[HN Gopher] The strange business of hole-in-one insurance
___________________________________________________________________
The strange business of hole-in-one insurance
Author : paulpauper
Score : 221 points
Date : 2022-05-03 18:48 UTC (4 hours ago)
(HTM) web link (thehustle.co)
(TXT) w3m dump (thehustle.co)
| joezydeco wrote:
| I'd recommend _The Man with the $100,000 Breasts_ by Michael
| Konik.
|
| It's a collection of gambling stories but has a heavy focus on
| bookmaking and how a lot of these operations work.
| metadat wrote:
| Who can resist a title like that?
|
| Direct link to PDF:
|
| https://www.lasvegasadvisor.com/shop/wp-content/uploads/2017...
| wil421 wrote:
| I believe I saw the guy with breasts on the Man Show way back
| when.
| SteveGerencser wrote:
| The jewelry store I worked at for a decade still sponsors a hole
| in one at the annual golf tournament next door. Get a hole-in-one
| on a specific hole and you get a Rolex. We had our own insurance
| policy for that to cover the cost of the Rolex should someone hit
| it. Which they did once every few years.
| pierre wrote:
| Most of the hole-in-one cover payout do not happen for contest,
| but for individual that are insured against a hole in one.
| (source: I work for an insurer)
|
| It is a common provision on the kind of insurance that come
| attached to a credit card, and you probably are cover for it if
| you own a premium card in the US or Europe. It generally come
| with different variation: only on registered games / all games,
| fix cash amount or expense of the drinks at the club, ...
|
| A common exclusion is that you can not own a professional golf
| licence.
|
| A few examples: A British Bank Travel insurance (page 33)
| https://assets.ctfassets.net/s0jgb0x75qln/413D8sFB4gVNoNWZXn...
|
| Amex (page 85)
| https://americanexpress.com/content/dam/amex/za/network/docu...
| krisoft wrote:
| > Gilmartin has also had to pay out at least 4 $1m prizes, which
| are typically awarded in annuities. Hargett, who landed that shot
| in Utah, got $25k/year for 40 years
|
| Why would anyone accept that payment schedule? Sure 25k*40 is a
| million, but there is a non-zero chance that the insurance
| company will fold in that time. Plus 25k in 40 years is worth a
| lot less than 25k today due to inflation.
|
| If they advertised a million dollar prize, I win it and then they
| tell me it is actually 25k over 40 years I would be calling my
| lawyer there and then to negotiate with them.
| etrevino wrote:
| I believe they actually buy an annuity with a bank.
| zizee wrote:
| The prize would have been offered as "1 million dollars^"
|
| ^ see terms and conditions
| phil21 wrote:
| > If they advertised a million dollar prize, I win it and then
| they tell me it is actually 25k over 40 years
|
| This is pretty much how almost all of these things go,
| including the state and multi-state lottery jackpots.
|
| You can choose your $300M Powerball payout to be paid over
| 30-40 years, or you can take $125M (very loose numbers) today.
| Most recipients choose the cash payout, even though of course
| the jackpot is advertised at the annuity value.
| a4isms wrote:
| As someone else noted, typically they buy an annuity to pay you
| out, so risk of non-payment is not a significant factor. The
| annuity is better for them because they don't have to carry
| your payments as a liability.
|
| The annuity is often better for the recipient as well if their
| jurisdiction taxes the winnings. The recipient could be
| collecting winnings in their retirement when their income
| including the annuity would be low.
|
| I am not an insurer, banker, or tax consultant, so don't take
| my word for how to proceed should you win such a thing!
| dr_orpheus wrote:
| "If a sponsor wants contestants to throw a ping-pong ball through
| a hole in a watermelon, he'll go outside with his employees and
| re-create it himself, recording the results."
|
| Kind of funny that he ends up doing some "market research"
| himself. I also wonder what this is like for the employees. If
| you really want a good statistical average to base it off of how
| much time do they spend doing it? Is is "yay, we get to have
| recess and go do some silly activity in the middle of the day" or
| "come on boss, I've been throwing this ping pong ball at a
| watermelon for 9 hours, can I go home yet?"
