Insurance seemed like betting against your death or misfortune and some people don’t want to bet on your personal downfall so they don’t want to buy insurance. For years, the industry have been trying to change the story and they settled on the idea of protection, financial protection against those misfortune.
In principle, that works theoretically but the issue is that a lot of what you pay for is sales and distribution. The structure of the industry is such because insurance works well only when the risks are being pooled. That means having lots of people paying the premiums in order to support payouts during adverse events. As a business though, it means that the firm is ultimately a sales and marketing organisation. Costs will have to weigh disproportionately on the distribution side of the business.
This is a shame because the society needs insurance. Yet it is a market failure; the market system allocates resources poorly in this market. It can be better designed through a mix of regulation and making it mandatory to have certain amount of cover. The government should not think the market will help reduce cost of insurance through competition because the basis of competition in this market isn’t so much pricing. It is more sales, marketing and tactics.
But isn’t it just like many other products? For luxury products, yes. Basically for things people don’t actually need, you can allow the whims and fancies to be shaped by the market. But when it comes to insurance, you want the market to deliver an outcome so you need to design the boundaries and structure to make it work.
The story of insurance should be that of mandates, regulation, and basic necessity and right of people. We come together to live in highly urbanised environment and it should be a no brainer for us to risk-pool and mutually insure. There’s no excuse for this market to be hijacked to support high-flying salespeople.