Search




You are here:   Home » Insurance » General Information » Comparing Insurance & Gambling

Comparing Insurance & Gambling

Comparing Insurance & Gambling

Insurance is often compared to betting or gambling, with insurers and bookmakers taking a similar position and applying probability theory in respectively setting rates and odds.

The underlying principles are the same. A bookmaker will convert prices or odds to percentages. In simplistic terms taking a horse race for example, if the sum total of all the percentages is less than 100%, it means that a punter could back every horse in the race and make a profit the bookmaker would lose. If however, as is customary, the sum total of all percentages is more than 100%, a bookmaker could lay every horse in the race and make a profit the punter would lose. The pooling effect means that some punters will win, some will lose. By virtue of the sum total of the percentages always being greater than 100%, overall, the bookmaker will win. Insurers benefit similarly from this pooling effect, and protect themselves against catastrophes or abnormal losses by arranging reinsurance.

Both gambling and insurance transfer risk and reward.

Gambling transactions offer the possibility of either a loss or a gain. Gambling creates losers and winners. Insurance transactions do not present the possibility of gain. Insurance offers financial support sufficient to replace loss, not to create pure gain.

Gamblers can continue spending, buying more risk than they can afford to pay for. Insurance buyers can only spend up to the limit of what carriers would accept to insure; their loss is limited to the amount of the premium.

Gamblers, by creating new risk transfer, are risk seekers. Insurance buyers are risk avoiders, creating risk transfer in terms of their need to reduce exposure to large losses.

Gambling or gaming is designed at the start so that the odds are not affected by the players' conduct or behaviour and not required to conduct risk mitigation practices. But players can prepare and increase their odds of winning in certain games such as poker or blackjack. In contrast to gambling or gaming, to obtain certain types of insurance, such as fire insurance, policyholders can be required to conduct risk mitigation practices, such as installing sprinklers and using fireproof building materials to reduce the odds of loss due to fire. In addition, after a proven loss, insurers specialise in providing rehabilitation to minimise the total loss.

Insurance, the avoiding, mitigating and transferring of risk, creates greater predictability for individuals and organisations.

Wikipedia

Latest News
6th Aug 2011
Aeronautical provides Lionel Cohen with first stakes success as a trainer

27th Jul 2011
Australian racehorse success around the globe

12th May 2011
Two from Two in South Africa for Patinack Farm graduates

More News

Become a subscriber now!
Request an insurance quote Request a premium funding quote Request a comparative quote Sign up