| lordnacho wrote:
| Plus the employee will get better and better at it, biasing the
| insurance towards the conservative side.
| Nextgrid wrote:
| If the activity is easy/cheap to recreate it's probably good
| to assume that advantage players will also do the same
| practice to improve their odds.
| myself248 wrote:
| Well that's also something you want to model. You don't just
| track the numbers you achieve all day, you track the first
| minute, the next 29 minutes, the next 7 1/2 hours, and see
| how it changes.
|
| Then that tells you whether someone at home who knows they're
| gonna be throwing pingpong balls into watermelons tomorrow,
| and does some practicing today, can measurably improve their
| chances.
|
| So now you price the insurance differently depending on
| whether the challenge is announced to the contestants in
| advance, or if it's a surprise when they arrive at the event.
| How differently? You now have data for that.
| runnr_az wrote:
| There was a Planet Money about this a few years ago...
| https://www.npr.org/sections/money/2018/09/07/645689694/epis...
|
| ... it talks about what happens when a Hole in One is actually
| achieved, some of the weirdness that can ensue...
| a4isms wrote:
| I used to have a reinsurance company as a client. For those
| unfamiliar, that's an insurance company that sells insurance to
| insurance companies. Example: You buy a $1,000,000 automobile
| liability insurance policy with a $1,000 deductible.
|
| If the insurance company doesn't sell enough of these kinds of
| policies to reliably offset payouts with premiums, they might
| turn around and buy a policy from a reinsurance company with a
| $10,000,000 limit and a $100,000 deductible against their entire
| portfolio.
|
| Thus, reinsurance companies spend a lot of time thinking about
| things that don't happen very often but can be very expensive
| when they happen.
|
| And yes, they had a division that did propositions like hole-in-
| ones, and also they insured legal betting companies against wild
| trifectas and that sort of thing.
|
| I have a small trove of stories they told me about bizarre
| accidents that wound up costing enormous amounts of money.
| bkfunk wrote:
| On Mythbusters, every now and then they would say something
| like "We would like to do X [e.g. something crazy like jump out
| of a plane with a duct tape parachute], but our insurance
| company wouldn't let us."
|
| I've always how that worked. Like, who is the employee at the
| insurance company who takes that call, and how do they decide
| what's just too risky, when there can't be much historical data
| on risk?
| dwighttk wrote:
| An insurance company will always say yes (if you can find
| that company) it was probably just outside of the show's
| budget to pay the premium.
| gridspy wrote:
| Most likely the management would prefer the hosts didn't
| hurt themselves, so took the hint from the insurance
| company when a show plan got too dangerous.
| version_five wrote:
| When the Japan Olympics were cancelled in 2020 I read that
| there was actually some kind of "Olympics cancellation
| insurace" policy that paid out over it, potentially hundreds of
| millions. I'll see if I can find it
|
| See here: https://www.reuters.com/article/us-olympics-
| insurance/insure...
|
| The IOC had 800 Million insurance and overall was 2-3 Billion.
| It would be really interesting to understand how to price an
| 800 Million Olymoic insurace policy
| johannes1234321 wrote:
| in Germany there were quite some lefal battles around
| cancslling of Oktoberfest. If I didn't miss an uodate on that
| itnwas concluded that the 2020 Oktoberfest wasn't "cancelled"
| but it wasn't announced innthebfirst place, as usually the
| city councils votes for helding an Oktoberfest in spring
| while there isn't a permanent rule or similar about it. Thus
| insurances covering "cancelling" didn't have to pay.
| jahnu wrote:
| Excuse me sir, but have you been drinking?
| [deleted]
| beambot wrote:
| "Force majeure" became one of those semi-obscure legal
| concepts that took front & center during the onset of the
| pandemic...
