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It's fair to say that adding up your health, auto, homeowner's, life, and business insurance costs (to name just a few) can lead to a massive tab. And it puts a huge dent in your available investment capital.
But it doesn't have to.
Let's take a look at our insurance costs compared to some other countries, their drivers, and… most importantly, how to knock them down and profit from what we save.
It's Not Like This Everywhere
I have a lot of familiarity with Asian countries such as China, Taiwan, Singapore, and others. I can tell you firsthand that people in these countries do not spend nearly as much on insurance as Americans.
I live in Hangzhou, China, during parts of the year. There, even the wealthiest citizens in China and other Asian countries spend only a fraction on collective insurance policies compared to your average American household.
I also know quite a few new Chinese immigrants to the United States, and most are delighted by how little tangible goods cost here. Their delight turns into sticker shock, however, when they see the high cost of insurance, and local, state, and federal taxes.
Given the overall net worth of the United States, you would estimate that the cost of insurance would be far less than that of other countries. Yet that's not the case… why not?
The way I see it, there are two primary reasons why insurance costs in the United States are so high.
- Powerful transfer agents. The profitability, financial might, and lobbying power accumulated and implemented by enormous "transfer agents" is a significant cause of the high cost of insurance.
Big insurers, lawyers, government administrators, and others make money by transferring risk from one group of insurers to another. These transfer agents make big money through the transference of what's known as "fat tail" risk to the broader market.
Transfer agents such as lawyers serve a useful function in society, but they don't actually produce anything. They are trained to redistribute wealth and resources by using the legal system.
Since most politicians running the country have a legal background, it's no surprise that the game continues to be rigged in favor of the transfer agents.
The Affordable Care Act, a.k.a. Obamacare, is the latest and biggest example of a law that transfers the cost of insuring high-risk individuals to the general public. These costs are further increased by additional bureaucracy and other government personnel (like IRS agents) to administer and implement the new system.
- A highly litigious society. As we all know, our society is "sue-happy." The courts are very open to accepting frivolous litigation from businesses and individuals.
Let's face it; the prospect of very large product liability damage awards increases the potential legal liability for everyone. It drives up costs, as people are forced to pay insurance companies to limit their litigation risk.
Another contributing factor to the high cost of insurance in the United States is the wide range of mandated insurance. These include state-mandated auto insurance and homeowner's insurance, and now federally mandated health insurance.