Comments on: A tale of two insurance/prediction markets

By: Dorine

Dorine — Wed, 22 Dec 2010 14:53:08 +0000

This is not good for the client. I definitly wouldn’t want this insurance

By: Asigurari Casco

Asigurari Casco — Mon, 22 Feb 2010 15:20:32 +0000

Totally agree with James ..”the buyer would be foolish to buy this insurance”

By: Bert

Bert — Sat, 28 Nov 2009 12:17:25 +0000

It looks like plain theft to me!

By: adiw

adiw — Mon, 31 Aug 2009 21:05:46 +0000

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By: sikis

sikis — Wed, 26 Aug 2009 13:47:48 +0000

WeatherBill caps payouts at 25-1, which protects them against really unlikely events.

By: Steven @ Best Online Casinos

Steven @ Best Online Casinos — Sat, 22 Aug 2009 21:41:40 +0000

I don’t get it , it has to be some kind of mistake…isn’t it?

By: Forex megadroid

Forex megadroid — Mon, 06 Jul 2009 07:17:49 +0000

Good investment… Obviously the interest rates are less when compared to other insurance policies…

By: James

James — Mon, 27 Apr 2009 19:38:53 +0000

Actually this is quite cheap for insurance. Paying out $700 in losses against $770 premium is a whopping 91% loss ratio. Compare this to auto insurance where the loss ratios are 65% give or take 15%. There are lost of expenses in offering insurance. Most auto insurers net -5% to 5% in underwriting profit. (There is also investment income on loss reserve accounts–the time-value of hold premiums till time of payout.)

In this case, the buyer would be foolish to buy this insurance. If one has enough to buy the insurance against near certain loss, then one would do better to simply put the money in a deposit account and save it for a rainy day–or seven.

By: Daniel

Daniel — Tue, 21 Apr 2009 23:28:07 +0000

Relatedly, on the other end of the spectrum, WeatherBill caps payouts at 25-1, which protects them against really unlikely events.

Now, while they don’t let you bet on May snow in Las vegas, you can bet on similarly unlikely events such as ten inches of rain on a single May or June day in Las vegas. An event so improbable, no meaningful insurance might ever be feasible. If it rains ten inches in the desert tomorrow, I suspect “we” will have far greater problems than anything even a 25k-1 payout can protect against.

By: David Pennock

David Pennock — Wed, 01 Apr 2009 11:06:57 +0000

Good point Daniel: stated that way it makes sense: this is a 10% “transaction fee” showing up in the price and an interesting way to infer their fee structure.

According to the historical trends they listed (which unfortunately I don’t have captured), it was not a “sure thing”, although the contract was for dates in the immediate future where weather reports do come into play.

So it seems they first compute a pessimistic EV and then add another 10%.