> We self-insure against the risk of product liability claims, meaning that any product liability claims will have to be paid from company funds, not by insurance.
Why do they do this? I can understand it when government property is not insured, e.g. UK Civil Service, as the enterprise is so vast and general taxation can fill the gaps. I can also understand that some things can`t be insured, e.g. nuclear power plants, but why does Tesla `vertically integrate` insurance, particularly given that the product is statistically likely to kill someone in due course?
Probably because they feel that their true product liability costs will be far lower than what the insurance companies think they would be. Given that insurance companies have no previous data on crash rates and little visibility into Tesla's products, they would have to be extremely conservative, and charge Tesla a prohibitively large amount to insure them.
Insurance companies are profitable because they charge more then they pay out, in aggregate. If you have adequate capital, it is cheaper to self-insure since you don't need to pay for the profits of the insurance company.
I have always wished that I could as an individual could reinsure my long tail risk. I am happy to take on the risk that I can afford to lose and just let me pass on the risk I can't.
If you chat with the right insurance agent, that might be possible. While it wouldn't go by the name 'reinsurance', look for a policy with a large deductible and a large maximum payout.
Cutting away the high risk, low payout parts of the insurance decreases the number of payouts significantly. That does mean variance in payouts goes up.
So, insurers will either need to find lots of new customers to get N up again, or relatively high amounts of capital to survive those high payouts.
If they think they cannot find those customers, they need more capital. To finance that, they need more income, which means charging you more, which means fewer customers, which means charging you even more, etc.
I'm sure you get that insurance through Lloyd's, but it wouldn't be cheap.
I'm fairly certain there are policies designed for high net worth individuals who can cover the first million in losses themselves but don't want to be exposed to long tail risk. I've definitely heard people talking about it, particularly for real estate.
If reinsurance is available to insurance companies there is nothing in theory stopping it being available to individuals. This sounds like a market that is ripe for disintermediation.
I am in Australia so I am not concerned about health insurance - more things like house, disability and car insurance. I can afford to carry quite a bit of risk, it is just the long tail that is an issue.
For disability insurance, I assume a high excess would translate into a longer time before the insurance kicks in?
For car insurance, isn't an excess you can choose a standard feature? (Some insurance companies give you a no-claims rebase, which is the same as a high excess---only shifted in time.) I don't know about house insurance. What does house insurance insure against?
Why do they do this? I can understand it when government property is not insured, e.g. UK Civil Service, as the enterprise is so vast and general taxation can fill the gaps. I can also understand that some things can`t be insured, e.g. nuclear power plants, but why does Tesla `vertically integrate` insurance, particularly given that the product is statistically likely to kill someone in due course?