Gambling And Greed Lead To Corruption In Insurance and Banking

“The punters here like to get fifties near the end of the day. They go straight from the shop to the casino when we close.”
Claire H., Betting Shop Cashier

It’s funny how many bankers go straight from the bank to bars and casinos straight after work; how many of them are addicted to the rush or the booze, just as Claire’s customers at the betting shop can’t escape the constant sprint of the horses or spin of the wheel. We’re going to use a simple story to uncover the startling similarities between many banking activities and gambling and the even more shocking way that insurance firms tilt the wheel in their favour. It’s not the flaws of the individual that are to blame, but that of the system.

Blaming Individuals Overlooks The System

“I was 25 years old. I should have turned round and asked for advice, but I didn’t. It was the most embarrassing period of my life and the only person who did anything criminal was me.”
Nick Leeson – Former Rogue Trader

Superstar rogue traders such as Nick often gain great media coverage and attention. It’s easy to blame an individual, to believe that it’s not the Bank that’s rotten but that one person. To do so overlooks the vast opportunity to gamble and be corrupt that exists within the banking system. Much of it is only possible because the public is willing to overlook these flaws.

Imagine your family believe you have vast knowledge of horse racing and a system guaranteed to win – indefinitely and no matter how much risk you take with their money. Not only will you gamble their money but you will borrow additional funds to gamble on these races. Imagine you believe in your system and truly think it will return huge amounts so the more money you can borrow or achieve through investment from your family the more wealth you will accumulate both for you and them.

Now let’s imagine all the loans you took out to fund this system were secured from the employers of your family. They have made so much from your system that they are now hugely over-extended in lending and investing in you. Then, unexpectedly, you have a run of losing horses. The system has always worked, you’ve always won, there’s enough money left to follow it one more day (and risk having nothing left and huge loan balances as well as busting your investors and creditors) or you can just quit now and be down a lot anyway. If the system is right, however, everyone will be rich and nobody will know. Can you turn down taking one more spin? That’s the dilemma of the star trader who’s gambling system has been turned against by the markets it once crushed.

How About The Bail Out

Now it seems irrational that faced with these reckless gamblers who have torn down the economy and left us facing joblessness that we would agree to bail them out. However think of the day when your employer writes to you and admits that because of the huge lending to this once invincible scheme that you would need to assist this bail out funded by 5% pay cuts (think what the government is doing now with cuts to fund the bail out) or simply the firm will fail and you’ll be out of a job. Can you turn down that choice or do you go along with the cuts and save your job?

Now the bankers can gamble, borrow and know that if it all goes wrong they won’t be the ones paying it back – they’re too big to fail after all. Does it worry you that the money used in the bail out is going back into the same system that has already failed you?

The Insurers Are The Casino, We Are the Punters

“Yes. Ask your doctor, and ask him for more drugs. That should keep you pretty doped up until it’s time to retire. D-did I say retire?”
Michael Moore – Sicko

The problem with insurance is that the firms involved have the same huge incentives to gamble and borrow in our names. The same possibilities for corruption. Insurance is simply a bet between two parties. You bet each month that you will need some hospital care soon, the health insurer bets a lot of money that you don’t. This continues each month until you either need some care or the bet ends (the end of the term or if you cancel the policy). We’re using health insurance as an example but the same could apply from anything to life insurance to Mazda Bongo insurance.

This is all fine until we understand that those who assess the winners and losers in this bet are the insurers themselves. When looking at extremely complicated terms and conditions these insurers employ specialist Doctors who get huge bonuses for helping the insurers in not paying out claims. It’s like the old ‘snatch’ dealers of the gangster era of Las Vegas – robbing punters blind while they thought they were having a fair game of cards. Sadly this outcome results in deaths not simply a loss of money as innocent people are declined their medical claims on a technicality – like a punter who watches their horse win only to be told the jockey has been disqualified for being a fraction under-weight.

To make it even more interesting, insurance companies invest (gamble) with any money they take in premiums to try to make even more money. When they lose there can be disastrous consequences to policy holders.
Of course, having a mentality or personality which is naturally inclined to gamble and seek risks doesn’t mean you are a bad person. In fact, anyone can be afflicted by the same feelings and make the same choices, just in a different context. This is by no means trivialising how serious the actions of some professionals can be but it’s important to note that plenty of people are making similar choices on a daily basis in different environments.

Change Is Essential

Wherever greed is strong and the power of money over the system is absolute as it is in banking and insurance there is huge pressure for the whole system to become corrupt. A belief in itself unjustified by performance and where every bet is rigged so the real risk falls on the public is not one that is fair or should be supported.


  1. Like it Adam.

    Funny that Financial Services, when I started in insurance, wwas wary of “moral hazard” whereas they now produce it on such an industrial scale (that makes Chinese factories look like cottage industries), polluting the FS ecosystem and wider environment!


  2. Thank you Adam and David. Moral hazard was always a major concern for my insurance mentors. I learned from the good guys. Gambling with Insurance declarations, other people’s money and the like is tantamount to throwing away your future and dragging others with you. Would you want to work with someone prepared to do that? No.

  3. The temptation is always the problem if you are tempted into big sum bonuses then the temptation to take this is huge, the indulgence then kicks in and the new cash rich lifestyle takes hold and the thirst for more cash becomes immense, this is why maybe the financial industry has developed a bad name.

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