Latest / Words & Numbers / Episode 430: Is Insurance Worth It?

Transcript

Episode 430: Is Insurance Worth It? · Words & Numbers

0:00
Hi, I'm James and I'm Anthony. And this is words and numbers
0:08
brought to you by the fine people at Khaki.
0:09
Soon to be Polyhemia, probably already Polyhemia.
0:12
You know, there are legal things that you have to do.
0:15
You've got to sign a bunch of papers and lawyers have to tell
0:18
you it's OK to call yourself something.
0:21
I don't know what the problem is, but there always is 1.
0:25
Oh yeah, and wait until tax season next year.
0:27
Don't get all the sorry stops. Stop.
0:34
Anyway. What's new and exciting in your
0:37
world this weekend? My news this week comes from
0:41
voice authentication startup Pin Drop Security.
0:45
They recently posted a job advertisement and got a bunch of
0:50
candidates. One candidate stood out from
0:53
hundreds of applicants. This applicant, named Ivan,
0:57
seemed to have all the right qualifications for the senior
1:01
engineering role when he was interviewed over video.
1:06
However, Pin Drops recruiter noticed that Ivan's facial
1:10
expressions were slightly out of sync with his words, and that is
1:16
because Ivan was using a deep fake.
1:21
He got an AI to generate a face and a voice in real time and
1:28
that's what he was using for the interview.
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I mean, on the one hand I want to hire him even more.
1:33
On the other hand, I never want to hire him.
1:36
Well, it got me thinking because on the one hand you say, well,
1:39
you know, clearly this is a problem.
1:41
He's showing the faces and his, the voices and his and so forth.
1:44
But if this is going to be, which it sounded to be a fully
1:49
remote job, he's only ever going to interact with people via
1:55
video. How is this any different than,
1:59
for example, wearing a suit to the office or maybe getting a
2:04
voice lessons or plastic surgery?
2:07
Do something to make yourself look different in real life.
2:11
I don't see that this is any different.
2:14
It's all electronicized. I don't know, putting on an
2:16
electronic skin seems somehow different from getting a
2:21
facelift. Well, I don't know.
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I would go to wearing a suit. I mean, you get dressed up in a
2:27
suit and tie to go to the office.
2:31
Where else do people wear suits and ties?
2:33
Virtually nowhere else. So you could say you're putting
2:36
on this persona, you're putting on this look specifically for
2:39
the office. This is granted it's steps
2:41
further, but it seems to be of the same type.
2:44
What happened with Ivan? Well, Ivan was given the boot
2:50
once they discovered that he was a deep fake.
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In fact, it went further than that.
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They did some investigation, found that he was actually a
2:56
scammer. So this was not the case.
2:59
But you could imagine, you know, a case in which maybe someone is
3:04
socially awkward or, you know, is uncomfortable with his looks
3:08
or something, and he goes and he does this thing.
3:11
It seems to me to be, I don't know, in some sense reasonable.
3:16
Well, let me lay this one out on you then.
3:18
There is a bit of a corollary here that came to my attention a
3:21
couple of days ago. There's a guy, I don't know how
3:24
far along he is in the process, but he's developing or he has
3:28
developed an application that utilizes AI to help you or do
3:37
for you, I guess would be the most likely thing, but to help
3:40
you write texts to potential romantic partners.
3:47
Now, this drives all the way down to my common observation
3:52
that when you're dating somebody, you're not meeting
3:54
them, you're meeting their representative.
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Right now you're 1 further step removed.
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That's right. Now you're really out there
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because now you're locating somebody on one of these dating
4:05
sites and then you're entering into some sort of turn based
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chat conversation and you're going to be using your AI to
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send these texts to the other person who will then use her AI
4:20
to respond to you. And before you know it, you're
4:23
not really even involved. Anymore.
4:26
Yeah. And that sounds a lot like this
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thing I've been seeing. I saw it as tongue in cheek, but
4:32
then I realized I've actually seen it in the real world of
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somebody in the office writes it in bullet point, the memo sends
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it to AI and says write this in your language, prose form sends
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it out. The person who receives it gives
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it to AI and says put this in bullet form.
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There's only so. Much of that you're going to be
4:54
able to do. But I I want to go back to his
4:57
deep fake thing. I cannot defend it if the person
5:01
is going to eventually meet these people on the other end in
5:06
person, because clearly he's misrepresenting himself.
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However, if the interactions are only ever going to be by a
5:14
computer, I honestly don't see the problem here.
5:18
There might not be one, but nonetheless, it smells wrong.
5:25
It does. Let me push it a little bit
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further. Recall Stephen Hawking, right?
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He would type. However he managed to type, and
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he had an electronic voice that would then speak what he had
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typed. That's different than what we're
5:40
talking about here, but very similar.
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I think everybody's going to carve out an exception for a
5:46
disability every time, right? My intuition tells me that
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there's a problem here, and I usually trust my initial
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instincts. They're usually pretty.
5:57
Good, You may be right. I just don't know where the line
6:00
gets drawn, nor do. I and I suspect that's something
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we're going to have to figure out over time, but we'll just
6:07
throw it on that pile of things that we need to figure out that
6:09
we never actually get around to figuring out.
6:12
And isn't that interesting because you say we're going to
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figure it out over time and we do.
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This is one of those things that we don't know what the protocol
6:19
is, what's considered polite or impolite or that bit.
6:22
Through trial and error, we'll figure this out.
6:24
I think that's right. And you know, Speaking of trial
6:27
and error, you got something really interesting came across
6:31
my desk today. Did you know that there's a new
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automobile company called Slate Auto that is going to be selling
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electric vehicles? Have you ever even heard of
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this? No, never have.
