Car theft is on the rise. Rather than investigate or cooperate with police or policies they can just pay out the loss and lobby against crime reduction in a variety of ways. Then, because they paid a loss they can raise that persons amount they pay due to a rising “risk.” Then everybody’s rates can rise because of this problem.

The larger the cost, the bigger total cash value they can get on their percentage based profit.

Playing into the cost, they can cut deals with manufacturers directly or in lobbying for parts to be artificially inflated to make this problem even worse. Plastic fuel valve maybe costs 30 cents to manufacture but is sold for $900 and that price is doubled to install it. And the car isn’t safe to drive without it so insurance can demand you pay up or deny all coverage or payouts.

Same for medical inflation though that’s more commonly discussed.

If insurance didn’t exist as a service then these inflated prices would be dramatically cut down. We see this when you don’t use insurance at a doctors office or pharmacy checkout. Though insurance can sometimes demand insurance be used regardless of your consent simply if the cashier is aware they have insurance.

Lobbying and passively steering the direction into bloating end users cost is massively incentivized wherever possible for insurance. Then hiding behind a veil of blame to avoid accountability or even just fair payouts when you actually need them.

It’s like insurance is the IRS who runs a casino and they threaten you if you win the jackpot and then threaten to “randomly” select you for audit if you proceed to cash out for the full amount instead of a $25 Red Robin gift card.

Those are interesting theories. The system is a little more complicated and it’s hard for an insurer to directly control theft rates (to continue your example) but they do charge less for vehicle types that are stolen less often.

I do feel similarly that there are huge conflicts of interest in the finance industry. Mortgages and house prices is another one that comes to mind. Finance doesn't just react to the reality, it plays a part in driving the reality. It's a bit of a chicken and egg thing. I feel like in general humans are particularly susceptible to complicated things being abstracted by simple numbers and the finance industry is just cashing in on this susceptibility.