Insurance and Gambling

A few years ago I was listening to a radio program about the betting industry and the wide range of products they now offer. The program presenter interviewed a nun who was organising some kind of outdoor event. She had taken out insurance against rain. The presenter asked why she hadn’t made a bet that it would rain – it would have provided exactly the same benefit and would have cost less. The nun replied that God didn’t approve of gambling.

I find this very strange. Here we have two commercial enterprises offering, in return for a small amount paid in advance, to give the nuns a sum of money if it rains. The transactions are identical. The only thing that differs is the name of the transaction. One type of gambling is called insurance, which everybody knows is a wise and sensible thing to do; the other is called betting, which received wisdom tells us is reckless and stupid. For fear of a word, the nuns go for the transaction that gives the poorer value for them. (The transactions are carried out online so the nuns don’t have to suffer the embarrassment of being seen to enter either an insurance broker’s establishment or a betting shop.)

Insurance is gambling in its purest form. You pay a stake to the insurance company to bet on events beyond your control. If the event you've bet on occurs, the insurance company pays out your winnings. The difference between insurance and the wider gambling industry is that insurance companies limit the events you can bet on. As a general rule, the event must be personal and the occurrence of the event must involve you in some kind of financial expenditure or loss. Thus you can bet that you will accidentally crash your car, that your house will burn down, or that you will fall ill or be injured, but you can't insure against your favourite horse winning a race. That is considered speculative insurance and you need a bookie to make that kind of deal.

The insurance industry is nowhere near as clean as you would hope. When you come to insure your car, for example, you expect that the insurance companies will have calculated the odds so that, at the end of the year, having paid out all their customers' winnings, they are left with a nice little profit for themselves. There's nothing objectionable about that - if they didn't make a few bob for themselves they'd take up lion taming or hairdressing instead. The insurance companies will, of course, keep an eye on the premiums that other companies are charging and will try to be competative, thus ensuring that nobody is profiteering. If it really worked that way it would be as good as any human enterprise ever can be.

Certain kinds of human being will always look for a way to make more money by behaving dishonestly. "It isn't against the law," they will whine when cornered - the most contemptible excuse that any human being can ever make. For them, morality, ethics and honesty are just quaint, old-fashioned words best confined to church. Denying claims has been a good way to make a little extra income ever since insurance was invented. It's not so easy to get away with it these days in the UK, although I believe it's still the norm in the USA. Most of the diseases in the British insurance industry now come from the corporate insurance brokers. You know the ones: the companies Joanna Lumley and Michael Winner like, the ones with comforting umbrellas, noddy-head comedy dogs and wheely red telephones. They look so cosy in the TV ads, don't they?

The first trick is to work out how they can charge more without customers going elsewhere. How about cashback? Given the choice between paying a £100 premium for car insurance - the people this scam is aimed at are likely to have only third-party insurance - or a premium of £150 with £25 cashback, which would you choose? It has to be the second, doesn't it? I mean, they give you £25 for nuffink! Can't argue with that! You'd be surprised how many people fall for it.

The next scam is to add worthless bits and pieces to the insurance. Once you've agreed the basic premium it's time for the telephone bunnies to pressurise you into adding, let's say, legal insurance. You don't want it? "So, you're going to handle the third-party liability and compensation claims yourself," crows the uneducated telephone bunny, who probably couldn't even spell 'legal insurance'. "Oh, well, no, I suppose I'd better have it, then," mumbles the victim. Oh, such profits! Oh, such worthless insurance! It's highly improbable that you'll ever need any legal work done yourself, the insurance companies sort it out between themselves, but if you ever do (maybe on the same week that you are struck by lightning and win the lottery) you'll discover just how little the insurance will help you. It's jam for the insurance brokers, nothing more.

The next trick is to profit from your laziness and automatically renew your insurance. Doesn't sound like a bad thing? Check how much they're charging you this year. Why is it so much more than last year? Don't bother to phone and ask, you'll get some well-rehearsed pygmy-yap in reply, and you're wasting your own time and paying for your own phone call. Instead, phone the same broker as a new insurance prospect and then, when they give you a price far less than the renewal premium, ask why you get a much better deal as a new customer. Or don't bother to ask, just take the good quote. The automatic renewal without explicit agreement might be illegal now, but if it isn't, watch out particularly for Hastings Insurance, who make loadsa money from this scam.

Dud insurance products, particularly worthless travel insurance, are used by many companies to sell you their junk. Your bank will try to flog you a current account with a monthly fee. In all likelihood, amongst the other pretty plastic beads they offer, there will be travel insurance. Ask how many people have ever made a successful claim on it. The bank bunny won't know the answer, even though she'll invent one, but I'll tell you instead. You can count them on the fingers of one elbow.

The bank bunny will tell you that she has a Super Premium Account herself. You're supposed to think that, if a bank insider has one, it must be a good thing. What she will omit to mention is that all staff have one, just so they can tell you that very thing. They don't have to pay for their junk but you'll have to pay for yours.

So, are the nuns right? Is insurance so much more godly than other kinds of betting? For my part, I'd take an honest bookie over a dishonest insurance broker any day of the week. I hope Jesus would do the same.