A person might insure their possessions for $50,000 for one year, and pay $500 to do so. Effectively they have gambled 100:1 that their contents will be lost, stolen or destroyed over the next year.
The fact that it is gambling does not make it a bad thing - gambling can be used to offset risk.
Example 1
Suppose 1 in 1000 homes burn down every year (on average). Suppose a large number of people form an insurance collective, and agree 'if anyone's home burns down, all the people in the collective will share the cost of repairing or rebuilding it'. Sounds like a good deal (provided people don't cheat, and deliberately burn down their homes in order to get new ones). They are also gambling - they have a high chance of having to pay out (someone's house will burn down), but a small chance of collecting big (getting someone else to rebuild their own house if it burns down).
Example 2
Hence taking the gamble is a rational thing - it is in his interests, and his family. From the insurance company's point of view:A farmer who has to feed his family over the next year runs a risk that the crop will fail. Crops fail (on average) one in three years. If the harvest is successful he will make $21,000 (enough to comfortably feed his family for 2 years). If it fails he will not be able to feed his family. He takes out insurance of $20,000 but it cost him $8,000. He knows that if the crop fails he will still be able to feed his family.
Crops fail one year in three. If they insure a large number of farmers over a large period of time, they will have to pay out every third time. If they insure 100 farmers for $80,000 each, they get $8,000,000, but they will have to pay out $21,000 to a third of them - a total of $7,000,000, giving them a $1,000,000 profit.
The gambling (in this case) is rational for both sides. This is not to say that gambling is always rational - in the case of a casino punter it rarely is.
The Left often argue that the first case is good and just, but the second case is evil and exploitative. Why? Because in the first case, no-one actually ends up ahead (even if you collect, you only get back to your previous level - you get your house back). However in the second example someone ends up in front (usually the insurance company).
The funny thing is that there is nothing stopping Leftists to form non-profit insurance cooperatives. If people are genuinely exploited by insurance companies, they would be better off in an insurance collective. Why aren't insurance collectives popular? Because in practice they are hard to run and enforce - they are inefficient.
Generally people make the selfish choice - the one that benefits them the most. Generally people end up better off taking the 'being exploited' option than the 'non-exploited' one. Raises a few questions about exploitation, doesn't it?
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