value

[peterbirks]

So, the motor insurance renewal invoice came through. £142.80. Yes, $285.00, for a journalist, living in central-ish London. Good value, or what?

Americans curious as to how my rate can be so low should look to their politicians and study the handicaps of living in a socialist egalitarian society. I refer of course to the US, not the UK.

Here in the UK, insurers employ actuaries, who calculate a technically correct price. The insurers then set that price and, if it's too high, no-one buys it. That's it. The free market works.

In the US, your beloved politicians have ensured that actuaries can't use many categories to establish a technically correct price. In some states, the rates are actually tariffed. If you are a credit-worthy guy, who drives safely, you should be paying a rate similar to mine. If you are paying more, then you are subsidising someone else. Insurers would like nothing better than to charge a "fair" rate that reflects the risk you represent. However, there's hardly a government in the the US (where insurance is state-by-state regulated -- a system fiercely defended by the National Association of Insurance Commissioners and which also leads to higher prices) that doesn't impose "do-good" restrictions that make no mathematical sense. In California a decade ago this reached the farcical situation whereby a convicted drug-dealer who owned a pink cadillac in Watts would pay the same as a guy who owned the same car but who lived in a gated community in Malibu.

The reasons given by lawmakers were the usual mix of sophistry and ignorance.

1) The drug-dealer might be an equally safe driver, so it wouldn't be "fair" to charge him more. (Logical flaw - a feeling that insurance rates should reflect good intentions and ability of policyholder, and not anything that he cannot control).

2) The drug-dealer is more likely to be black, so to charge a higher rate is racism by default (Logical flaw: Confusion of correlation with causation).

3) The cars are worth the same, so the premium should be the same (Logical flaw, completely ignores likelihood of claim taking place).


Of course, US politicians have no monopoly on logical lunacy - those in the UK can run them fairly close and at times beat them hollow. But it is rather irritating when a country is claimed by many of its inhabitants to be a paragon of free enterprise, when it's actually considerably more state-controlled than we are in the UK.

++++++++

I actually managed to win a few bucks at Full Tilt last night, but the site continues to be a bok. I'm up on the site for the year in terms of big bets, but I'm a buy-in-and-a-half down at both $100 buy-in and $200 buy-in. All within the realms of standard variance (no more than 5,000 hands at one level and 2,000 hands at another) and more than compensated for elsewhere (I've been running hot on Stars and I've had a consistently long good run on Party). I actually get the feeling that, for the hours that I play, Full Tilt is tougher. But how many hands do you need to play before you can be sure that it isn't just a case of running bad?

Comments

Not always

[geoffchall.livejournal.com]

Julie's brand-new Honda Jazz merits a premium of £104 which seems ludicrous, except it's a real struggle to remember when she last made anything approaching a claim.

The one area where the US systems work well is in insuring vehicles for younger drivers. My Californian nephews barely caused much of a ripple on my brother's insurance policy, whereas the girls have been adding several hundred to our insurance policies. Of course my brother's insurance was something ludicrous ($2,000+) to begin with but I've always put it down to the litigous nature of the US, to defend him for being sued because the colour of the car offended someone.

Re: Not always

[peterbirks.livejournal.com]

But that's my point, Geoff, it is not an area where the US system works well, because the insurers are not allowed to charge actuarially accurate rates. "Lower prices" for high-risk drivers is not an indication that the system is working well. If your brother was childless, he would be paying a rate that would be subsidising someone else's kids. How is that a system that works well?

Although litigant risk is higher in the US (and has a significant impact in areaxs such as professional indemnity), it's a red herring when it comes to the basic motor rates, which are high for most people because the seriously high-risk drivers are invariably subsidised. The argument for this is that "you can't live without a car". Once again, that line is logically flawed.

BTW, I don't think these absurdly low rates (for me and Julie) are technically sound! If it costs £60 to process a policy (and that's a conservative estimate, given some of the chats I've had with underwriters), then you only need one "safe driver" person a year to have a "mega-crash" (e.g., hitting a train and causing it to derail) and the motor insurer would be out of pocket for all the other "safe" drivers on their books.

PJ

Re: Not always

[geoffchall.livejournal.com]

The reason why it works well for my brother is that his premiums get no real increase as a result of an 18 year-old lunatic driving one of his cars. Effectively he has become the benefit of the cross-subsidy instead of a victim. In this country high insurance for kids is a major social problem as it is a major cause of uninsured driving.

Now you could argue that we have it right, because that's a reasonable actuarial calculation of the risk. But it is a situation where a little cross-subsidy wouldn't come amiss.

Can't think why it should cost anything like £60 to process a policy. There's no human being involved in the whole process until things do spring a leak and for so many people they do all the legwork on a website and you've just got the costs of paper-processing the thing. And renewals are even easier and more automatic.

