Traminsurance – illegal on so many levels

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Over the past 24 hours or so a scheme developed by who I understand to be a couple of university students has had a lot of publicity. The fact it is simply illegal. First up, one of the basic tenets of insurance is that you cannot insure something that is against the public interest. You cannot insure illegal drugs for instance. Similarly you cannot insure fines which may be imposed for criminal behaviour.

Secondly, in Australia to operate any sort of insurance scheme you must comply with the Financial Services Reform Act [2001] (Cth). Even if this insurance was somehow approved by them, which I cannot believe would happen, the insurer would need to meet all the capital requirements.

Today I hear they are saying they are not an insurer but a co-operative. They can call the scheme what they like, it is still insurance under any definition of the word. More importantly it is a “insurance product’ under the definition of the Financial Services Reform Act. If they accept any premium / monies they are breaking the law and anyone who insures with them has rocks in their head. The scheme will, in all likelihood fail, the money will disappear and you will lose your money.

If I go back to issue of insuring things against public policy, one of the worst examples in the past was the waging on ships and their crews in the London Market in the late 1700 and early 1800’s. What would happen is that someone who had no financial and or insurable interest in any part of the venture would insure a vessel, and or its cargo and or the lives of its crew when it went off on some trading venture from London to the Caribbean or anywhere else for that. They would be wagering that the vessel would be lost and if it was they would claim and make a tidy profit. With so many things involving gambling and human nature in general, greed took hold and it was not long before those insuring would plant a person on board the vessel to make sure there was a loss. Vessels were lost, cargo destroyed and sailors and officers lost their lives. As a result the Gaming Act [1845] (UK) was introduced. Ironically, it was the reform of this legislation that allowed the insurance of derivatives which was a form of gambling and this in turn led to the global finanical crisis (“GFC”).

I am not saying that the people who started tramsurance are dishonest or going to take down the world’s economy, but what they are doing is in my opinion against the laws of Australia and now they have had their 15 minutes of fame get back to their studies and pay their train and bus fares like the rest of us.

2 responses to “Traminsurance – illegal on so many levels”

  1. Greg says:

    http://www.freakonomics.com/2007/03/26/how-to-cheat-the-mumbai-train-system/

    This is hardly an original, innovative, or clever idea.

  2. Paul says:

    I came here thinking something else, but this entertained me regardless. Interesting stuff!

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