Monday, October 27, 2008

Insurance is Gambling


Ok, so everyone's panicking about the global economy..

It's clear that Capitalism as the West defines it is flawed. The West is saying this. Not communists or islamists or any kind of people who would be interested in gloating and pointing fingers saying "We told you so!".

The obviousness is so blinding that opponents of pure hardcore globalized capitalism are not even making an effort to Yteshammetoon.

So what is the west doing wrong?

Me for one, take my right and wrong primarily from Allah and his messenger Mohammad PBUH, and here are 2 main ways in which the "west" is doing business the "wrong" way:

1- Interest Loans. Reba in arabic. Which is how any loan is given out these days, and this is the most dangerous one, and I'll skip it for now and dedicate a future post about it inshalla.

2- Buying and Selling the Unknown. Bay3 gharar in arabic.

And I want to talk about this 2nd form in this post.

Gambling is 7aram because it involves buying an unknown. A yet undefined object. You pay 1 dollar, and you get a lottery ticket, and on the day of the draw, you MAY win (0.00-add appropriate number of zeroes-001 chance) and get millions of dollars, or you MAY lose (0.999-add appropriate number of 9's-999 chance) and get Zero. Nothing.

You can say any business proposition carries ambiguity, which is true, and Islamic economists acknowledge that, but they also differentiate between situations where the ambiguity is either:
A- Unavoidable. or..
B- Intentional

So lets take cases:
- Gambling? Risk is obviously engineered and designed, therefor VERY intentional. hence, 7aram.
- Opening a restaurant on top of Abraj liKuwait? Risk is still there that no one will eat there, or that the tower will collapse or whatever, but the risk is not intentional and largely unavoidable, and in most cases low anyway. hence, obviously and inarguably 7alal.
- So what about Insurance?
You pay X amount per year, and your car MAY get damaged, and MAY not.
The risk gets calculated and crunched endlessly and insurance companies work very hard to make their risk analysis as accurate as possible, putting all sorts of inputs into the equation like car make, car age, driver age, driver traffic history, regional norms of recklessness .. and on and on. They try to predict the future basically. And based on the probability that you'll crash this year, they put their insurance payment and their markup.

Can the insurance buyer (You) get access to all this information? they own multi-million dollar computers and software to do all that calculation, while poor you don't have the feintest idea. What if the odds were in reality on your side? but you buy the insurance anyway out of what?
what do you get out of it? simply assuaging and comforting your fear.

It's an industry based on Paranoia and Fear mongering.

They make you pay money simply so they can remove your fear of a crash.

But there's no limit to one's fear right? they can sell you insurance for ANYthing.

You start with a car's crash, but then you go into maintenance, then you go into REALLY crazy stuff like losing baggage while travelling, they even insured Jennifer Lopez's rear body part. because they made her fear getting fat and losing its attractiveness.

To sell more insurance and make more money they only have to foster FEAR inside you.

Islam deals with this nonsense swiftly. Islam calls it "Bay3 Gharar" which means literally "Trade in the Unknown". Fear is NOT quantifiable.

I faced this problem in my own work, regarding buying hardware support contracts, where simply put, if a server goes bust, the supplier is obliged to replace it. and I pay X KDs a year for this contract.

When I calculated the actual history of servers going KAPUT and which actual parts (usually the harddisks and maybe the fans) are more likely to fry, and the cost of buying a couple of spare parts to keep in the store for the case of an emergency, I found that we were paying atleast 10 times as much. Simply because we chose not to deal with our fear ourselves, and let someone else handle it for us.

Now.. PLEASE argue with me :)

======Update====================================================
My brother sent me this hilarious poster this morning. Take special notice of the blue box


22 comments:

3anooda said...

did u ever think about how young drivers pay high insurance and the old people have the accidents??

falantan said...

actually stats do prove their point. the older you are, the less likely you'll crash. here's one from michigan (note the big numbers are for a wider range of ages, so when you divide, you get lower numbers as you go older)

PaLoMiNo said...
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falantan said...

heh ok. but atleast do you think insurance is a scam? (that was my point of the whole post)

PaLoMiNo said...
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PaLoMiNo said...
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eshda3wa said...

i wont agrue either

i hate insurance and everything it stands for

the problems it entails and how ppl suffer because they dont have it.

falantan said...

palomino:
shifti shlon? even when you have it they make you go through hell to get compensated.

eshda3wa:
yam3awda, a7san kilwa7ed takes care of their own accidents o 5alas.

