
Woman makes $420k by buying insurance on flights she predicted would get delayed - 9nGQluzmnq3M
https://mothership.sg/2020/06/woman-china-scam-insurance-delayed-flights/
======
TheOtherHobbes
I recently collected nearly £2500 from an insurance company because a policy
had been mis-sold when I bought a house.

The policy was sold so the agent could get their commission. There was no
credible justification for it. Worse, there was no record showing that I ever
signed any paper authorising the charges.

When I talked to the investigation department, they said that off the record,
between you and me, record keeping is incredibly poor, and my case was only
unusual because I'd questioned the payments - and most people don't.

My partner is going through something similar, but the paper trail in her case
is even more tenuous. The only justification on file for thousands of pounds
in payments collected from the 90s onwards is a mortgage application she made
a few years ago - and didn't even go ahead with.

This is on top of a national Payment Protection Insurance (PPI) scandal which
forced insurance companies and banks to return billions of pounds.

Somehow this never seems to be labelled criminal fraud. It's always "Mistakes
were made..." and no one is ever personally responsible.

So honestly, I'm finding it hard to be sympathetic to the poor exploited
insurers in situations like this.

~~~
mettamage
I recognize this as well.

I once didn't fill in my Dutch VAT taxes (0 euro's by the way, it was an
administrative formality) and I was fined.

Another time the tax authorities didn't pay me money back for almost 9 months,
and it was only because I found out and they forgot because of some
administrative mishap.

However, I'm not allowed to fine them.

I find it weird, because I'm pretty sure the mistake is similar in behavior
and intention. Yet, I have to pay up and they don't.

~~~
tialaramex
Huh. HMRC in the UK realised they owed me money back in, IIRC 2018 and kept
sending me actual paper cheques as their computer worked through consequences
of the mistake year by year for the next few weeks. It was tiresome actually
because I had to go to a physical bank, but I guess if it annoyed me that much
I needn't have paid the cheques in.

They pay 0.5% (which is better than most of my bank accounts) on all sums they
owe as a result of their own mistake rather than either your mistake or some
third party screwing up (e.g. your employer fat-fingers paperwork causing you
to pay say £1000 extra tax, you don't notice for two years, then you point out
the mistake, HMRC are happy to fix it but won't pay you 0.5% interest on the
mistake because it wasn't their fault)

~~~
n4r9
Yes, HMRC is generally a very good service. Will be a sad day when it gets
outsourced to a contractor:(

------
yodon
This kind of thing goes way back and used to be much easier.

Over-booking of flights used to be a huge problem back in the 90's and
earlier. You'd get on the plane, someone would be in your seat already, and
that's when you found out you didn't get to fly on that flight.

Airlines figured out this pissed people off and started counting tickets
before letting people onto flights. If they had too many people waiting to
board a flight, they would make an announcement and start offering free stuff
to people willing to be bumped or take a later flight (this still happens in
rare circumstances today but used to happen on most flights for a few years).

I remember listening to a gate agent threatening to call the cops on a college
age guy who was picking up his third free ticket of the week for accepting
being bumped off an Oakland to Las Vegas flight. He'd apparently figured out
that that flight was always overbooked (which wouldn't have taken a rocket
scientist given the high rate of overbooking at the time), and the only reason
he got caught was the same agent kept getting assigned to work the counter for
that flight often enough to remember his face.

Interestingly, I also flew on a nearly empty flight once during that era. The
pilot came on the loud speakers and said "the next time you are wondering why
flights are over booked, remember this flight - this plane was booked to 120%
capacity (or some other number well over 100%) for this trip."

~~~
thehappypm
For a flight to have gone from 120% to nearly empty would mean that some large
group didn't show up. Maybe an entire tour bus was delayed by a flat tire or
something. Statistically speaking, a hundred people simultaneously missing
their flight is vanishingly unlikely.

~~~
nightcracker
> Statistically speaking

Statistics generally (there are exceptions of course) makes very broad
assumptions about independence and random selection of your samples.

For a group of people as correlated as having the same destination at exactly
the same time using the same airplane I would be very wary of applying any
statistics at all, even ignoring the possibility of a large group.

Hundreds of otherwise independent people can decide to not show up
simultaneously due to terrorist attacks, corona, a cheaper alternative, a
conference being cancelled, etc.