| Esther432q wrote:
| css wrote:
| In this vein, one of my favorite financial vehicles is a
| catastrophe bond[0]. They are essentially short term debt
| instruments that pay a coupon normally, but in the event of a
| specified disaster, forgive the principal (thus removing the
| liability from the bond issuer's balance sheet).
|
| [0]: https://en.wikipedia.org/wiki/Catastrophe_bond
| JumpCrisscross wrote:
| > _in the event of a specified disaster, forgive the
| principal_
|
| Cat bonds are fascinating. What you describe is one of many
| structures. In essence, bank loans are to bond markets as
| reinsurers are to cat bonds.
| sharkweek wrote:
| I had a friend who dabbled in rare collectables and he told me
| you can almost always find a broker willing to insure, quite
| literally, anything.
| donthellbanme wrote:
| Yes you can.
|
| And I it's great for the wealthy.
|
| Forcing insurance on poor people is not right.
|
| The poor have a tough enough time just keeping their head
| above homelessness.
|
| I have been required to pay for automotive insurance in
| California for approximately 20 years. (I CA mandatory
| insurance was required, but not mandatory. Their is a weird
| legal difference. I white knuckled my college years while
| driving. I got lucky except over time. A wealthy women
| slammed into me, and the minute she, or actually her lawyer
| husband, found out I didn't have insurance, I was putty in
| their hands. I paid $1000 for an 1982 Volvo bumper. It was
| the last of my student loan, but they had me. A call to DMV
| and I wouldn't be able to commute to my school.)
|
| Every year if I want to drive my old truck I need to come up
| with $600.00. I only can afford the minimum. I believe it's
| 15-30-5. (this means if slam into you and you are a
| vegetable; you will get $15,000 for injuries, and $5,000 for
| your Tesla. Great payday? If you have money you can go after
| my assets.).
|
| My point is it's not enough if we are being honest. The
| insurance industry loves these minimum mandates because they
| make billions off the poor, and middleclass.
|
| It's no wonder the insurance industry is always the number #1
| Lobby group on every political fund.
|
| It's a racket, and I believe the bigger boys are colluding on
| rates, but can't prove it.
|
| "Buy the per mile insurance dude you low income loser!"
|
| (1. Work out the low income insurance on a yearly basis, and
| it's not copasetic. Plus my old Toyota does not a computer
| other than a rudimentary computer that was suspose to control
| the main plunger in the naturally aspirated carb that never
| really worked. Meaning there's no computer to plug a mileage
| indication in. So there's no per mile insurance I can get.)
|
| My point is mandated insurance is kind of a racket like this
| two year mandated Smog check, especially on vechicles that
| that we only use a few times per year, or under 1000
| miles/per year.
|
| Rant Over.
| FireBeyond wrote:
| Lloyds of London are quite open and proud of being willing to
| insure anything - they've insured singer's voices, model's
| legs, all manner of things.
| Slartie wrote:
| Are they insuring densely populated countries against the
| consequences of disastrous nuclear reactor accidents?
| fmdragon wrote:
| They were known in the 90's for insuring pro wrestlers
| bodies if they were injured to the point that they could no
| longer perform. It was pretty common to hear about a
| wrestler retiring with a "Lloyds settlement".
| somedude895 wrote:
| I feel like someone deep into reinsurance could probably write
| a pretty good book or two.
| withinboredom wrote:
| I threw up in a sink at 1am (drunk) and left the water running
| full-stop, then went to sleep. It flooded the room, then went
| down the walls to the floor below, and cascaded like a
| Champaign Waterfall until it reached the offices in the
| basement where it destroyed servers and computers.
|
| That was the single time in my life I've ever, ever been so
| glad for liability insurance in my life. They covered
| everything. The hotel had to repaint and replace walls,
| servers, furniture, carpet, paintings, etc.
|
| Always get liability insurance riders on your home/rental
| insurance. It's usually only a few extra bucks a month. Totally
| worth it in the event something like a sink overflow fails to
| stop a sink from overflowing while you are asleep.
