Not exactly. The industry exists to protect people against risks of bad things happening to them, not to speculate on the misfortunes of others. I can't take out an insurance policy on your house, for example. All I can do is to insure my own home, effectively "betting" that something bad will happen to my own house. Even if I "win" that bet, the "jackpot" will only be big enough to fix or replace the house, not to allow me to profit from the catastrophe.

It's a whole-lotta hype about basic 'gaming-theory' for problem solving by those too ignorant to appreciate it.

One of DARPA's earlier innovations was the internet... that worked out good enough a Donk tried to take credit for it ;)

But per standard Donk rhetoric... people need to die because this is 'immoral'... and don't trip over yourself legalizing another form of gambling to tax Dummocrit.

Well, actually (or should I say, actuarily), the insurance industry merely has the big corporations doing the betting . . . . not the insureds themselves.

The mechanism underlying insurance is very similar to that of the (now discarded) Pentagon futures market. In both cases you have a decentralized group of players betting on the likelihoods of unfortunate events, and there is a financial incentive to discover information that gives all participants a more accurate assessment of the likelihood of the various events.

The biggest difference that I can see is that insurance mitigates (but doesn't eliminate) the moral hazard problem by underwriting only those policies where the counterparty has a perceived stake in avoiding the catastrophe. The biggest concern I had about the Pentagon futures market is that it would be an invitation for some to cause or contribute to terror attacks in order to profit from them. (In theory that would create market signals to step up enforcement to prevent the attack, but that also entails the generous assumption that the government would respond competently to such signals). Maybe DARPA addressed this issue, maybe not. I don't know.

I would have been more impressed with the Dems and the press if they raised serious questions about the Pentagon plan, instead of just hysterically wailing "ooh, this icky. we can't do this"

Ipso:

To a certain extent, you are right. However, the insurance company is betting that the bad event won't happen, so it has no perverse incentive to go out and cause it. Rather, it has a good incentive to do what it can to prevent the harm from occurring. This is nothing like the guy who owns a "future" on the next 9-11, which will become worthless if the attack is thwarted.

Stefan:

Ideally, insurance should eliminate the perverse motive entirely. The main reason it doesn't is because valuation is a less than perfect science, e.g., if you are willing to risk prison, you might be able to con your insurer into thinking your $300,000 house is worth $400,000, burn it down, and get a new house actually worth $400,000 in its place.

Of course, the whole distinction may well be moot. After all, it's not as though the Dems are much bigger fans of insurance companies than they were of this short-lived DARPA scheme.