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I haven't either, but apparently it's sacked by Jeff Bezos.
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It's an electric pickup truck. Does that sound somehow
6:50
familiar? That turns into an SUV when you
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want it to, gets about 150 miles on a single charge, which, you
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know, admittedly is not enough for most people, but for some it
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will be. But here's the interesting part
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with the various tax credits that you'd be able to get when
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you buy it. The cost is $20,000.
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Wow, that's amazing. We'll throw an article in the
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show notes for you so you can see the pictures.
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I am not immediately repulsed by this, and the more I look at it,
7:25
the more I might like to have one.
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And the more I might like to have one, the more I realized
7:31
that 150 miles just isn't enough.
7:33
No it's not. And I'll tell you, I bought last
7:36
year in all electric a Toyota and it's stated mileage is 250
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and it doesn't get 250. It gets maybe I'd say 200 in
7:48
normal use, which is OK. And particularly here in the
7:51
Washington area, there's plenty of chargers.
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It's not a big deal, but to go more than a couple hours on a
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trip, it's a problem. Yeah, if I can't get from Tucson
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to Phoenix and back to Tucson, there's literally no way in hell
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I'm ever buying this thing. Although I will tell you, I took
8:09
mine this past week from here in Northern Virginia up to State
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College, PA. Was a three hour, 45 minute
8:16
drive and I had to stop on the way to charge, but I stopped at
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one of these super fast chargers.
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It was, I kid you not, James. I drove in there, the battery's
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down to 50%, plugged it in, went in, got a cup of coffee, walked
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out, stretched my legs a little bit, got back in the car, it was
8:34
at 80%. So things are getting better on
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that front. It was astounding.
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Yeah, almost as good as filling up with gas.
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I could see in the not too distant future owning an
8:45
electric car. It's just not there yet.
8:47
For where I live and how I drive, it's not there yet.
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Yeah, the big plus that I find is the ability to accelerate
8:56
faster than anybody else on the road.
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So, you know, if I want to get into a space that's closing, no
9:02
problem, step on the gasp, there I am.
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Although the problem is, and maybe I told you the story, I
9:08
had to rent a car recently and it was a gas powered 1 and I
9:13
forgot and I did that, stepped on the gas to, you know, pull
9:17
out in front of somebody. And The thing is not.
9:19
Moving anyway, we all just learned how Anthony will die
9:24
soon. Right.
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And you know, I'm, I'm all right with it.
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We we've had a good run. But let me complain.
9:33
I am not happy with this. What did you call it?
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The rebate thing that goes with tax credit?
9:39
The tax credit, yeah. And those things are gargantuan,
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like multi thousands of dollars. Look, call it what it is.
9:46
The government is forcing your neighbors to partially pay for
9:51
your car. It's a subsidy, there's no way
9:53
around that. Yeah, yeah.
9:56
And it's a massive subsidy. And government is always in the
10:00
business of picking winners and losers.
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So, you know, you should think twice about all these things.
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But that, of course, Aunt, brings us to the foolishness of
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the week. And I wanted to keep it in the
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automotive wheelhouse, right? We've got this ridiculous piece
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of technology that you can now have for, you know, $20,000 or
10:22
so. But Toyota, and we've talked
10:24
about this in passing before, so this is old news.
10:28
I just wanted to highlight it for a minute before everybody
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forgets. Toyota makes a very small and
10:35
very affordable work truck. It's called the Hilux Champ and
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it goes for $13,000 new. You're kidding me it this is
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gas. Yeah, very basic, stripped down.
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I don't even think it comes with a radio.
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I didn't think it was possible to get a new car in this country
10:54
for much less than 20,000. Yeah, you can't.
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It's available everywhere else but here.
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Oh, you're kidding. Really, it's only outside the
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US. Outside the US, you could buy a
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$13,000 Toyota truck and presumably drive it for the same
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350,000 miles every other Toyota product lasts for.
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Or you can live here and not have access to it at all.
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And I don't know what's more foolish than that.
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Well, you're feeling here directly the cost of the
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regulation that we place on cars and trucks and you say, well,
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it's for safety and saving lives.
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OK, fine. I'm not going to argue with
11:32
that. But I'm going to point out all
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of that comes at a cost. And here you just underlined it
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in at least 4 digits. And I want to ask the obvious
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question, OK, if this is all done in the name of safety, how
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unsafe is this vehicle? Right.
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Yeah, good question. Do we have evidence from around
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the world that people are dying wholesale in these vehicles?
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Spoiler alert, no we don't. It's a Toyota product.
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It's reliable, it's safe. It just doesn't meet United
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States standards, which are absurdly high in every respect.
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So we don't have the option lots of other places do.
12:12
For One Stop shopping, for all things James and Aunt, visit our
12:16
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12:21
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12:25
If you'd like to contribute, go to patreon.com/words and
12:28
Numbers. This week I want to talk about
12:33
insurance, and this comes about from one of our listeners.
12:35
Alex Miner posted on Words and Numbers backstage a question,
12:41
pretty much innocuous, how much you're willing to pay per month
12:44
for car insurance. But it sparked an entire
12:47
conversation about insurance. I was surprised at the number of
12:52
people who were saying that, well, basically, insurance is
12:55
just a scam and there's no point in purchasing it in the first
12:58
place. And so in any event, I thought
13:00
we should do an episode and maybe, maybe begin with the
13:04
discussion of what insurance is and what it isn't.
13:08
You know, most people are going to be a little confounded by
13:11
this because it's very hard to describe what insurance is,
13:15
given that we have medical insurance, we have automotive
13:21
insurance, we have home insurance, we have renter's
13:24
insurance. There's a number of different
13:26
things that fall under the title insurance and they all I think,
13:31
achieve relatively different ends.