|
| Anyway, I learned later that my little catastrophe coincided
| with a number of other little catastrophes which caused them to
| need to make a claim on their reinsurance company.
| ladon86 wrote:
| Rock stars throwing TVs out of windows? Psssh. It's not a
| _real_ party unless you trash the whole server room!
| jimt1234 wrote:
| Reminds me of the movie "The Big Short", specifically the
| "Brownfield Capital" subplot.
|
| I'd love to hear some of these stories. I've never had any
| visibility into the world of insurance, but it's always kinda
| fascinated me.
| a4isms wrote:
| Story #1:
|
| Young man riding a motorcycle, accident, suffers catastrophic
| but non-fatal head trauma. Problem 1, part I: Requires
| assisted living for the rest of his life. Problem 2: He has
| the hormones of a young man, the muscles of a young man, but
| the intellectual capacity and emotional regulation of a baby.
| Requires a very specific type of assisted living care that
| can handle violent behaviour and possible sexual assault.
| Problem 1, part II: His lifespan is estimated to be longer
| than usual, because he can no longer do things like ride
| motorcycles, smoke cigarettes, or have a stressful job.
|
| Put those things together, and the estimated total payout was
| well into eight figures. The motorcycle insurance company was
| on the hook for his care, and they had insured their
| portfolio, so everything over their $1,000,000 deductible (or
| whatever it was) fell on the reinsurance company.
| a4isms wrote:
| Story #2 (also, 3, 4, 5, and so on, it's a common thing for
| reinsurance companies):
|
| Flood happens in a place where floods are uncommon, e.g.
| Tornado hitting Barrie, Ontario. Home insurance companies
| are hit with hundreds, even thousands of claims. Most are
| not in the eight figures, but insurance companies don't
| just buy insurance against exceptional claims, they also
| buy insurance against single events like floods triggering
| unusually large numbers of claims that would otherwise fall
| below the deductible.
|
| This is what reinsurance is for, so the interesting bit to
| me is what my client related: It seems that a statistically
| improbable number of people just happened to have all their
| furniture in the basement while they were painting their
| house or some such, and it all got ruined, so the insurer
| is on the hook for replacing furniture that wouldn't
| normally be in the basement (we are not talking about
| people with furniture in finished basements, we are talking
| about people claiming they were storing furniture in their
| basements).
|
| Normally they have the bandwidth to investigate such wild
| claims and reject most of them, but when they all come at
| once, the insurance company looks very bad if they tell
| everyone to wait a month or three while they work through a
| backlog of investigations. So they lay off their losses on
| the reinsurance ompany.
| a4isms wrote:
| Story #3:
|
| After regaling me with stories about improbable events
| and how much the reinsurance company had to pay, the GM
| of the office I dealt with told me that he owned two
| cottages:
|
| One "entertaining" million-dollar cottage on a lake in
| Muskoka, Ontario, where one could jet-ski and power-boat.
|
| And one "get away from it all" cottage on a different
| lake that had a 5km/hr speed limit, effectively barring
| motorized sports.
|
| From this I deduced that for all their wild payouts, they
| were running a good business that could afford to pay its
| management quite handsomely.
| Esther432q wrote:
| bdcravens wrote:
| A large furniture store in Houston does this with almost every
| large sporting event (Super Bowl, World Series, etc) - purchases
| over $3500 are free if X happens.
|
| https://www.galleryfurniture.com/kentucky-derby-wia.html
| _jal wrote:
| This seems to get closer to the "is it insurance, or is it
| gambling?" line than many things.
| joezydeco wrote:
| There's no difference between an actuary working at State Farm
| and a sports bookmaker at Caesar's. Except for the pari-mutuel
| aspect.
| yccs27 wrote:
| I guess the difference is not in the transaction itself. The
| key part is that insurance counteracts a risk on your part: If
| it lowers the variance of your final balance, it's insurance.
| If it raises the variance, it's gambling.
