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  #21  
Old 11-28-2017, 03:46 PM
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Think about it. If you are earning a dollar of profit in any way, it won't last for long. A competitor will simply underbid you. The furthest point they'd be willing to underbid you at is the point of 0% profit, which is the equilibrium price.
What? Why? What other industries operates at a 0% profit margin?
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  #22  
Old 11-28-2017, 04:17 PM
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the ideas of econ theory, efficient markets, rational actors, etc are all well and good for understand concepts. they're often terrible for understanding reality.
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  #23  
Old 11-28-2017, 04:51 PM
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What? Why? What other industries operates at a 0% profit margin?
Think of it as the equilibrium towards which the economy gravitates as the number of competitors approaches infinity
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  #24  
Old 11-28-2017, 04:53 PM
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Anyways, what spurred the thought was that I listened to a keynote speaker at a conference make some pretty ambitious claims about how AI would drive the expense and loss ratios down to something really low, like 2%. I thought there was no way that could be true, and that the combined ratio (whatever the loss and expense components may be) will hover at around 100% as long as insurance exists and the market remains competitive.

I do agree that loss control can be improved, that advancements in risk adjusting can keep existing claims from blowing up, and that technology can make insurance less expensive to write - resulting in a more efficient risk transfer for the insured. But I really doubt insurers will be earning profits north of 90%.
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  #25  
Old 11-28-2017, 05:10 PM
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Originally Posted by Colonel Smoothie View Post
Think about it. If you are earning a dollar of profit in any way, it won't last for long. A competitor will simply underbid you. The furthest point they'd be willing to underbid you at is the point of 0% profit, which is the equilibrium price.

I'm okay with you guys saying that profits do exist, but you have to admit then that the market is oligopolistic to a certain extent or that we're in an environment of monopolistic competition and not a competitive market.
You must not have read about insurance regulatory history.

"Underbidding" the competition in an insurance market--especially insurance coverage for structures prone to catastrophic damage--usually results in insolvencies.

And there are usually considerable consequences to the high-level executives of companies that go insolvent that they would generally prefer to avoid.
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  #26  
Old 11-28-2017, 05:12 PM
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Anyways, what spurred the thought was that I listened to a keynote speaker at a conference make some pretty ambitious claims about how AI would drive the expense and loss ratios down to something really low, like 2%. I thought there was no way that could be true, and that the combined ratio (whatever the loss and expense components may be) will hover at around 100% as long as insurance exists and the market remains competitive.

I do agree that loss control can be improved, that advancements in risk adjusting can keep existing claims from blowing up, and that technology can make insurance less expensive to write - resulting in a more efficient risk transfer for the insured. But I really doubt insurers will be earning profits north of 90%.
And Russians don't engage in trying to influence American opinion toward politicians and social change.
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  #27  
Old 11-28-2017, 05:23 PM
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You must not have read about insurance regulatory history.

"Underbidding" the competition in an insurance market--especially insurance coverage for structures prone to catastrophic damage--usually results in insolvencies.

And there are usually considerable consequences to the high-level executives of companies that go insolvent that they would generally prefer to avoid.
I somewhat agree in the sense that I believe the market is purposely structured by regulators to allow for some level of profit because the negative consequences of insolvency outweigh the negative consequences of reduced competition.

But what I said, "However, in a competitive market, economic profit should be close to 0%" isn't false and I'm wondering why you keep poking at that since the sentence as stated is true. And in practice, profits aren't that far off from 0%. Even the best companies have a combined ratio in the mid 80s. If profits were really big you'd see combined ratios of something like 20% which just isn't the case, so the market is competitive to a certain extent.
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  #28  
Old 11-28-2017, 05:36 PM
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Originally Posted by Colonel Smoothie View Post
Think about it. If you are earning a dollar of profit in any way, it won't last for long. A competitor will simply underbid you. The furthest point they'd be willing to underbid you at is the point of 0% profit, which is the equilibrium price.

I'm okay with you guys saying that profits do exist, but you have to admit then that the market is oligopolistic to a certain extent or that we're in an environment of monopolistic competition and not a competitive market.
It seems like you're assuming that there exists a right answer in terms of incurred losses, and that technology will, at some point, be able to predict that figure with virtually 0 margin for error.
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  #29  
Old 11-28-2017, 05:47 PM
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Why do competitors underbid you? To drive you out of the market so they can switch over to monopoly pricing. Where profit >>> 0
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  #30  
Old 11-28-2017, 06:47 PM
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Originally Posted by Colonel Smoothie View Post
Anyways, what spurred the thought was that I listened to a keynote speaker at a conference make some pretty ambitious claims about how AI would drive the expense and loss ratios down to something really low, like 2%. I thought there was no way that could be true, and that the combined ratio (whatever the loss and expense components may be) will hover at around 100% as long as insurance exists and the market remains competitive.

I do agree that loss control can be improved, that advancements in risk adjusting can keep existing claims from blowing up, and that technology can make insurance less expensive to write - resulting in a more efficient risk transfer for the insured. But I really doubt insurers will be earning profits north of 90%.
Wait, the speaker's argument was that the combined ratio, not the expense ratio, would become 2%? Lol. Monopolies don't even enjoy that kind of margin.

Even Google has a net profit margin of something like 30%.
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