~~~
thehappypm
I think you are restating my point.

------
perfunctory
> The Paper later found out that many insurance companies have already fixed
> the loopholes that Li took advantage of to get rich.

> The ones they checked with now have a clause that says they will not be
> responsible for any payout should the insured, at the time of buying,
> already knows or reasonably deduces that the flight can be delayed anytime.

What kind of clause is that?

~~~
vkou
It's a bit like the clause about how you shouldn't be buying fire insurance
for a house that is already in the process of burning down.

It's not an unreasonable one.

~~~
greatpatton
You analogy is incorrect as it would mean that she would buy the insurance
when the flight is officially delayed. Here she is making a prediction, which
may or may not be correct. It is exactly the same as when you are buying
option or contract on the stock market. Here the issue is that the insurance
company has a fixed premium which not based on the likelihood of delay. This
is completely on the insurance side. Otherwise the stock market will have big
issue if you apply the same analogy. This new clause is in effect a blanket
one to not pay anything... if you pay for an insurance you have the conviction
that the flight might be delayed... otherwise there would be no point to buy
it....

~~~
unishark
I'm guessing you don't have this woman's inside knowledge of the airline
system in China. You're assuming here that a person can't reasonably know or
deduce a flight will be delayed, but her track record says different.

Sometimes, often in fact, it becomes pretty obvious a flight will be delayed
but they just haven't bothered to officially announce the fact yet. Such as if
the plane isn't even there because they are delayed on the previous leg, and
boarding time is about to start. Or when the airport cancels all flights for
an indeterminate time due to incoming bad weather and the airlines wait to
update times because they don't know what to say yet.

~~~
greatpatton
Yes I do know by experience that it is very easy to deduce if a flight will be
delayed. By experience in Europe, last leg of the day of an Easyjet flight ->
75% chance that your flight will be delayed. Snow during the night (look at
the forecast) -> 90% your morning flight will be delayed etc. etc. No need for
an advance ML model. Of course what she did was more like insider trading, but
I'm pretty sure that you don't even need that.

~~~
user5994461
The difficulty to make money out of this might be to determine the delay with
some accuracy, not just that there will be some delays. Flight are routinely
delayed by tens of minutes (has a low-cost flight ever left on time?) and that
won't award compensation.

European laws define mandatory compensations when a flight is delayed or
cancelled. This starts after 30 minutes if I remember well and depends how
long the delay is and how long (distance) the flight is.

Also, delay is measured on arrival time, not on departure time. Planes
frequently depart late then arrive on time, because they fly faster to catch
up.

~~~
ProZsolt
It was 2 hours, but recently they changed to 3

[https://europa.eu/youreurope/citizens/travel/passenger-
right...](https://europa.eu/youreurope/citizens/travel/passenger-
rights/air/index_en.htm#compensation-delay-1)

------
pembrook
If the insurance companies were so consistently mis-pricing their contracts,
instead of calling the police they should have hired this woman and used her
expertise to design dynamic pricing algorithms.

The article says the insurance companies have now closed the loopholes she
exploited. To me, she deserves every dollar she made for making the insurance
market more efficient. I'm sure those errors would have cost these companies
much more than $400k over the long run.

~~~
dragontamer
Its kind of sad that the #1 comment right now is basically saying "the company
involved here should have been charging its customers far, far more money",
instead of protecting their customers and looking out for the best for them.

Insurance is NOT a financial instrument. Insurance is supposed to be a safety
mechanism that protects you if something bad happens.

We can think of insurance as a call and/or put option. Financially, they
behave almost identically to options. But that's not the intended use for the
product.

\--------

Where you see inefficiency, I see humanism. The company believes that its
users wouldn't act like this, and for the most part... citizens do not commit
large scale fraud involving 20+ fake identities.