| Denvercoder9 wrote:
| Well, that line mostly boils down to whether the expected value
| of the bet is positive, and the insurer in the article seems to
| do pretty sound analysis to ensure his expected return is
| positive. I don't see where it gets close to gambling.
| danielmarkbruce wrote:
| Most people don't have that as the distinction. The
| distinction has tended to be defined around "are you creating
| new risk?"
|
| If yes = gambling. If no = insurance (or hedging).
| jimkleiber wrote:
| Well, I'd say if the insurer is the house, then the insuree
| might be the gambler.
| Dylan16807 wrote:
| The insuree _feels_ like a gambler to the insurer /house,
| but they never get the money. Their goal is the exact
| opposite of gambling, to pay a fixed fee to remove
| variance.
| rileymat2 wrote:
| I am not sure insurance v. gambling has anything to do with
| expected value. Typically, I see the distinction as
| protecting something you already have compared to getting
| something new.
| gregplaysguitar wrote:
| Neither have a positive return as far as the gambler/insuree
| is concerned, if they do, they casino/insurer will not stay
| in business for long!
|
| The difference is that one has a potential huge upside, the
| other prevents a potential huge downside
| sampo wrote:
| > the insurer in the article seems to do pretty sound
| analysis to ensure his expected return is positive
|
| Just like casinos ensure their expected return is positive.
| So?
| [deleted]
| FireBeyond wrote:
| When I was at Microsoft about 15-16 years ago there was a
| fairly big poker setup. Where I was, and I'm sure across the
| board, the advice that was given was that we were free to have
| tournaments on company property, however, one of the rules were
| that you could never actively bet truly blind, i.e. you had to
| see your cards first. According to whomever decided that, that
| was sufficient to keep your poker game a game of skill, and not
| gambling, since if you didn't know your hand, you were just
| relying on luck, not playing odds.
| francisofascii wrote:
| > A standard tournament with 100 golfers playing a 165-yard hole
| with a $10k prize sets an event back ~$235.
|
| The $235 price just seems like two high a cost. I don't think the
| hole in one contest adds that much value to the event experience.
| If you are charging $80-100 per participant, and the course is
| already charging you $50 per player. You are eating 5 players
| worth of profit. These contests are always on the hardest, 170+
| yard holes, so an ace is more rare than the 1 in 12.5k statistic.
| jpollock wrote:
| Think of this as business continuity insurance.
|
| It costs you 5 players $100/player - $50/player, sure. However,
| if you aren't insured and they make the shot, then the
| tournament is instantly in the red and can't even afford to pay
| the course fees if it pays the prize. Bankrupt, pick who loses,
| the course or the player. It might even be fraud, lots of
| things are fraud.
|
| If the tournament is well funded and planning to be around a
| while, they can self-insure and eat that cost. However, a new
| tournament, or a non-commercial one isn't likely to have
| backing like that.
| nkurz wrote:
| I think the OP's point wasn't that one should skip insurance,
| but that one simply shouldn't offer a $10000 prize for a
| hole-in-one. He's doubting that you would get 5 extra players
| by offering such a prize, and that the players wouldn't have
| a sufficiently better experience to justify the event. I'm
| not sure: your advertising likely becomes a lot easier if you
| have "$10000 Prize" in big letters at the top of the page,
| and if someone does win, you probably get all sorts of free
| press. In the end, it probably all depends on the purpose of
| the event.
| a4isms wrote:
| The OP may be right in theory: If someone ws just trying to
| decide whether to play your tournament or stay home,
| offering a hole-in-one bonus might not have enough of an
| effect to justify the expense.
|
| But in practice, there might be a dozen charity tournaments
| in the same region as your tournament, and if ten of them
| offer hole-in-one money, you might be in a race-to-the-
| bottom to get players to play yours and not one of the
| others.
|
| That's no different than any other competitive pressure,
| like whether you offer free valet parking for a restaurant.
| In theory, it might not pay. In practice, it might be
| necessary to compete.
