Insurance run for profit has to be a scam by definition. You can't turn a profit from a risk pool without ensuring that you can avoid paying at least a good chunk of the time. It should be as illegal as ponzi schemes
Risk-shifting is a legitimate service. If you buy insurance solely because of some legal (often perceived) legal requirement, then you are probably buying the wrong insurance for your situation. And missing out. After that, yes, the people making this their business can be expected to turn a profit? That doesn't seem unreasonable.
After that the word you should be looking for is competition: competition in keeping costs tight, competition in paying out easily, quickly and fairly.
Competition clearly isn't exerting those pressures on the market, and there are good reasons to believe it can't, which I've already outlined: The failures of an insurance company are too infrequent, ruinous, and obfuscated for customers to make choices at enough of a scale to impose this discipline in practice
Strictly speaking I don’t think that’s true. If premiums are sufficiently high then an insurance company could pay out every valid claim and still make a profit.
When you get to decide what claims are valid and profit from deciding they're not, the incentives just don't stack up to actually covering people adequately, and by this same property as well as the obfuscated nature of the internal judgments that lead to these conclusions and the infrequent occurrence of incidents built into... why risk-pooling makes sense for anyone, buyers don't have good enough information in advance to drive any selection pressures on acting against these incentives
There is no honest insurance company because the mechanism design implications of making it possible to be one would effectively destroy or nationalize the sector. Thus, it's a business that can't not be a scam
Lawyers, courts, regulators have a more powerful word against insurance company decisions on claims. Consumer organizations could also apply plenty of pressure. Granted none of these are worthy solutions for individual small claims. And the US don't exactly strive for functional all of the above. So - yes in theory the insurance companies don't have the last word - and sure, in practice that theory feels like it never helps. It should help in a serious accident.
Insurance companies can decide what they’re willing to pay without being sued. At the end of the chain, if they decline to pay a valid claim, a lawsuit is the next step. It’s not like they are the final arbiter (pun intended).
So our check against making the financially obvious decision to try to get out of the obligation to save people from disasters they paid into a risk pool to mitigate because they are infrequent enough that adequate individual preparation is impractical but devastating enough that insuring against them is rational is to hope that people who have been stiffed by these companies to weather those disasters on their own resources despite having paid into the risk pool will then be able to muster the wherewithal and finances to bring suit against an insurance corporation large enough to credibly claim to bulwark that risk afterward
In MA, the small claims limit does not apply for damages from an auto accident. That doesn’t make it easy, but makes it easier and more accessible to fight an insurance company who is acting unreasonably.
I just don't think it's ever going to reach a threshold where the cost of litigation in practice will ever make it not more profitable to harm people by denying claims. The economics simply don't work out