13:35
Yeah. In fact, I would argue that the
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thing that people think of when they use the word insurance is
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not what economist would call insurance at all.
13:44
All right, well, let's start with what you think they think.
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What I think when people use the term insurance, more often than
13:52
not they're using it in terms of medical care or dental care or
13:57
eye care or something like that. And more often than not, what
14:02
they're pointing to is not really insurance.
14:06
It's more like a prepayment system.
14:11
So anytime you have a cost that's foreseeable and it's
14:15
ongoing, you know, So yeah, you get your teeth cleaned every six
14:18
months, or you go for a doctor's checkup periodically, or you
14:21
have something and you take some medicine, you know, and you need
14:24
a prescription on a regular basis.
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All these things are foreseeable.
14:28
They don't qualify as insurance in the sense that an economist
14:33
would use the term. So really what you're doing with
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this stuff is pre paying. So your employer takes out a
14:39
bunch of money from your paycheck and you can walk into
14:41
the doctor and say, yeah, I get all this treatment for free.
14:44
No, you don't. You've already paid for it.
14:45
You just paid for it through your paycheck and you never saw
14:48
it. I always typify this is the
14:51
difference between what I would call insurance on the one,
14:54
handed coverage on the other. That's a good distinction, yeah,
14:58
Yeah. You want to be covered for
15:00
certain things, right? And, you know, if we're going to
15:03
think about medical insurance, you might want to be covered for
15:06
birth control. You might want to be covered for
15:09
the flu shot, right, These sorts of things.
15:12
Insurance, on the other hand, is something that you should want
15:16
or think you need to cover catastrophic losses.
15:22
Yeah, right. You're hedging your bed by
15:24
paying a little bit. Think of it in terms this way.
15:28
You're very successful, everything's going well.
15:31
You don't want to lose it all, OK, You'll pay a little bit off
15:35
your top line to ensure your bottom line.
15:39
That seems exactly right. So sticking with the healthcare
15:42
example, I don't want coverage, but if one of my children breaks
15:48
a leg, right, something that's going to cause me to lose my
15:53
house because the payments are so high, well, OK, that's the
15:56
kind of coverage I want. I want catastrophic coverage.
15:59
And I'll tell you, aunt, when the Affordable Care Act, if ever
16:03
there was a misnomer anyway, when the Affordable Care Act,
16:07
and I've said this before, and every single time I say it,
16:11
Obama partisan hacks come out of the woodwork to tell me how
16:14
wrong I am. But I'm the one who lived
16:17
through it. So I guess you're just going to
16:18
have to trust me on this. When I ended up getting relieved
16:23
of my employment when I was working at Stratus some years
16:27
ago when I lived in Utah, and of course the healthcare mandate
16:32
was in place. You had to have healthcare
16:36
according to the government standards, not your own, right,
16:40
or you're going to be fined. And the fine was not
16:42
insignificant and in order for me, the cheapest policy I could
16:48
get when you take into account both the premiums and the
16:53
deductibles. I was going to be into that
16:56
policy for $35,000 before a single thing was covered.
17:01
Right. That's not what I wanted, that's
17:04
not what I needed, but that's what the government decided I
17:08
had to have. I, of course, couldn't afford
17:12
that. So instead of getting what I
17:15
wanted and could have afforded, I got nothing.
17:18
Right. Yes.
17:19
Which is always how these things work, right?
17:22
And we all walked around holding our breath until I found another
17:25
job. Yeah, And this is astounding.
17:28
It's the same phenomenon that we talked about with the minimum
17:30
wage. You know, you raise the minimum
17:32
wage and a bunch of people end up losing their jobs.
17:35
They go from earning a low wage to earning no wage at all.
17:39
In your case from, you know, mediocre insurance to no
17:42
insurance. Right.
17:44
So why are we talking about insurance?
17:47
Well, we're talking about insurance because I want to make
17:49
an argument that I think is clearly shows the insurance is
17:54
valuable probably to most everybody except crazy people
17:58
who've just absolutely love the prospect of risk.
18:02
But to talk about it, we've got to take off the table what you
18:06
described as coverage that we're not talking about day-to-day
18:10
predictable stuff. That's not insurance, that's
18:14
coverage. Now I'm going to back off here
18:16
for a moment because you used an example a moment ago of birth
18:20
control and something else. And someone who is disagreeing
18:25
with us could stop you and say, but wait a minute, I'm covered
18:30
for whatever it is, some medicine that I require, insulin
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for example, I'm covered for insulin.
18:36
And if you take that coverage away, then this is my life that
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we're talking about. Clearly, I should have access to
18:45
this insulin and where coverage is concerned, not insurance
18:50
where coverage is concerned, You're paying for that insulin
18:55
already. You're just not aware of it.
18:57
That's right. It's coming out of your paycheck
19:00
dollar for dollar, the amount that ends up going to the
19:04
insurance company for the insulin.
19:06
In fact, I would argue you're probably actually paying more.
19:09
Let's face it, the insurance company can't go broke.
19:13
Right. Yes, exactly.
19:15
It'll never pay out more than it takes in.
19:18
Yes. And people look at that
19:20
statement you just said is absolutely correct and they
19:23
conclude that insurance then is a scam.
19:27
Yeah, that's right. But they're missing the point of
19:30
insurance. So first point, the insurance
19:32
company is not going to go broke.
19:33
It's going to take in whatever is necessary to cover its
19:37
expenses, which means if you're dealing with coverage, you're
19:41
paying for that regardless whether you have the insurance
19:44
or not, you're going to pay on the back end or the front end.