I just think that insurance goes against what Islam tells us how to do trade and business. and it can lead to much problems.

Sara said...

Ill tell you this:
As the insurance companies are playing on odds of me not crashing an acciden which will cost them KD 700 while i paid KD 300. I am willing to take the chance the equal chance of loosing my KD 300.
My friend paid KD 400 for her new Lexus, 7 months later she had a huge crash which made her can TRASH. The insurance company paid her a little more than KD 8000. That is a chance i want to take. For me Insurance is just a guarenteed financial help in bad days; one of those days that you feel crunched with your monthly budget and on top of all that you have a car crash that will cost you an extra 200 that you didnt even put in mind.

Sana3OMana3 said...

Panicking about the global economy is everywhere bas ween alee uefham :(
أسأل الله أن يجعل لنا من الفطنة ان نفهم البلاءات آمين

Tweego said...

I will leave the insurance out of this because I had this talk with you before.
but on the hardware contracts it is totally accounting issue companies rather have a fixed cost for spare parts than variable and where you work and I used to work there was allot of years where we got allot more than we paid.
so instead of you budgeting 50000kd for spare part and at the end of year u spend 60000kd then the CEO and CFO will have heart attacks they rather pay a steady 60000kd and know that it wont change. plus from staff point of view you avoid the part were the management ask who is responsible for damaging the 10000kd item and want to punish him for it.

falantan said...

and tweego THANK you for arguing :)

and sorry for the late delay, I just got out today. feeling weak still. but getting better slowly il7emdella

falantan said...

sara:
I see what you're saying clearly and it it the main reason people need to buy insurnaces. "peace of mind" is what they're buying.

sana3omana3:
thank you

tweego:
and what I said to sara also applies here. and true that some buyers of insurance DO hit the jackpot and get an large and early payout, but so do people in vegas. some win, and alot lose. while the casinos keep the steady margin.

And when my employee KNOWs that if he damages a piece of equipment that's worth more than his car that he'll most probably get fired for it (depends on how reckless or just plain unlucky he was, his manager can tell and decide) then he'll feel alot more responsible wouldn't he? :)

Also, "budgeting 50000" and actually "paying 50000" are totally different things. An unused budget at the end of the year isn't money lost to any equity owner, only the operations manager. And whether I actually purchase a real spare device doing nothing in my stores or ask another company to pretend that it has it in IT's stores, is nothing but philosophy, we all know when the part actually breaks the support company (insurer in this case) will do the same thing of ordering the part and waiting 3-4 weeks for it to arrive. so the "speed" of service isn't improved either.

Islamic trade rules (especially the ones being routinely neglected these days) guard against this very invisible and sinister quality of "dealing with the unknown", or even "dealing IN the unknown". buying it and selling it. we don't know what the hell we're buying and selling anymore.

When we THINK we know exactly what we're buying and selling, all we're doing is calculating future probabilities to the best of our ability. and that's the danger. we fool ourselves into feeling that we've mastered future emergencies.

Well I say Bullshit to that.

PaLoMiNo said...
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PaLoMiNo said...
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falantan said...
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Tweego said...

just a clarification you know we had 4 days replacement policy on our support and 24h temp working solution.

and management don't care if you under budget they really hate when you are over budget and that what they are trying to avoid

anyway I see insurance as a way to stabilize the quality of life. we as community all pay some amount so when one of us get screwed we can cover him
now i know it is a companies and we don't pay the same amount and it is by choice and all that

but I would take a world with insurance than one without

glad you are doing better :)falantan

sadia said...

the way i look at things is...if it's haram, full stop. end of story. no two ways around it.

falantan said...

sadia:
kafo walla. sa7 lsanech.

Tweego said...

see the "haram" part is the one i don't care about

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