~~~
epr
> Insurance is NOT a financial instrument

Unless you are attempting to redefine the word insurance you are simply
incorrect. Insurance is one of the most commonly used financial instruments in
existence. If insurance was somehow not a financial instrument, it would not
be insurance, but something else entirely.

~~~
TheNorthman
I can't speak for insurance markets everywhere but in Denmark, you are simply
incorrect. Insurance companies have existed as consumers' co-operatives since
the first insurance 'company' in Denmark, founded after a city-wide fire in
Copenhagen in 1728.

These agreements were never meant to be traded between insurance companies and
in most cases simply weren't. The only major exemption from this rule are for
companies offering life insurance but they aren't allowed to offer regular
insurance.

Instead of acting as financial instruments, insurance companies are required
to have, on-hand, the necessary liquidity to pay-out enormous sums.

~~~
vikramkr
In the US there's basically a 110% chance that whatever insurance policy you
took has become a part of some derivative contract with swaps or whatever.

And everyone financially engineers insurance if they have anything resembling
a free market.

Reinsurance in denmark:
[https://www.lexology.com/library/detail.aspx?g=654d1fd4-cffc...](https://www.lexology.com/library/detail.aspx?g=654d1fd4-cffc-4a72-8a5c-d89d7c7f8529)

First result for Denmark insurance swaps:
[https://books.google.com/books?id=XsbFBgAAQBAJ&pg=PA34&lpg=P...](https://books.google.com/books?id=XsbFBgAAQBAJ&pg=PA34&lpg=PA34&dq=denmark+insurance+swaps&source=bl&ots=nAmPyCE-
hm&sig=ACfU3U3wm1-o99wz4ltQ8gByXF7XRKylag&hl=en&sa=X&ved=2ahUKEwivzoyCgoTqAhV4SDABHWuyD1wQ6AEwAHoECAUQAQ#v=onepage&q=denmark%20insurance%20swaps&f=false)

~~~
ISL
Even the "110%" number is apt to be correct, as someone has probably sold one
of those derivatives short.

~~~
vikramkr
Good point - I meant that as hyperbole but if you want to start counting
shorts and swaps on swaps and swaps on shorts and shorts on swaps and
reinsurance and swaps on reinsurance and so and and so forth, well, that gets
really big really fast. Let's just say there was a reason we were so worried
about AIG going under during the previous financial crisis.

------
hansvm
Ignoring the identity fraud and supposing the information obtained were
public, this thread seems to have a lot of people who believe that applying
information arbitrage to insurance is in and of itself inherently wrong, and
that's not a stance I think I can agree with.

As a litmus test, when the roles are reversed and the insurance company
overprices a policy we seem fine with that as a society because even though
any individual can have a hugely disproportionate premium the company as a
whole has bounded profits (both legally and due to competitive forces). We
might even try to argue that an individual can't possibly know their own risk
better than a team of actuaries and that they should accept that the premiums
are actually correct.

If an insurance company is allowed to knowingly profit 2x, 3x, or more on an
individual's premiums based on their best models, why is an individual
disallowed from doing the same if only using public information?

If so, where do we draw the line? Is it at a break-even point? What if the
insurance company were trying to target an individual for 15% profits; is that
person allowed to engage in the contract if they think the company will only
earn 3% on average since that would also demonstrate a model better than the
company's?

I can definitely see arguments against an individual having any _causal_
effect on the policy (e.g., like burning down a house), but I'm struggling to
see why this kind of information arbitrage is inherently wrong.

~~~
runeks
I agree completely. I think it’s a super interesting discussion whether she’s
actually done anything morally wrong (again, barring the identify fraud).

It’s possible that the root cause of this is simply a mispricing of insurance
caused by Chinese regulations.

------
lpilot
Well, insurance is just gambling with extra steps. Usually, you bet on
something bad happening like your house getting burgled or your flight getting
delayed, and the insurance company takes you up on that bet.

In a very abstract way there's not much difference between this and betting on
sports.

~~~
afiori
I think this is too reductionist as an interpretation.

With an insurance (especially something like travel/home insurances) you are
not trying to game the premium, you are rather protecting risk of a
preexisting situation.

Sure you can use it to gamble, like buying a few dozen houses and hoping they
catch fire sooner than later.