19:47
But when we're talking about actual insurance, you use the
19:52
example of catastrophic healthcare or think about home
19:55
insurance. You have a house that's worth
19:58
pick a number, $300,000. And if that house burns down?
20:03
That's it. You're homeless.
20:05
You don't have $300,000 to buy another house.
20:09
Worse. Than that you probably owe some
20:11
money on that other house which you're going to have to pay.
20:15
Regardless, and that's as a side note, I was astounded to run
20:20
across a discussion recently in which there were adults who
20:25
thought that if your house burns down, you don't have to pay the
20:28
mortgage anymore. Well, I mean, you don't.
20:32
I guess you could try and skip town, but you're legally
20:35
obligated to pay. I mean, they're going to come
20:36
after you. You're never going to get
20:38
another mortgage. Right.
20:40
Yeah. Right.
20:41
There's all kinds of little problems that come along with
20:43
that behavior. But we see this day in and day
20:46
out. I've watched at least a half a
20:48
dozen videos today about people who claim that they had $50,000
20:54
worth of student loans they've paid on them for 10 years, and
20:57
now they owe $93,000. And you know these sorts of
20:59
things and you say, well, that can't be.
21:04
And then you listen a little more and they say idiotic things
21:08
like I went into the payment hiatus for these two years.
21:13
Or they say I had a payment that was somehow delineated by my
21:18
income. Right.
21:21
That's not how loans get paid back.
21:23
That's how debts continue to accrue.
21:25
And as long as people miss the obvious, I mean, and these are
21:31
obvious things, when people miss the bleeding obvious, I just
21:35
don't know what to tell them. Yeah, On the one hand, I feel
21:40
for them having gotten into a loan situation, not
21:44
understanding what they were doing.
21:45
On the other hand, it's their own vault.
21:48
It's not like this is esoteric knowledge that's hidden from the
21:52
public well. I mean, look, use your own
21:54
experience with just reading Facebook and Twitter, not even
21:59
interacting, just reading. People will say the dumbest
22:04
without even spending 30 seconds looking into it.
22:09
Well, is it any surprise that these same people can't figure
22:14
out how loans work or what insurance is for?
22:20
How confusing can it be when you see what they're capable of or
22:23
what they're not capable of? Maybe more to the point.
22:27
Now, we should be careful here because there is an observation
22:30
bias. The people that we're hearing
22:32
about are the people who didn't know what they were doing, had
22:36
this situation of all of a sudden they thought they had a
22:38
$50,000 loan. Now they have a $90,000 loan,
22:42
but we're hearing about it because they posted on Facebook.
22:44
The people who did know what they were doing and paid their
22:46
loans down properly. Well, they don't post about it
22:48
on Facebook, or if they do, nobody shares it.
22:51
Look, I understand my point is a larger one.
22:53
When I look at the online ecosystem, I don't see a lot of
22:58
intelligent, measured responses to much of anything.
23:03
I just don't see people acting all that intelligently.
23:07
So when we come to the ridiculous conclusion that
23:10
people don't understand insurance, why would they?
23:14
Look, I saw at least 50 people tell me in the last week or so
23:19
that the price of eggs has dropped 93% since Donald Trump
23:23
took office. Yeah.
23:25
What did they used to cost, $47 a dozen?
23:32
Right. I mean, it just doesn't pass the
23:35
smell test. And yet all he has to do is say
23:38
it and everybody reports it. Well, I'm with you, and now I'm
23:43
going to pick on the other side, people on the right.
23:46
Go ahead, I don't like. Them either people on the right
23:48
sharing that meme about AOC is worth $20 million.
23:52
Oh, you're not picking on the other side here, aunt.
23:54
This is the same side. Oh, it's.
24:01
But no, that's right, it takes. Look, congressmen have to report
24:06
every damn thing about their finances.
24:08
It's. Right, this is all public.
24:10
Information. Yeah, the reporting is onerous
24:12
on them. I wouldn't even want them to do
24:15
it. It's so ridiculous and yet they
24:17
do it and all you have to do is go look it up because it's all
24:20
public record. And when you re paste a meme
24:24
saying AOC has $19 million how did she get that on a salary of
24:29
174,000? Well she didn't.
24:31
You're an idiot and you could have looked it up but you didn't
24:34
which makes you a willful imbecile.
24:38
You want to be stupid now? Well, no, I wouldn't say people
24:43
want. To Oh no, they want to be
24:45
stupid. No, they enjoy and sending out
24:48
things. They affirm their
24:49
preconceptions. I point out every single time
24:53
they do it that they've made a mistake and that they're acting
24:58
like morons and that the correct thing to do would be to correct
25:01
that mistake. How many of the hundreds of them
25:06
that I have told this, how many of them have actually done that?
25:10
Correct answer. Surprisingly, 10.
25:14
Really one. I know you wanted to say 0, and
25:17
I would have wanted to say 0 too, but one guy on Facebook
25:21
tagged me in a note and he said thank you.
25:23
Mr. Hergen. I had no idea.
25:24
I've read up on this and it was fascinating.
25:27
Wow, how about that? Boy, that's like setting a
25:29
pterodactyl in downtown Phoenix. Huh.
25:33
An apology on the Internet? What the Hell's going on in this
25:36
world? Let's get back to insurance
25:40
because I'm going to go back to your statement once again where
25:42
you said the insurance company is not in the business to lose
25:46
money. It's going to charge more than
25:48
it pays out, period. OK.
25:50
And that's the source of people saying insurance is a scam.
