Benefits and strategies of self-insurance

I am proudly anti-insurance.[1] The only form of cover I have is ambulance membership; for the price of about $40 per year, it allows me to cycle around Melbourne with a little less anxiety. Those who use insurance pay for the privileges of (a) being able to access, if disaster strikes us, a huge reserve of money, and (b) expert risk assessments. In the past, I have simply relied on having a large reserve of my own available, and public health care, to cope with any emergency. Recently, however, I figured that we can also take advantage of insurance company’s risk assessment expertise by noting how insurance companies assess our risk profile, and budgeting accordingly.


Insurance companies are like bookies: they play the odds. Since their profit margin is in the space between likely liability - the chance of having to pay a customer who has broken their leg, for instance - and their actual revenue, it is in their interest to determine in considerable detail the financial cost of our various lifestyles and activities - whether they be smoking or snowboarding.

For instance, a standard insurance company might consider it worth their while to cover most of my potential health liabilities if I give them $1k each year (after all, I do not smoke, snowboard, and I am young).[2] I can safely assume then that, according to a risk assessment expert – the insurance company – my health-related liability is around $1k per year, or around $65000 until I retire. I would then budget for that amount myself, investing $1k inflation-adjusted dollars in a readily accessible account every year.

As I grow older and my lifestyle changes, insurance companies would probably quote me a year’s health cover at different rates. I would adjust my budget accordingly.

I would also enact measures that would reduce my own likely liability, health- or otherwise - buying a fire extinguisher for my house, a burglar alarm for my car, taking up yoga, buying and organic food. I could easily determine the monetary profit of such measures – and consequently, how much I should invest in them – simply by looking at the fine print of an insurance application form.



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End notes 

[1] I appreciate that shit happens – which is why I budget for it myself, rather than outsourcing such budgeting to a corporation. Being in Australia, one of the many developed countries in the world that has a free public healthcare system, probably contributes to this stance regarding insurance. Readers in countries without such safety net, like the United States, might have a different attitude – however, I think that the logic remains sound, even in such contexts.

[2] While I might end up costing more or less than that amount, if a thousand me’s joined up to that insurance company, we would on average cost a little under.