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Insurance is non-scarce?

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Wheylous posted on Fri, Apr 27 2012 9:48 PM


On Reddit I suggested that an increase in demand for insurance would increase the premiums. A guy replied that
Insurance is not a finite good, therefore the supply-demand dichotomy is not relevant
It seems to me, however, that while insurance itself is not "a good", insurance is a contractual obligation to pay real currency, which is scarce.
Am I right?
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Absolutely you're right, although there's a caveat.  Promises made by insurance companies are indeed infinite.  However, the ability to MEET those promises is in fact finite.  An insurance company might insure something for a million dollars, but if they don't have the cash to actually meet that obligation, or thier obligations tend to pay out more than their fees take in, then that entity will go out of business.  Quite finite indeed.

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Neodoxy replied on Fri, Apr 27 2012 10:36 PM

Yea, it's kind of awkward because it depends on what you're talking about because insurance isn't a finite good until suddenly it is, that is until it has to pay up. So an illegitimate insurance firm indeed has no supply or demand as such, but a real one will. With this said it isn't quite as simple as a traditional supply and demand analysis because the good which the insurance company is promising (assuming a traditional insurance company) is money in the case of a future catastrophe. What do they get with each customer? Money that can be used for a future catastrophe. With this said there are still additional transactions which have to be performed in order to run the insurance company and there's a whole lot of probability involved from any number of points of view... So... It's complicated...

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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You're more correct than he is.

"Insurance" is no more or less real than anything else that can be sold; be it a pet rock, a house, wishes, or widgets.  

If you can sell it and somone buys it - it's a scarce good

"As in a kaleidoscope, the constellation of forces operating in the system as a whole is ever changing." - Ludwig Lachmann

"When A Man Dies A World Goes Out of Existence"  - GLS Shackle

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