The Big Insurance Scam

I recently received a scathing email from a banker regarding my views on insurance. The banker said that I must be living in another world than the rest of humanity because I think that the insurance industry is one of the biggest scams to face the modern world. Well I do live in another world at times… but I don’t think his disgust with me on this issue is well founded.

First, I feel it is important to divide the logic behind insurance from society’s current implementation of insurance. It’s important to separate them because I want to make it clear that the reasons behind insurance are wise… and I do not dispute the value of creating a safety net in the form of insurance. The problem lies in the way insurance companies do their business.

The basic concept of any insurance is this. You know that this world is precarious. You know that there are no guarantees for safety in health, finances or any other commodity. You know that many of the factors involved in the continuation of your safety are beyond your control, and even those factors within your control are fallible simply because no one is perfect. So, wherever possible and reasonable, you should fortify yourself in the event of calamity.

In ancient times insurance was carried out in the form of storing grain for winter months. In fact, we still do that… but our minds have long forgotten how precarious harvests are.

The logic behind preparing for unknown disasters is not in dispute. What’s to be disputed is that marketing strategies mixed with political tinkering have not only covered basic truths of reality from many people’s minds, it has also created a system that encourages increases in the cost of several industries. Some of those industries, such as the auto industry, are areas where the average American is forced to pay insurance companies for services they often never use.

The blanket over many eyes is the false security insurance provides. Being prepared for disaster is important… but there is a line beyond which a levelheaded strategist won’t go because the frequency of disasters is so low that paying to defeat a phantom risk is too costly. There are an infinite number of disasters that could happen at any moment… but most never happen because of intelligence and order. If you want to prepare for them all you will end up spending one hundred percent of your time planning to defeat the infinite list of tragedies that could come your way. And then after all that you can have a heart attack and die.

Again, I’m not arguing that being prepared and having a plan to deal with tragedies is wrong. But the insurance companies want you and me to believe that they will protect you from tragedy—when in reality there is absolutely nothing insurance companies can do to protect you from tragedy because they have no bearing on the actions you take in your life. They know that they can’t do anything about it… but they market their services as a form of protection.

Consider auto insurance. A drunk driver slams into you. Insurance had nothing to do with the other motorist getting drunk… or with you being on the road that night. And if you die… there is nothing that the insurance company can do about it.

The logic is then turned to say that you and I need to carry auto insurance to protect other drivers from us. Again… there is no protection. Carrying the insurance does not do anything other than help defray the cost or repairing the damages after the fact of tragedy. Of course this is how it works… but marketing schemes continue to make the insurance seem like a protection from disasters.

Health insurance companies are scams too because they put it into everyone’s mind that we are entitled to living past one hundred years old; they also increase the cost of health care because of the plans that pass covered patients’ bills onto insurance companies… allowing hospitals to charge extortionately higher for medications that would otherwise cost much less. One manual on reducing hospital costs stated "Hospital costs for medications are notoriously high.” One of the recommendations offered (buying these medications with insurance plans) displays the mental block that Americans have with this issue—they assume that they are getting the medications cheaper because of insurance when in reality the practice allows pharmaceutical companies and hospitals to raise the cost of medications and treatments… a cost that is passed back to the insurance companies and then right back into the consumer’s lap.

Some types of insurance companies are even forcing doctors to close shop—as in the case of obstetricians that can’t keep up with the rising premiums in malpractice insurance.

Insurance companies are businesses. They exist to make a profit. There’s nothing wrong with that. But they play a major role in raising the cost of living and in sustaining the increase in cost. Those industries that have snuck through the back door of the legislative process (like auto insurers) have created a monster in the system that is a giant parasite on the American economy—private companies are essentially taxing the American public.

Furthermore, the floor seems to fall out when you consider another fact. In times of major disaster, when a company, family or individual needs the help most—when they really expect all the expense into insurance companies to pay off—insurance companies find ways to fall short on their promises.

One shady tactic of insurance companies is in the fine print of many insurance plans. Oftentimes the consumer was never educated by the insurance companies about lasering, a strategy insurance companies use to limit financial loss by limiting their financial responsibility in costly claims. Lasering allows insurance companies to limit their payments on partially self-funded companies when, for example, the insurance company knows an employee has an expensive illness.

The recent barrage of hurricanes in Florida is another case in point. Insurance companies struggled to pay for all the damages. Who came in to clean up the mess? The U.S. Government has already spent more than $1.8 billion in aide on Florida. Of course… insurance companies paid their part… Economy in News reported that the hurricanes that hit Florida could cost the insurance industry $50 billion all told. One company, it said, "might even have to dip into its reserves to cover the costs.”

That means a rise in premiums. That means the cost of living goes up. It will go up for the big picture, not just for the home owners of Florida; the cost of the disasters cannot be paid for from the funds pulled from Florida alone—it’s the homeowners living in areas with extremely low chances of disaster that pay a large portion of this bill. In other words… people who don’t need insurance are paying for the tragedies of those who do need insurance.

Entrepreneur.com reported that "small and midsize companies see health-care premiums outpace the cost of their employees’ claims”. The cost is going up… but the services are not.

Tragedy is not something to flirt with. Being prepared to handle it is wise. Requiring financial responsibility among people partaking in hi-risk activities that can harm others is prudent. I don’t recommend banning insurance companies. But I do recommend boycotting most of them and pressuring lawmakers the open their eyes to the cutthroat scams being pulled on the American people by the current insurance industry.

To end, I want to quote from the banker who felt offended by me. He wrote, "Insurance companies never know who the next driver is that may cause a 10 car pile up and cost them $1,000,000. It could be you.” I suppose that’s true. They also don’t know who the next person to steal my wallet will be; when a meteorite will hit the USA again; when a drunken tanker captain will smash into shore again; when a swarm of killer bees will attack a bus full of children; when a rogue politician will start a war.

There are many things that insurance companies don’t know. But there are a few things they know well… like getting your money. See, insurance companies are good at eating the pie and having it too. Actually, they are good at taking your money and keeping it too. The odds are that you’ll never see a return on the "investment” you’ve put into the security of insurance companies.