Insurance Arbitrage

The BBC has a story about parents 'breaking the law' over insurance for their children because they don't believe a 400% risk premium is appropriate and proportional. The tone - and uncritical reporting - in the article seem to suggest that the BBC supports the insurers' position and that we'll hear more of this as they bitch and whine about how they can't screw more money out of the vast majority of the population.

The facts are that half of the population (41% admit to it, 61% would do so) are 'fronting' insurance because the punitive rates charged for an under-25 main driver are so completely ridiculous... and to preserve that cartel, the insurers are now resorting to the law. The law isn't there to protect your profits. If you construct a market with such piss-poor dynamics as to allow people to save 75%+ by a trivial arbitrage strategy, people are going to do that. And when it's half of the population, they are right and you are wrong. We call it democracy.

Some industry mouthpiece is quoted as saying:

"Yes, £4,000 is an awful lot of money but it accurately reflects the risk posed by young drivers"

which is utter bullshit. You do not have "accurate" risk statistics because at least half of your customers have been forced to lie to you because of your retarded pricing scheme.

You will note that insurers are still making a profit from car insurance, therefore the prices they are charging are sufficient to offset the risk and the costs of young drivers. Despite the fraud. Since half will admit to fronting, we can probably knock at least £2k off that price for the actual average risk premium received (and sufficient to be profitable). And, hey, doing that might just encourage people to do things by the book...

If not, then there's a good case for a state minimum insurance to guarantee access to the roads. This is the case in much of the US - e.g. the State of California will provide insurance to meet the minimum statutory requirements, since (like here) it's a legal requirement to have proof of insurance to be allowed on the roads. The current situation, which allows insurers to price young people off the roads and encourages fraud and driving without insurance, is ridiculous and needs to change.

If you can't make sensible profits from your oligopoly, then you shan't be allowed to have one.

- KoW

Cigarette Taxation: Doing It Wrong

This morning's Metro (p11) has a story with the headline "Children smoke asbestos ciggies". Aside from the recent hysteria over asbestos - it's nasty, that's why we stopped using it three decades ago - this is a rather emblematic failure of government regulation.

The "fake" cigarettes are being sold for 40p/pack - something like what the market would set, as evidenced by the fact that Japan could still sell Mild Sevens for 100 yen/pack a few years ago - yet the UK retail price is around 15x that. Or 20x if, having imposed extra sanctions on retailers, kids are forced to buy from vending machines.

The price of a pack has roughly doubled under Labour, with the inevitable result of creating a black market. Initially this was people bringing a few packs back from France or non-smokers getting duty frees, but the government started cracking down on that smuggling. That raised the stakes, and the immense taxation raised the possible profit margins, which caught the interest of organised criminal gangs. Now we're warned of "tab houses" where cheap unregulated cigarettes are being sold without the state's oversight. Smokers have been driven out of social environments and hence out of scrutiny.

What did you expect would happen?

This is exactly the same mistake that was made with the "war on drugs" and, while I don't support legalisation, I can't see good arguments for punishing addicts. If you want to stop people from smoking, piss off, it's their choice, not yours.

But, if you're really insistent on meddling, first you need to control the supply - not through legislation and force of arms, because that can never work and has never worked, but by licensing, quality control and allowing manufacturers to compete; cut-throat competition will drive down prices and make the margins unattractive to criminals. That mitigates the problems of people selling asbestos as filler material and means you're not punishing addicts for being addicted. Public education on the dangers of smoking - and I don't mean huge labels and shock campaigns - was good, but everyone knows that smoking is bad for you and now such ads provoke contrarian bloody-mindedness. The main plank, of course, needs to be to consider smoking (and, one might argue, drug-taking) as a medical issue and treat it through the NHS.

Give people the means to stop being addicted and they will generally try. Attempt to force them and you will fail miserably. As we've seen and can see now.

- KoW

Nanny knows best!

Today's Metro (p30) and the BBC (Wednesday night) have a story about Nottingham City Council's expansion of fixed penalty notices.

"Offences such as leaving a car engine running [...] attract fines from £50 to £300."

WTF? It's an offence to leave a car engine running? It's expensive, certainly, at £1.29/litre, but how the hell is it a crime needing punishment?

I suppose they're going to ban turbo timers (devices which keep the engine idling to allow a turbocharger to cool down gradually) as well? Given that engines are hopelessly inefficient just after starting, forcing people to stop and restart their engines when their passenger pops into a shop for a one-minute errand, will pollute more, waste fuel, waste battery power, wear out starter motors and generally make life worse. So that'll be another stealth tax - in the same vein as speed bumps - from government deliberately inflicting damage on motor vehicles...

Apparently these fines will be meted out - unaccountably, no doubt - by "Community Protection Officers". That raises the question of whether they exist to protect the community, or to protect something from the community, because I don't think fining people for keeping their engines ticking over or leaving their bins out is particularly public-spirited.

A thought for such authoritarian governments: you are accountable to us, not we to you.

- KoW