Electronic invoicing

[real-aardvark.livejournal.com]

Allow me to disabuse you of the notion that it doesn't cost £60 to process a policy, Geoff. (I suspect that the actual figure is nearer to £50, but this is immaterial.)

First (part A), the argument from personal experience. Have you sat in an insurance broker's office, and watched what goes on? It takes around forty five minutes to go from "hello" to "thank you," and involves a hell of a lot of checking databases, phone-calls, etc, on the way. This involves a lot of people, a lot of systems, a lot of regulations, and a not inconsiderable investment in bricks and mortar. Not to mention a lot of insurance brokers sitting around discussing the latest episode of "Lost" because there's no customer to waste the next forty five minutes on.

First (part B), the argument from personal experience, mitigated by the "Gee Whizz" factor. Cue light-bulb. "This has to be cheaper over the Web," you (or Jeff Bezos, or Richard Branson, or some equivalent entrepreneur) say.

Well, no, it's not. Or not by much. On the Bezos argument, you gain the advantages of scale. You certainly save on the bricks and mortar. But now you have a whole 'nother bunch of costs to subsume after EBITDA, ie a customer-facing IT system with a call-centre backup. I'm no expert on this, but to be honest I'd estimate the costs as roughly equivalent and the risk (not having somebody in front of said drug dealer with pink Cadillac, and btw what's the deal with that? How closeted do you have to be to want a pink Cadillac?) is rather higher.

Second, and more importantly, the empirical evidence. Which I don't have to my fingertips, having not worked for Visa for eight devastating years now, so you'll just have to take this on the Joe McCarthy principle.

Basically, in any large organisation (an insurance company, for example), it costs around £50 to process an invoice. This is largely because of cross-system incompatibility (and don't nobody mention XML at this point, because I will take the trouble to learn where you live and slaughter your entire gene pool, backwards and forwards) and, more importantly, taxes and regulations.

Visa came out with what I still think is a brilliant solution to this (the technical details need not detain us here), which was to produce the "Purchasing Card." Back in around 1998-1999 or so, this would have dealt with about a trillion Euros-worth of back-office wastage per year and reduced said cost from £50 to maybe £10 or less.

This came from a leading-edge POS organisation in the '80s and '90s.

Unfortunately, by the mid-1990s, they were bogged down and fucked up by their own managerial incompetence and lack of direction. Thus, their implementation ("It's only a technical matter, and it has to conform to the database on the IBM mainframe") sucked itself into a vacuum.

I'm still rather angry about this.

...

Anyhoo (as Birks would say), I love the idea of the US as a state built on socialist principles. Not that this is new, just that it's well-expressed here, and I'm sure I can use this as ammunition when I go back there.

I see two basic problems here: putting labels on things, and a lack of critical thinking. Well, I suppose the first is a sub-set of the second, although in the political arena it does tend to edge into tribalism, which is an unrelated but rather pertinent cultural disease.

As for critical thinking, it's taken me forty-five years to realise that I don't actually practice it myself. Given my education background, this is shaming, and I'll try to correct it once I've pulled myself out of the gutter.

I'd even go so far as to say that, given the challenge posed by modern media, "critical thinking" should be given an equal place with the three Rs as part of basic education.

But now I'm dreaming... "Janet and John are reading Wittgenstein. Janet says, 'How do you show that a proposition is logically correct?"

States Rights

[real-aardvark.livejournal.com]

Oh, and I should also point out that allowing each state to run its own insurance business, policed, no less, by "insurance commissioners/regulators" who are elected, for God's sake, is spectacularly insane.

First of all, it ignores the fact that the US is (bar two states) a contiguous geographical area. If I were insured and licensed in (say) Montana, and I ran over a potato in (say) Idaho -- and there's little point to Idaho, bar their low-quality potatoes -- then I think I'd object to being uninsured for tuberocide on my Montana policy. If I lived in Montana (God forbid) and had no intention of crossing into Idaho, even for a couple of hundred yards, then I would be extremely peeved at having to cough up for some random other Montanan's casual disregard of The Root of all Good.

But more importantly, it transforms the actuarial into the electoral. This is just silly, and potentially disastrous.

Can you imagine?

"I voted for her because I just love that retro-beehive chic, ya know? Love the purple highlights, too. And she's so cute with her kids. Can I count up to eleven without taking my shoes and socks off? No, but I still love the hairdo ..."

No, I'm sorry. Very dull matters such as actuarial rates for insurance, are better left to very dull people like actuaries.

Not to the Oprah Winfrey show, and not to electoral politics.

Re: Electronic invoicing

[peterbirks.livejournal.com]

I was going to mention that, even with automated systems, there's a hell of a lot of fixed cost; compliance and IT being two obvious ones. I believe that the call centres work on an estimate of about £25 cost-per-call, but this ignores the compliance parts.