| doyleb wrote:
| Fun fact: We use the same kind of insurance for the weekly
| $10,000,000 sweepstakes at Yotta: https://www.withyotta.com
| doyleb wrote:
| The insurance companies actually love this since there's no
| element of skill involved so the odds of winning can be
| computed exactly
| shepherdjerred wrote:
| How do you make money? It seems too good to be true with all of
| the bonuses and promotions the site touts.
| doyleb wrote:
| "Too good to be true" is definitely a problem we run into. We
| make money the same way any bank does, via lending out the
| deposits and via a small interchange fee charged to the
| merchant when customers use our cards. Our net prizes paid
| out are comparable with other high yield savings accounts /
| rewards credit cards but the random reward makes it
| (hopefully) more engaging
| honkdaddy wrote:
| "Among the weirder things he's insured? Cow patty bingo (video
| here).
|
| "It's big in the Midwest," says Gilmartin. "You divide a big
| field into, say, 100 squares, give each one a number, then let a
| cow loose. If the cow poops on a preselected number, the person
| wins a prize.""
|
| I burst out laughing at this one. Can any Midwestern HNers
| confirm? Are people watching the cow with bated breath? Are plots
| closer to the gate considered better?
| wuuza wrote:
| I was generally not interested in my town parade/party day, but
| we had cow-chip bingo where I'm from in Iowa. So I don't know
| the "strategy" but it exists.
| beambot wrote:
| Am from Midwest. Have seen this with chickens, but not cows.
| Wouldn't surprise me in the least though.
| mitchell_h wrote:
| Can confirm. I've both won and lost a lot of money on it.
| Archelaos wrote:
| In the early 1990s, I went on a bicycle tour in Ireland with a
| friend for a couple of weeks. At a fair somewhere in County
| Mayo there was such a lottery. After that, when my friend asked
| me something I did not know, I always replied: "Do I know where
| the cow poops?"
| jollybean wrote:
| Rural Canada, can confirm.
| nmwnmw wrote:
| Did this in north Alabama back in the mid 90s for a school
| fundraiser. They hired a surveyor to plot the squares on the
| football field. We discovered that the field was narrower on
| one end by about 7 feet! The cow plopped on a square boundary
| with an unsold square so the winner only got half. As I recall
| it was a whole lot of standing around and waiting. Funny for
| the first 20 minutes, then very, very boring.
| brk wrote:
| It's a thing, yes, but I think the novelty of it makes it get
| more attention than deserved. IME it is by no means common, or
| the sort of thing you would expect to come across, but it does
| occur.
| actually_a_dog wrote:
| Can confirm. I'm from BFE Michigan, and I've heard of it,
| too. It's funny and kind of fun, but I wouldn't expect the
| average Midwesterner to have participated it. A born & raised
| urban-dweller might not have even heard of it.
| BenjiWiebe wrote:
| I'm from rural Kansas, live on a dairy farm, plenty of
| neighbors in the beef cattle business, and I've never heard
| of it.
| chuzzle wrote:
| I mean, I was introduced to meat raffles since moving more into
| the Midwest but this is next level to me. Granted I live in a
| metro region so only turkeys roaming around, no cows.
| shagie wrote:
| For those wondering about meat raffles...
| https://wisconsinlife.org/story/meat-raffle-a-wisconsin-
| tave... ... and an upcoming calendar
| https://www.meatraffles.com/calendar/wisconsin-meat-
| raffles....
| shortstuffsushi wrote:
| I can't speak to this particular practice, but as a kid,
| whenever we would go to the parades, people would organize
| grids in the street to bet where the horses would poop. And
| then inevitably try to convince the people on the horses to
| stop over their square and force their horse to go.
| jen20 wrote:
| This is still a thing in the UK at some village festivals. In
| the US I've only come across 'chicken shit bingo' though I'm
| sure the larger format variant also exists!
| asciimov wrote:
| In Texas and can confirm as I've been to one. My mom was a
| participant of cow patty bingo in the late-80's/early-90's. It
| was part of some radio station contest for a car. Everybody
| that called in and won a minor prize over a quarter was invited
| to a party with the bingo as the big event.
