2018/09/27: Insurance works because we are ignorant of our individual fates. It is the fact that any of us might turn out to be a bad risk that makes it sensible for everyone to insure against that remote chance. The pooling of individual risks that can only be known in aggregate underlies the whole system. But there is a subtle mismatch of aims between insurers and their customers. The customers want to avoid the consequences of misfortune; the insurers want customers who avoid misfortune. The two aims are reconciled because both sides are operating behind a veil of ignorance.
Insurers have an interest in knowing as much as possible about their customers. Customers have an interest in insurers underestimating their real risk. But both sides will benefit if ways are found to reduce the risk of the misfortune insured against. The balance between knowledge and ignorance of risk has traditionally been struck at the level of statistical knowledge about large groups.
But statistically significant groups are getting smaller in the age of big data.