25:54
And here's the example I want to point to that underlines, I
25:57
think people who would say that are misunderstanding how
26:00
insurance works. So let's go back to your example
26:03
of you've got a house that's worth $300,000.
26:06
And if this thing burns down, not only do you still owe
26:09
whatever is left on the mortgage, but now you don't have
26:12
a house and you don't have $300,000 to go buy another one.
26:15
So basically you're homeless at this point.
26:18
Now that 300,000, what do you do with this?
26:22
This is a potential risk that is unrecoverable.
26:27
It is so large that if this event hits you, your house burns
26:31
down, you're just done for Now here's the thing, the
26:35
probability of that happening is really low.
26:37
Let's say it's 110th of a percent each year, 110th of a
26:42
percent. Well, if you do the math, then
26:46
if an insurance company charged you and everybody like you $300
26:54
a year, then the insurance company would break even.
26:58
Now the insurance company is not going to break even.
27:00
It's in the business to make a profit, so it's going to charge
27:02
you $400.00 a year. Now someone can look at that and
27:05
say, well wait a minute, the probability of my house burning
27:08
down is 1/10 of a percent. It's going to cost me $300,000,
27:13
which I don't have. So you do the math, that should
27:15
be $300 a year. And here's this nasty insurance
27:18
company charging me $400.00 a year.
27:20
The fact is, I think almost everybody would happily pay that
27:26
because you as the homeowner, you're not in the business of
27:29
having the thing break even to pay out as much as you're going
27:33
to receive back on average. Because you're dealing with an
27:37
event that likely will never happen at all.
27:41
You're in the business of being protected on the odd chance that
27:44
it does. Right, There are things in this
27:47
world. Lightning, fireworks, electrical
27:51
problems, right? They happen sometimes, houses
27:54
burned down. I don't think for a second that
27:57
my house is going to burn down. I really don't.
28:00
Right. Yeah.
28:01
But I paid the insurance every year.
28:03
Or don't think twice about it. I don't get agitated about it.
28:07
That seems to me to be money very well spent.
28:10
Yeah. And it costs me pennies upon
28:14
pennies on the dollar to ensure for the full value of my house
28:19
and every bit as importantly it's contents.
28:24
Right. Right.
28:25
Every single thing I own is under this roof, including my
28:29
cars, right? Literally everything under this
28:32
roof. But the weird thing is people
28:35
who make it all through life in their house didn't burn down.
28:38
And they'll look backwards and they'll say all of that money I
28:41
spent on insurance was wasted. Yeah, no.
28:45
I mean people say this but that's beyond stupid.
28:48
Yeah, but it wasn't wasted because what happened is you
28:51
came through all of your life in your house, didn't burn down,
28:54
but it might have. And that's what you were paying
28:57
for. The might have.
28:59
Yeah. And Alex Minor, when he brought
29:01
this up, it was an event that we had words numbers backstage.
29:05
You and I go online and hang out every now and again.
29:08
We should do it more often, but we do it some.
29:11
And it was at one of these that Alex said, well, what's it worth
29:15
to you to insure your car? That's a question that most
29:19
people never confront, right? Because the companies tell them
29:24
what the rates will be. And you could shop around, but
29:26
you're always going to be within that range.
29:29
Right. All right, what's it worth to
29:31
you? New cars cost $40,000.
29:35
Right. Can you afford to lose 1 the day
29:37
you buy it? I can't, I just can't.
29:42
And no dealer will let you drive off the lot without insurance.
29:48
Right. Yes.
29:49
It's illegal for them to do so. So important is it that we've
29:52
mandated it everywhere and we still think it's a pretty good
29:57
idea. And things that we mandate
29:59
everywhere are rarely good ideas.
30:03
And yet here we are. So Aunt, what would it be worth
30:06
it to you to insure your car? To insure my car I would say I'm
30:18
thinking to myself how much would I have to put aside per
30:23
year to have a buffer? Let me ask you a different
30:26
question, but before you answer this one, what's your
30:29
deductible? Oh, now deductible is something
30:32
I wanted to talk about. My deductible is very high.
30:36
Whatever the highest is, I think it's like $2000.
30:39
Because I have $1000 deductible which is the highest I could get
30:42
with the company I'm with, and it never occurred to me not to
30:46
have that right 'cause any loss I take on a car I can come up
30:52
with $1000. Right.
30:56
Yeah. And in exchange, your premiums
30:59
are lower. Oh, much lower.
31:01
Right, because what is the auto insurance company know they're
31:04
not going to get out of me a bunch of $300 claims?
31:10
Right. Yes.
31:12
But not only that, not only you not going to submit minor
31:16
claims, you're going to drive more carefully because you know
31:21
that if anything happens, you're immediately out $2000.
31:25
Yeah, and that's, look, these are meaningful amounts, 2 for
31:28
you, one for me. I don't want to lose $1000
31:31
because I rear-ended somebody. Yeah, right.
31:34
Or you know how it goes, right? This is your deductible.
31:38
You're going to pay it. So OK, we've both decided that a
31:43
pretty high deductible, that's an acceptable expense, that's an
31:47
acceptable risk. Let's move over to the premiums,
31:50
right? Yeah.
31:51
Let's look at that for a moment. You say it's an acceptable risk,
31:56
and it's acceptable because there's a portion of that risk
31:59
that you and I have control over because of our driving habits.
32:04
And I'm comfortable. And you're comfortable that we
32:07
can compensate enough for the risk to make it worthwhile.
32:13
The odds of us having an accident are low enough that we
32:16
can get away with the $1000 deductible.
32:18
It's going to happen very infrequently.
32:20
And and I haven't had an insurance claim for decades.
