense of security for those who think that they are protected by their insurance policy. Legislation needs to be considered that requires insurance companies to have the necessary funds to cover all of their liabilities that is not to exceed their company's capital.