Legalized Gambling

Today while teaching about the Middle Ages we discussed the advent of insurance as part of a business model. One of the reasons why I consider myself a pretty good teacher is I have a way of explaining things to the students in a way they can understand by using widely known analogies. To help explain insurance I describe it as gambling. Businesses before heading out on an trade excursion would insure their goods for their value and would pay in exchange a nominal fee. If anything should happen to the goods on the way - a boat sinks, the caravan is robbed by bandits - the business would receive in cash the value of the goods lost. I apply the same idea of insurance to commonly insured things today: cars, homes, health. I also explain that we are essentially betting against ourselves. We are betting that we are going to get into a car accident, that something is going to happen to our home, or we are going to get sick. We are convinced that we cannot afford to NOT be insured if ever something should happen, and for most, that is correct. Besides that, you cannot own a house or a car without insurance. So we pay a nominal fee and hope that nothing happens. Most of the time we take precautions to prevent actually using that insurance.

But if we were to deliberately create the need to collect the insurance we would be arrested for fraud. We are forced to pay the money and then we are not even allowed to throw the game. Sure, in sports, if an athlete bets against himself and then deliberately loses that is illegal and would get the athlete in a world of trouble with their athletic association. Hence Pete Rose is still in trouble with MLB.

So here we are, forced to buy insurance, sometimes more coverage than we want (especially in the case of brand new car) and do whatever we can to prevent filing a claim while the insurance companies continue to collect the premiums and pay out far less. And when they lose on their risky ventures, when they gamble with the premiums paid to it by the insured, they get bailed out with our tax dollars! But if we lose out and something goes wrong and actually need to make a substantial claim on our insurance policy, we are punished, our rates increase and may even find ourselves dropped by the provider.

So as a citizen I am supposed to accept the double standard that an insurance company can gamble, lose, and be forgiven AND be given a bonus (assumedly for securing the bailout money from the government) while the person paying for the insurance policy can be forced to gamble, WIN, and be punished?

When else are the losers rewarded and the winners punished? (So much for capitalism or is it exactly like capitalism? I am so confused!)