32:27
No Norvi. Well, I guess my last one was my
32:30
wife hit a deer. With the yeah, that deer.
32:33
Completely totaled the vehicle. Yeah, but there wasn't a lot of
32:37
life left in that vehicle. There wasn't.
32:40
And you know, thankfully, insurance kind of regards those
32:42
things as an act of God. You know, the deer just jumps
32:45
out of nowhere. There's nothing you can do about
32:46
this. Yeah, that's right.
32:48
So I mean, look how much is insurance worth to you?
32:55
Yeah. So back to that question, how
32:56
much would I pay? I'm going to say I would easily
33:01
pay on the one car 3000 a year. That's a lot.
33:06
That's way more than I pay in reality.
33:08
Yeah, and I'm being charged much less than that.
33:11
I think and look, I'm still bitter over the very high costs
33:16
of insurance I faced as a young man.
33:20
Young men just get hammered with insurance.
33:23
Right. So leaving that to the side,
33:28
man, I think I only pay like $600 a year as it is.
33:36
Right. So it's actually quite a deal.
33:38
Literally doesn't piss me off at all.
33:41
Right. There are very few things I can
33:43
say that about. I'm angry about almost
33:46
everything. Every time somebody comes at me
33:50
with his hand reaching for my wallet, I get very testy.
33:54
I mean, you want to talk about my $100 a year HOA fee?
33:59
It's barely anything, right? 102 hundred a year?
34:03
Man, I would go to war with these people tomorrow if I could
34:06
get away with it. And you're paying them 102
34:09
hundred a year so that they can come and tell you it's time to
34:12
paint your house. Paint your house.
34:13
That's right. That 200 a year cost me 10 grand
34:16
when I had to paint the house. And then once the house was
34:19
painted, let's not forget the five grand it took to get the
34:22
acceptable light fixtures up. You laughed, man.
34:28
You laughed. And people say, well, how could
34:30
it cost you $5000 for light fixtures?
34:33
Well, I need 29 of them to start with.
34:39
That's quite a few. Then somebody has to come and do
34:42
it. You know, I was still with the
34:45
cane at that point. Putting me up on a ladder would
34:47
have been a death sentence for me.
34:49
And then there's of course all the HOA fees I had to pay
34:52
because the light fixtures did not get put up in a timely
34:56
fashion. I'm 15 grand into painting this
34:59
house. That irritates me beyond all
35:02
repair car insurance. No, let's shift gears on
35:08
insurance for a minute. We haven't yet talked about how
35:12
insurance companies charge different people different
35:14
prices for the same thing. Actually you touched on it when
35:17
you said I have the same experience that male teenagers
35:20
are charged way more than females.
35:22
Yeah, I wanted to buy a new car when I was 20 ish and I could
35:28
have afforded a new car with relative ease.
35:30
I was working my stuff at the time, probably working 60-70
35:34
hours a week, no real expenses. And I thought, hell, I'll buy a
35:38
nice car for myself. And I went out and I found a
35:41
number of candidates and I called up the insurance company
35:43
and they were informing me that my insurance, and mind you,
35:47
aunt, this is in the late 1980s, was going to be over $3000.
35:53
Yeah, what's $3000? It was actually 32150.
35:58
What is that in 20-25 dollars? From the 80s, zero 20s.
36:05
Oh heck, James, that can't be right because it would be Your
36:09
prices doubled roughly every 20 to 25 years, and that was 40
36:14
years ago. You're going to be up around
36:17
$10,000. Ain't that something?
36:21
I've just taken a look at the dollar times and they tell me it
36:25
would be like $9200. Yeah, yeah.
36:29
I'm telling you, these are the figures.
36:32
This is why I did not buy a car for decades.
36:36
I didn't get my first new car until I was until I was in my
36:40
50s. Now on the one hand that we can
36:43
complain about it and it seems completely unfair, but on the
36:47
other, look, statistically it's very clear that teenage males
36:52
have all manner of accidents that teenage females don't.
36:56
I get it. I agree.
36:59
So stipulated. But I did have a choice, right?
37:04
My choice was not to play that game at all.
37:06
So I didn't. I mean, I wasn't going to give
37:09
them that kind of money. I went out and bought a used car
37:11
that I didn't care if it got trashed tomorrow.
37:14
I'd just go buy another $600.00 used car the day after.
37:18
This was back in the days when you could actually buy a crappy
37:20
car for $600.00. But there's a deeper problem
37:25
here, right? Because OK, fine, we're going to
37:28
hold hostage an entire group of people to the statistics of
37:33
their demographic. I don't know how else to put
37:37
that. Oh, I do discriminate.
37:38
We're going to discriminate now. Discrimination is an ugly, ugly
37:43
word. Nobody cares when men or young
37:48
men, boys, maybe have to pay more than women or girls.
37:53
What if it were black men and only black men?
37:58
What if we could show with 100% certainty that black men were
38:02
Now let's pick one out of the air, 11 times more likely to
38:06
have accidents than white men and 27 times more likely to have
38:11
accidents than white women, etcetera, etcetera.
38:14
Is that OK? Can they charge more than?
38:17
Well, I mean, they can't because it's expressly against the law.
38:20
It is, but don't black men pay higher medical premiums?
38:26
Do they? If they do, that's news to me
38:29
and I'm not arguing one way the other, I just have no knowledge
38:32
on that. The demographics are such that.
38:35
Yeah, the demographics are such that your life expectancy for
38:39
black males is, I think, the lowest of all the various gender
38:44
and race groups. That's right, we get to it often
38:47
because black men typically don't even live long enough to
38:50
collect Social Security. Yeah, the expected rate of
38:54
return on Social Security for a black male is like -5% or
38:58
something. It's actually in the negatives.