PJ

Re: States Rights

[peterbirks.livejournal.com]

One day I might do a summary of the Louisiana Insurance Commissioners over the years. It's really a hilarious tale.

Some Commissioners are not elected, but appointed. These tend to have better-run systems.

Of course, the finest insurance commissioner in recent times was Chuck Quackenbush of California -- last heard of in Hicksville Iowa, I believe. Chuck's campaign tactics in the 1990s were masterful. I really must do a story about that one day as well.

[andy-ward-uk.livejournal.com]

It may not be the most important social issue, but one of the things that fascinates me most about the US is the draft system and salary caps they have in sports. These are pretty much flat out Communism (in loose sports terms). But of course they work really well to keep the leagues interesting and mobile from year to year. Compare and contrast with the Premiership / Champions League, etc.

Can you imagine the abuse someone would get if they seriously suggested a draft system (complete with bottom of the league gets first pick) over here ?

Andy.

Re: Electronic invoicing

[jellymillion.livejournal.com]

I would guess that the approximate marginal cost of buying via call centre is the amount of discount available to the online punter. 10% or thereabouts?

Re: States Rights

[real-aardvark.livejournal.com]

Oh, please, by all means, do. As Glenda Slag would say, "Goof-ball name, goof-ball sort of guy..."

Quackie was, I suppose, my insurance commissioner while I was over there. I was never quite sure whether it was the Pythonesque name, the deranged state Democrat in-fighting, or simply the incompetence that caused me to lose all faith in the man.

Mind you, as long as you've got CALPERS on your side, why give a rat's ass about anything else?

And on the subject of Pythonesquerie, I suspect that "summarising" the Louisiana Insurance Commission is not unakin to "summarising" Proust only without the overt gayness and the Madeleine cake.

Did I just fart, or is there a draft around here?

[real-aardvark.livejournal.com]

Ever watched baseball?

There are periodic bleatings about a draft-style system, but they come to naught and always will do. My belief (and I'm willing to argue this) is that the fundamental underpinnings to the draft system just aren't present over here.

Think about it for a moment. Who gets drafted? Yup, college students. (I should say, "students." Mind you, one of my favourite Colemanballs of all time was the hockey commentator who said "Why did he do that? It's not rocket science..." to which his co-commentator (and obvious anorak) said, "Well, Jim, actually he is an aerospace engineer.")

Consequently, even if any British sports body had a detectable back-bone, it would make no difference. There is simply no way to make a draft work over here.

I suppose you could mimic the idea with a lottery-style system of buying South Americans and Africans off dodgy Middle-Eastern money launderers, but that wouldn't quite be the thing to do, now, would it?

Anyway, your comment is precisely the point I was trying (verbosely, and unsuccessfully. When will I ever learn not to drop stupid concepts like "critical thinking" into conversations even though I clearly have no idea what I'm talking about? Typical bloody Oxford Historian) to make.

Put bluntly: one side (either side) accuses the other of "communistic" or "socialistic" behaviour -- generally the American side. One side (either side) accuses the other of "fascistic" behaviour -- generally a pathetic bunch of European student losers, or maybe an inadequate Guardian columnist who never grew up.

At this point, people like to say that "the truth is somewhere in-between."

No, it's not.

The truth is, basically, the truth; with certain qualifications.

Most of these absurd arguments rest upon axioms formed, not just from a cultural background, but also from a temporal background. For example, you'd be horrified to learn quite how racially prejudiced the Labour party was in the inter-war years.

It is, however, in my experience, very difficult to get this point across to a middle-class redneck loon in a sports bar in Georgia.

"The thing I like about you Brits is that you know how to deal with your niggers."

Sheesh. I had to pull my fat, non-violent, Thatcherite friend off him.

But only after making sure that the excellent pastrami sandwich was safe ...

Re: Electronic invoicing

[peterbirks.livejournal.com]

Ahh, naivety, Mike. Companies do not charge for services related to cost. If people did not need to be encouraged to go online, then there would be no discount.

However, you may be (marginally) right here. There are significant cost-savings in shifting punters online, and, in a competitive market, it makes sense to offer part of this saving to the consumer. Indeed, it seems to be one of the few areas where Samuelson's text book on Economics (required reading in my youth whe studying economics, despite being nearly 100%-inaccurate when it comes to the real world) actually contains a glimmer of truth. Part of a cost-cutting measure increases profits, and part of it goes to a reduced price.

Perhaps this indicates how rare "real" competition is in the world economy. When Samuelson's economics works, we are surprised.

PJ

Re: Electronic invoicing

[jellymillion.livejournal.com]

I wonder if it counts as competition when the "product" is something like car insurance, which we don't actually want - we have it because we're required to have it,so we take the first deal that doesn't seem too awful.

Then there's the category of things that are supposed to be a good idea, like other insurances and savings products, that mostly have to be sold, because the punter wouldn't otherwise shell out for them. "You could save up to £140" and the like.