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"The arrangement, in the case of disaster insurance, is for the lucky to subsidize the unlucky, and it only works if there is uncertainty as to who will be the lucky one."

This is related to a point I was trying to make elsewhere with regard to health insurance - when you force people with greatly varying degrees of risk into the same pool, you are creating subsidies on the basis of health risk (or you might say health outcomes).

It hadn't occurred to me to cast the other side - the standard insurance mechanism - in terms of subsidies (from the lucky to the unlucky) as well, but I like the concept. Thanks!


Morgan: absolutely, Chapter 3 talks about why you can't put inland residents and waterfront residents into the same risk pool when selling hurricane insurance in Florida.

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Good stuff as per usual, thanks. I do hope this kind of thing gets more exposure.

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