39:00
They end up paying more into it than they get back precisely
39:03
because their life expectancy is so low.
39:06
Yeah. And you know, you can split
39:09
things up and divide them all day long.
39:11
Sooner or later you're going to have to say, OK, this is an
39:14
acceptable differentiation, and that isn't.
39:16
And you're going to have to offer you reasons and you're
39:19
going to have to convince people to go along with it.
39:22
That's about the best you can say on the map.
39:26
Well, I want to touch on one of the things that was the impetus
39:32
behind Obamacare, and that's pre-existing conditions.
39:36
Yeah. And that kind of plays here that
39:40
you've got some malady. It's a pre-existing condition.
39:45
You go to get insurance and the insurance company is going to
39:48
charge you a gargantuan amount because you're like the teenage
39:51
boy that you know. I, for example, would be
39:54
uninsurable at this point. Yeah.
39:57
And on the one hand, you can look at that and say, well,
40:00
clearly this is a higher risk person, so we should charge them
40:04
more. On the other hand, it bothers us
40:07
morally. We want everybody to be paying
40:09
the same insurance. I mean, look, I've been
40:12
diagnosed with several very powerful diseases.
40:16
Nobody would say that they're my fault, right?
40:19
But everybody would say correctly so that those are
40:24
James problems, those are me problems, not you problems,
40:27
right? And yet we are very
40:29
uncomfortable saying that this class of problem, the
40:32
pre-existing condition problem, we are very, very loath to say
40:38
and you're just going to have to deal with that.
40:42
And yet I want to at least put a nod towards what we talked about
40:47
last week, right? Because I think it actually
40:49
plays here. I think that when we think about
40:52
medical issues, we think in terms not unlike the veil of
40:56
ignorance. What system would we want if we
41:01
had no idea how healthy we were going to be?
41:03
Individually, we know what good health is and we know what
41:06
disease is, right? We know all the details.
41:09
We just don't know how those details apply to us.
41:12
And I think in the realm of healthcare, we are trying to
41:18
satisfy that question. We're not trying to satisfy
41:22
other questions, right? We're not trying to figure out
41:27
how everybody pays, exactly what it costs.
41:31
We wouldn't be talking about insurance in the 1st place if we
41:33
were doing that. Yeah.
41:35
And I'm with you there. My concern is it is not enough
41:41
of a concern to overcome what you're saying, but it is a
41:43
concern and that is the person who will act irresponsibly.
41:49
So I'm not going to buy insurance so that I have more
41:53
money to go and spend on other things and then I come down with
41:56
some serious illness and then I go to get the insurance.
42:01
You're not really getting insurance at this point.
42:03
You're getting a free handout. Yeah, that's right.
42:07
And I don't know what to make of this, right.
42:10
I know what a free market in healthcare would look like.
42:14
I know that pre-existing conditions are the granddaddy of
42:17
all problems to that system, and we're forever trying to square
42:22
the circle because, and I think only because we went years ago
42:29
and attached health care and health insurance to employment.
42:33
Yeah, that was stupid. It was stupid because now if you
42:37
lose your employment through no fault of your own, you also lose
42:42
your insurance. Once you lose your insurance, if
42:46
you have a pre-existing condition, no other insurance
42:49
company will ever take you. Or even worse than that, James,
42:53
something happens to you that prevents you from working, and
42:59
so you lose your health insurance and now you can't get
43:02
insurance because of the thing that caused you to lose
43:04
insurance. Yeah, and you do end up in this,
43:07
you know, feedback loop a lot of times.
43:10
And I don't know that there's a good way out of it.
43:12
I think that the only way out of it, even if it were a way out,
43:17
would be to start unraveling every aspect of the problem,
43:21
trimming away at the edges as best you could over time to try
43:26
and make right what was befouled by government intrusion into
43:30
markets. Yeah, you're absolutely right.
43:32
Health insurance should be completely separate, like your
43:35
car insurance or your home insurance.
43:37
Those things don't come through your employer.
43:38
There's no good reason that they should, right?
43:41
There's there's a historical reason, but there's not a good
43:43
reason. And what I think we've covered
43:46
it on other podcasts and if we haven't, we'll get to it some
43:48
one of these days soon. But I mean, look, the
43:52
interesting thing is I want to insure my life.
43:57
I want many different aspects of my life insured.
44:00
But here's the thing, I only want it insured because I have
44:04
something to lose, right? Insurance is always against
44:09
loss. That's the very nature of the
44:13
thing. It's not to make sure you get
44:16
your flu shot right? I mean, that's a nice byproduct.
44:21
Go get your flu shot if you want.
44:23
Now all the anti vaxxers will be in touch again.
44:25
OK, whatever, Whatever. We'll get to that soon enough.
44:30
To RFK juniors going nuts, making a mess of a lot of
44:34
things. Trust me, we'll get to it.
44:36
But you know, young people who don't have anything don't really
44:40
require nearly as much insurance, and it just so
44:42
happens their health is better, which means they don't need near
44:46
as much insurance. And that's something.
44:51
Yeah. And they're precisely the ones
44:52
that, if you left them alone, would choose not to have
44:56
insurance until it became a problem.
44:58
Well, now you got the pre-existing condition.
45:00
That's right. And there's this other problem
45:02
where we have to take old people like you and me, and we have to
45:06
democratize our risk, right? This is the only way insurance
45:11
works. And you can make a case that
45:15
this is reminiscent of a Ponzi scheme because it is, right.
45:19
It always requires more healthy people paying in than it has
45:24
sick people taking claims out. This is an absolute requirement.
