Friday, 28 September 2007

Pre-emptive insurance claims

Let's say hypothetically that you have a number of large trees in your back yard and that it would cost several thousand dollars to remove them. Let's also say that very large branches occasionally fall from these trees with force enough to kill people. Now, as an insurer for the property, would you rather wait out the people-crushing and receive big claims for property and life damage, or would you pay the much smaller cost of having the trees removed?

Now imagine you are a health insurer. Let's say that early detection and removal of cancerous skin growths costs one tenth of the average insurance claim for one detected late. Let's also say that a yearly skin checkup costs a negligible amount per person. Would you allow small claims for regular skin checkups, or would you wait for the larger, but less frequent, actual cancer claims?

Unfortunately I think it would often be worth more money to the insurer to wait for the larger claims.

Mokalus of Borg

PS - You'd need actual statistics to prove it, though.
PPS - And the it's their job to know that kind of thing.


Pstonie said...

You know the deal; A * B * C = X.

If X is less than the cost of a recall...

littlemissrandom said...

I think there's some cynicism in believing that insurers will only act in a way to make the most amount of money.

And economically, wouldn't more people sign up to an insurer who is interested in prevention rather than cure? I know I would.

I guess it's a question of asking whether you'd rather steal $100 from ten people, or a dollar from 1000...

John said...

Yes, there is a perception that insurers are only out to make the most amount of money possible. I blame John Grisham's "The Rainmaker".

And yes, more people would sign up to an insurer that allows claims for preventative treatment of this and other types. But if you forget to factor that into an analysis, you might come out the other side with a skewed view of how to run your insurance business.

And as for the stealing analogy, I think in this case it's more like giving out a dollar each to 100 people knowing that 99 of them will give back $10 and one will take $100. It's complicated.