|
| They had a large pen, say a quarter acre (about the size of 2
| basketball courts) divided up into squares. The participants
| drew a number, went into the pen to find their spot. After all
| the participants found their spot they let the cow out to roam
| around. (You need a fairly docile cow to have people on the
| field when this happens)
|
| In our game the cow started and did most of it's business on my
| mom's square, but finished on an adjoining square of young
| single blonde. I'll let you guess how DJ ruled who won the car.
| (hint: wasn't my mom)
|
| > Are people watching the cow with bated breath?
|
| Kinda? I mean if the prize is good it's fun to watch.
|
| > Are plots closer to the gate considered better?
|
| Might be worse actually. Usually they run the cows into the pen
| instead of letting them just mosey in. When and where the cow
| does its business isn't even known to the cow. The cows can
| take a while to go too, better part of an hour sometimes.
| dwighttk wrote:
| > But one entity wasn't celebrating: the insurance firm that had
| been hired by the organizers.
|
| Only if they are bad at insurance.
| atlasunshrugged wrote:
| I love these longform Hustle articles. A good portion of the time
| they find something fun that I would have never thought about and
| have an informative writing style that still keeps it fun.
| johnwalkr wrote:
| The first Xprize was awarded through a hole-in-one insurance
| policy, sometimes with the monthly fee just barely paid on time
| out of someone's personal pocket and set to expire shortly after
| the prize was actually awarded (so there was no simple extension
| possible).
| heleninboodler wrote:
| I wonder how the prices end up for very small groups. It would be
| amazing to be out golfing with a small group and throw down a
| $50k bet while standing on the tee of a par 3. There must be some
| requirements like having a witness, though.
| glonq wrote:
| I used to work at a place that ran a hole-in-one competition at
| many golf courses around North America. Can confirm that we used
| insurance to cover our ass.
| lordnacho wrote:
| I actually had a chat with a friend about prize indemnity
| insurance, he's a Lloyd's guy.
|
| In the end it's the law of large numbers, pretty much what a
| casino does: take lots of small positive bets, don't let one bet
| dominate. If you do get something too big, syndicate it with some
| of your competitors to spread the risk. Of course also make sure
| everyone who comes for insurance is actually what you think, like
| the guy in the article says it's not necessarily a hugely
| detailed check but it is enough to stop the worst frauds.
|
| You want a model that's robust, and you only have so much data
| about how often some guy hits a hole in one or a half court shot,
| and there's only so much you can know about whether they are a
| pro and the distance to the hole.
|
| The big problem seemed to be competition. You only get to write
| the insurance if you're the best price but the best price is not
| necessarily one that makes sense for the business. If some guy is
| buying market share with a loss leader, what do you do? Every
| segment of the market could be affected by this at a given time.
| r00fus wrote:
| > The big problem seemed to be competition. You only get to
| write the insurance if you're the best price but the best price
| is not necessarily one that makes sense for the business.
|
| That's straightforward - your insurance product needs
| reputation. Sure you could go with "that other guy" but we're
| Lloyd's! You know we'll pay out if it's a legit prize winning.
|
| Also marketing - lowballer needs to spend to get visibility
| that would cut into margins. The market player that has the
| most data knows exactly how much to spend on marketing and how
| much to charge in premiums.
| phonon wrote:
| Insurance is highly regulated--most products are reviewed by
| state regulators and will be denied if the pricing is too
| high OR too low.
| danielmarkbruce wrote:
| This last part is true of any insurance. And it's not just
| buying market share which can cause it - pure stupidity can
| too.
| jaggederest wrote:
| Even more subtly, if there is one insurance company that
| makes a lot of extra return on their "float" (the money that
| has been paid in premiums but not yet paid out in claims),
| they may actually sell insurance that is a "bad bet", i.e. is
| expected to have underwriting losses, but that the time value
| of money makes profitable for them.