45:28
So we've decided that, you know, old people will sooner or later
45:32
die, and they'll stop costing us a lot of money, and young people
45:35
will keep being born. But with declining birth rates
45:40
and declining fertility rates, you're going to see a problem
45:42
with insurance markets as well 'cause you'll just have fewer
45:46
people through which to democratize your problem.
45:50
Right. And every time that happens, the
45:53
price of whatever you're trying to deal with goes up.
45:56
Yeah, you use the word democratize.
45:59
I would use the word diversify, but, and that's exactly what it
46:02
is. It's just like diversifying a
46:04
portfolio of stocks. You could call it socializing,
46:08
sure. In a lot of ways, that's really
46:10
what we're up up to as well. I think diversify is not a bad
46:15
word to use here. It doesn't catch everything, but
46:17
it catches more than the others do.
46:19
I think I'd have to give that some thought.
46:22
But what are we going to do is always the problem.
46:26
People need certain things, we've mandated certain other
46:30
things, and then we've thrown wrenches into the Gears of the
46:34
market. And then when it doesn't work,
46:37
we blame the market. That's right.
46:38
That's right, it's all the market's fault, those greedy,
46:42
greedy capitalists. Well, and that's interesting
46:46
because, you know, I've heard a number of people over the years
46:48
say about all these, you know, profits for insurance companies
46:52
should be capped. Insurance company shouldn't make
46:54
all this money and this and that.
46:55
I am very happy when my insurance company turns a profit
46:59
because that means it's going to be able to pay out if I have a
47:03
problem. Yeah.
47:06
You know, think about the hurricane that went through
47:09
North Carolina and Georgia, just what, not even six months ago.
47:14
Billions with AB of dollars that insurance companies had to pay
47:18
out. And I'm sure everybody there was
47:22
incredibly thankful that those insurance companies had buffers
47:26
like that. In fact, they didn't have the
47:27
entire buffers because insurance companies buy insurance for
47:30
themselves. But nonetheless, somebody was
47:33
sitting on piles of cash that they can cough out at that
47:35
point. Yeah.
47:37
And, you know, my first thought when I watched the fires go
47:42
through Los Angeles not too terribly long ago was are those
47:48
insurance companies going to be able to make the payments?
47:53
Will they have the money to make the payments?
47:56
And you know, I don't want to get too into the weeds here.
47:59
There's this thing, reinsurance, which is in a very interesting
48:03
market that, you know, looks to diversify risk yet again.
48:08
And every step you take down that road makes it more likely
48:13
that these businesses will in fact, have enough money to pay
48:16
out the claims when they get them.
48:18
But there is a level of catastrophe that's so high that
48:23
no insurance company could pay it.
48:25
Yeah. And this has happened.
48:26
What we're discussing happened in that fire, and I think it was
48:30
State Farm said they were pulling out of California.
48:33
And maybe it wasn't State Farm, it was one of them.
48:34
Because, yeah, California had passed a law saying that the
48:38
insurance companies can't raise their rates.
48:41
But that's different than saying they can't afford to make the
48:43
payments on the fires for the people who had in good faith,
48:47
paid their premiums. Oh yeah, I would imagine they
48:50
can afford to make the payments on these fires.
48:53
And then get. Out whoever it was did the math
48:55
and said we're not going to be able to next time, so we're
48:57
leaving. And look, I ask all the time on
48:59
this very podcast why anybody would do business in California.
49:04
I don't think it's worth it to live with all the regulations.
49:07
I know it's a gigantic market, a very well heeled market.
49:11
It seems like a very annoying market too.
49:14
And that plays every bit as much as profit.
49:18
So, you know, I don't know where we land with all of this stuff.
49:22
We said a lot of words without coming to any.
49:24
Conclusions. The conclusion I would submit is
49:28
the insurance is absolutely worthwhile, and I think they're
49:34
edge cases where it isn't. But those edge cases you will
49:37
tend to find are crazy people for 99.99% of the population.
49:43
Yeah, insurance is worthwhile. Now we can argue about how much,
49:46
at what price, and all of that, but what it's doing is
49:49
protecting you against an unrecoverable loss.
49:54
Yeah, that's exactly right. And when I think of insurance,
49:59
that's what I think of. I want to be covered in case of
50:05
dire, dire circumstances. Right, Right.
50:09
We find out I have brain cancer tomorrow.
50:13
Well, yeah, I'd like to be on top of that.
50:15
If I have to go to the urgent care to have, you know, a
50:17
hangnail dealt with, that's just not the same thing.
50:22
Yeah. Next week, Aunt, we have a
50:26
special request. Our friend and pharmacist Phil.
50:34
Should I try to pronounce this last name Sibigtoroth?
50:40
Oh, Phil. Or however the hell you
50:42
pronounce that he would like us to talk about pharmacists.
50:46
But I've had so many encounters for them, near death encounters
50:51
for me, near prison encounters. I don't think we should talk
50:55
about pharmacists. So, Phil, sorry man, we can't do
50:57
it. Is Phil a pharmacist?
51:00
Yes. We should have him on, let him
51:03
defend himself. Way to pay attention.
51:06
Wait a minute. Well, I thought you were
51:09
introducing it to have him on and then you said we're not
51:11
talking to pharmacists. That's all I got for today.
51:15
But on that happy note, Aunt, note that I did not kill the
51:19
pharmacists. Why?
51:21
Well, fear of prison is one thing, but I also extended a
51:26
little bit of grace. I was nice to them, and
51:29
everybody should be nice to each other.
51:32
Be nice to each other. It doesn't take that much.
51:36
See you next weekend. See you next week, James.