For those of us that have grown up with the concept of insuring important or expensive things, the idea that it is a form of gambling is usually quite foreign. After all, there is a world of difference between the glazed eyes and bad decisions that fill pokies venues, and the sensible mainstream idea of insurance. Actually, insurance can be likened to gambling – but only in a very abstract sense. Today we explore the Ned Flanders approach to travel and travel insurance… and why for most of, his ar-diddly-arguments just don’t hold up!
The Ned Flanders Approach to Insurance
Actually, the school of thought that says that insurance is a form of gambling is much older than Ned Flanders (ultra-religious neighbour of The Simpsons). However, the pop culture reference to Ned’s belief is quite likely the first time that many of us in the West have encountered the concept. In the Simpsons episode from 1996, Hurricane Neddy, a Hurricane hits Springfield but destroys only the Flanders’ house. When Marge asks about insurance, Maude says that Ned didn’t believe in it – he considered it a form of gambling.
The rationale behind this is that when you take out home insurance, travel insurance, etc, you are effectively making a bet with the insurance company that a specific event will not occur (the destruction of your house, falling ill while you are overseas, etc). The insurance company is betting that it will not occur.
The Difference Between Insurance and Gambling
The idea that insurance is like gambling seems to be nothing more than an exercise in twisting logic, when you look at the purpose of insurance compared to the purpose of gambling. People buy insurance because:
They want to mitigate financial loss in the event that something (fairly unlikely) happens. In travel insurance, this would be the risk of getting sick or being injured, being the victim of crime, or having logistical difficulties that involve financial loss.
People gamble because:
They want to win a large amount of money without working for it (possibly the reason that religions often object to it).
What is an Aleatory Contract?
An aleatory contract is a more precise name for the form of agreement that travel insurance represents. Its definition is ‘a contract in which the performance of one or both parties is contingent on a particular event’. These contracts can mean a major ‘win’ for one party, and a loss for the other. With the current insurance environment though, the win and loss ratio is usually a lot more even that that seen in gambling.
So, what is the purpose of insurance?
Travel insurance, and insurance in general, provides a vital social service. If people had no option but to take on the risk of owning a house, owning a car, being liable for their own overseas medical expenses, etc, they might never do any of the above activities. Consider that while Australia has socialized health care, almost every other country in the world does not… and medical bills can run into the tens of thousands very quickly. Without the small expense of travel insurance, very few people would leave their home country. We would have a fraction of the understanding of other cultures, languages, and religions that make our world so rich today.
Rather than thinking of holiday insurance as gambling, it is much more useful to consider that you are ‘paying for peace of mind’. You are paying a small amount, to mitigate the enormous financial loss that could occur in the future. When you look at it this way, it is definitely worthwhile!