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Insurance
Principles of insuranceIndemnificationInsurer’s business modelHistory of insuranceTypes of insuranceHealthDisabilityCasualtyLife PropertyLiabilityCreditOther typesInsurance financing vehiclesInsurance companiesGlobal insurance industryInsurance insulates too muchClosed community self insuranceComplexity of insurance policy contractsRedliningInsurance patentsThe insurance industry and rent seekingCriticism of insurance companies
Principles of insuranceIndemnificationInsurer’s business modelHistory of insuranceTypes of insuranceHealthDisabilityCasualtyLife PropertyLiabilityCreditOther typesInsurance financing vehiclesInsurance companiesGlobal insurance industryInsurance insulates too muchClosed community self insuranceComplexity of insurance policy contractsRedliningInsurance patentsThe insurance industry and rent seekingCriticism of insurance companies
Insurance insulates too much
By creating a "security blanket" for its insureds, an insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer). This problem is known to the insurance industry as moral hazard. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by the insured. Even if a provider were so irrational as to desire to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.