|
| In that context other insurance companies can't compete
| unless they also are making huge returns on their float. It
| drives risky behavior by insurance companies in exactly the
| opposite way you'd prefer.
| robocat wrote:
| > and there's only so much you can know about whether they are
| a pro
|
| Like most insurance, the conditions are checked before paying
| the winner. Of course, there is still the possibility of fraud.
| 323 wrote:
| The best sport event insurance ever:
|
| > _2020: Wimbledon to receive $141 million in pandemic insurance
| payout_
|
| > _For each of the past 17 years, the All-England Lawn Tennis
| Club has paid for an insurance policy to guard against losses if
| Wimbledon should have to be canceled in the event of a worldwide
| pandemic. That preparation will finally pay off this year._
|
| https://eu.usatoday.com/story/sports/tennis/2020/04/09/wimbl...
| dgritsko wrote:
| > The cost to insure against a hole-in-one is dependent on 3
| factors:
|
| > 1. The number of golfers in the tournament
|
| > 2. The length (yardage) of the contest hole
|
| > 3. The cash value of the hole-in-one prize
|
| > Once a client provides this information, Gilmartin plugs it
| into an algorithm that computes the odds, factors in his risk and
| margins, and spits out a dollar amount per golfer.
|
| This seems like it could work as a simplified example of how all
| insurance pricing works, although with many, many more variables
| involved I'm sure. It'd be fascinating to look at the details of
| one of these algorithms.
| SamReidHughes wrote:
| Hole in one probability can vary by a large factor depending on
| hole location and green contour. If that's all they consider,
| either they're heavily profitable or some tournaments could
| break even.
| dgritsko wrote:
| True. Approximate skill of the golfer could also be an
| important factor - the article even mentions three LPGA
| golfers getting holes-in-one in the same tournament.
| Presumably they were quite a bit more talented than your
| average entrant.
| supernewton wrote:
| From the article, a 100 golfer tournament with a hole in one
| prize of $7500 costs $187 in premiums. If the hole in one
| probability of each golfer is 1/12500, the expected payout is
| only $7500/12500*100=$60, so I'm going with "hugely
| profitable".
| MivLives wrote:
| I'd love to see the weird trends they find on some of the
| bigger more complex algorithms. Like people who drive red cars
| born July 2000 with a pet bird are 8 times more likely to get
| in an accident if they primarily drive near Chicago or Miami.
| I'm sure it's not that granular but I can dream.
| nradov wrote:
| Most state insurance commissions have strict rules that limit
| the factors which insurers are allowed to use for setting
| auto insurance premiums.
| t_mann wrote:
| _People who drive red cars born July 2000 with a pet bird are
| 8 times more likely to get in an accident if they primarily
| drive near Chicago or Miami_
|
| Hopefully they know their stats modelling well enough to know
| that's not an actual signal.
| function_seven wrote:
| Heh. "I think you're overfitting here, no?"
|
| "That may be, but as your insurance agent, I recommend
| getting rid of the bird to save money on your premiums."
| petercooper wrote:
| One of the things that swings the price a fair bit in the
| UK is your job title which has always intrigued me as a
| signal. I could understand if it's someone using their car
| for deliveries or as a race car, but I'm unsure why a
| "counsellor" could be paying double the premiums of a "Web
| developer" on standard insurance.
| ev1 wrote:
| I've been told by an agent before that a "web developer"
| at a contractor/wordpress body shop-type will be less
| likely to take risks, while a "web developer" at FB or G
| would be more likely to do things like rock climb, drive
| into the middle of nowhere, drive faster.
| t_mann wrote:
| I also remember reading about a few sad stories where organisers
| tried to renege on those prices by changing the terms ('only for
| registered pros'...).
| comprev wrote:
| Seems most appropriate to mention this film [0] The Man Who Sued
| God
|
| [0] https://m.imdb.com/title/tt0268437/
| mastazi wrote:
| There was an episode of Adventures In Golf about this topic, it
| was quite entertaining
| https://www.youtube.com/watch?v=fkse_SuJysI
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