Insurance And Ethics
Insurance contracts are often seen as a form of gambling. That
is because they appear as a type of wager that takes place over
the lifetime of the policy. Basically the insurance company is
willing to bet that you and your property will not suffer the
loss insured against. In exchange for making this bet, and
taking on the risk, the receive your premium. If they win the
bet, they keep the premium, if they lose, they make the payout.
In this sense, they are often compared to a type of long term
financial casino.
The difference between your premium amount, and the amount the
insurance company will have to pay out if the loss occurs, is
simply the odds the insurance company is getting for taking on
the bet. It's just like going to the horse races and betting on
a horse that pays out 10 to 1.
This view of insurance has led to a number of people and
religious communities disapproving of insurance because of its
similarities to gambling. Among those groups that avoid
insurance are the Amish and Muslim communities. What these
people do instead is create a system of what is known as social
insurance. What this means is that if there is a disaster and
someone suffers a heavy loss, then the whole community will step
forward and help them to deal with their loss and rebuild. While
this system is very simple, it has the potential to be just as
effective a safety net as insurance. However, it requires that
the community actually does step forward and help those who
suffer from disasters. This means that it is more successful in
small closed and closely knit communities than in large modern
societies.
Social insurance systems therefore are not always effective.
Often the community that is supposed to adopt it is not
suitable. Also, in very large disasters the system can break
down as a small community will not be able to rebuild itself
completely without outside assistance. This is why larger modern
insurance systems can be more robust. However, in extremely
large disasters, modern insurance systems can also run into
difficulties. This is witnessed by the fact that it is
impossible to insure against certain risks such as floods and
earthquakes. This is because the damage would be simply on too
large a scale for the insurance companies to cope with.
There are other ways in which insurance doesn't follow the
gambling model. For instance insurance companies seek to reduce
the risk of the loss occurring constantly, for instance by
requiring the installation of fire alarms, or by reducing the
loss if the insured against event does occur, for example by
providing rehabilitation to accident victims. Therefore
insurance is like a gamble in the reward and risk elements, but
other elements are different.