Cited for walking without insurance.

Since the advent of the car, there have been accidents — and ways to make money out of them. One of the legal ways, though some would argue more immoral ones, is insurance. And it’s easy: you promise to pay someone if their car gets damaged in a crash, and all you have to do to make money is take in more than you give out.

But, from the insurance company’s point of view, people that have accidents are losses. In order to make money, the insurance company needs people who are not getting into accidents. 

So, in the early days, insurance companies looked around and noticed that most of the people they were insuring were either a) rich or b) those at the greatest risk for accidents. In order to compensate for the at risk, the insurance companies had to raise the premiums … and they could only do that so long until people just went somewhere else, or dropped their coverage’s altogether. What they needed was a bunch of people that were not risky to purchase insurance — in other words, get people that didn’t need insurance.

Then, as if by a miracle from Heaven, laws began being passed in certain states requiring minimum insurance for any driver and/or automobile.  All of a sudden, insurance companies had plenty of low risk customers (who were forced to purchase the insurance!), and the people that owned stocks in those companies received dividends because the company had “extra” money and didn’t have any thing left to pay for. Hooray!

Now, is it ethical to force people that don’t need insurance to purchase it? Americans don’t like to be forced to do anything … so, on a personal level, I find this repellent. Is it necessary? Probably, because, we can’t know before an accident, who will actually be in an accident. Sure, statistics can tell us percentages or likelihood  but this can not be applied to an individual. So, while it sucks being forced to pay for something you haven’t ever needed, you can never tell if you ever will  need it. And, heck, if you do need it, it’s sure nice to have.

So, it may be ugly, but it’s not, as suggested earlier, immoral — at least on the surface.

So, what the hell am I babbling about car insurance for, you may be asking yourself. Well, lets look at the “system” of insurance: Receive money, payout money. Keep the profit margin by two mechanisms: Raising prices above losses and spreading the risk. If this is done properly, you will always make more than you lose. Always. There is no gamble.

This may seem attractive to you, as an investment. However, if you purchase stocks in auto insurances now, you will be paying a lot to get a little: i.e., because the insurance companies make money, and people appreciate that, people will pay more for it because of competition. Thus the price raises, but the dividends stay the same. This is called the price/earnings ratio, or P/E ratio. Insurance companies have high P/E ratios. The bottom line is, you will get very little bang for your buck out of an auto insurance company.

So, again, you are asking, what the hell am I talking about, then?

In 2014, the federal government is going to require all people to own body insurance on all human body’s driven by citizens in these United States.

Just like those proto-auto insurance companies, this will be the clarion call for healthcare insurance profits, because when people are forced to  have health insurance, the healthy will have to buy it too. Not only will insurance companies have more customers, those customers will pull down the level of risk!

Sure, insurance rates will fall, because of competition, but this will not be at the expense of profits. The insurance rates will only fall after dividends are distributed (who do you think owns insurance stocks? Why, insurance company employees, of course!)

And here is the crux: Prices on health insurance companies are not up, they are down. This means the P/E ratio is low for this sector. StockGuilt feels confident enough to purchase a mutual fund of health insurances (because we won’t be able to keep up with emerging companies, new competition, policy developments, etc.).

Don’t make me tell you, “I told you so” in ten years, ’cause I will. Look into this, OK?

NOTE: StockGuilt is a blog about interesting stocks, and our views. We are not stock brokers, investment councilors, planners or legal advisers. In fact, at least one of us is an idiot. The rest are just folks who think about investments. This is what we think, and what we will do/did. In no way are we telling your what to buy or sell … Do your own homework.

If it works out for you, and you feel generous, well, we’ll probably get in trouble if we take your money, so …  We like Ronald McDonald house, Unicef, Salvation Army and SafeNest.