Similarly with the stock market, stocks unlike a casino chips do produce value
and represent real quota ownership of an asset. It can be misused in similar
ways but it posses distinct qualities.

~~~
lpilot
You've identified a difference in motive between recreational gambling and
insurance, not a mechanical difference. The woman in this article had
different motives to the usual insurance customer.

The point is that one party says to the other "I will give you $X once a
month, and if event E doesn't happen in that month, you get to keep this
money, otherwise you must give me $Y (s.t.Y >> X)".

You can replace E with "my house burning down" or "The red team wins". In
either case, I would call this a bet.

Insurance is just a specific type of gambling where you do it because E is bad
and you want to be safe in case it does happen.

~~~
saalweachter
Insurance and gambling are the inverses of each other.

In gambling, the unlucky losers pay the lucky winners. The people who picked
the winning horse, who threw the better roll of the dice, who invested in the
right stock get paid.

In insurance, the lucky winners pay the unlucky losers. The people whose house
burned down, who came down with a really expensive disease, who lost their
jobs get paid.

~~~
Klinky
Not really. I don't think the insurance company thinks of themselves as a
lucky winner when they have to payout a claim. They lost the bet.

However, in theory insurance is more about pooling risk, where payouts from
claims do not exceed premiums collected from the risk pool. Though sometimes
insurance companies overextended themselves into places where they are not
collecting enough from the pool to cover claims.

~~~
saalweachter
The insurance company isn't really taking the other side of the bet, it's the
rest of the risk pool.

If you are lucky, you will never be seriously sick in your life, never lose
your job, and never have your house burn down. If you are so lucky, all of
that money you pay for insurance goes to the people who are less lucky.

~~~
Klinky
So the insurance company is the bookie.

------
reqres
Isn't this a legitimate trading strategy in financial circles

Contracts like credit default swaps pay out if some organisation fails to meet
their (debt) obligations

~~~
koheripbal
Not in this case because she used fake names to initiate the contracts to
avoid detection.

------
dx034
I don't really understand how she made money. She apparently still bought
tickets. If they weren't delayed she refunded the ticket early. But wouldn't
otherwise the insurance payout just offset the price of the ticket? Or was
there a premium on top of that?

~~~
Traster
It's unclear, but it sounds like there's insurance available in China that
will simply pay you money if your flight is delayed by a certain amount of
time. The amount you get paid is not tied to the cost of the ticket it's
simply a feature of the contract, so obviously there's a trade-off there with
a profitability = Insurance Payout * Probability of Delay - Flight Cost

~~~
gambiting
I mean, I'm sure such policy could be arranged elsewhere too as a custom
thing, but it's basically gambling at that point. You might as well go to a
bookie and place a bet that a flight will or will not be delayed(most bookies
would be happy to accept such bet too).

~~~
Nextgrid
Is this some sort of joke I'm not getting or are there actual bookies that
take bets on real-world events, and if so how do they determine the odds (in
sports from what I understand the odds are determined by the amount gambled on
either side, but I can't imagine there is a big enough market for bets on
flight delays to make that work)?

~~~
rswail
> in sports from what I understand the odds are determined by the amount
> gambled on either side

This is incorrect. This is what applies in a totalizator market like some
racing betting agencies. They take the pool of money (eg for a win) and deduct
a fixed fee before paying out to the winning bet. The "odds" there are
determined by which competitor the market thinks is most likely to win.

But bookmakers actually provide odds based on their own assessments. They are
taking the "other side" of the bet and can suffer losses.

And yes, there are bookmakers that will take bets on almost anything. They do
it the same as any risk takers, by researching the probabilities.

People bet on political outcomes, sports outcomes, all sorts of different real
world events.

~~~
webmaven
_> And yes, there are bookmakers that will take bets on almost anything. They
do it the same as any risk takers, by researching the probabilities._

Aren't there insurance companies (eg. Lloyd's) that will do the same?

------
xiaosun
FWIW - Flight delay insurance in China is sort of like buying a scratch-off
lottery ticket. The terminal is dotted with little kiosks where you buy the
insurance for 20-50 yuan and hope it pays a couple thousand yuan for a delay.

[https://blogs.wsj.com/chinarealtime/2014/09/25/flight-
delaye...](https://blogs.wsj.com/chinarealtime/2014/09/25/flight-delayed-in-
china-theres-insurance-for-that/)

------
franciscop
> The ones they checked with now have a clause that says they will not be
> responsible for any payout should the insured, at the time of buying,
> already knows or reasonably deduces that the flight can be delayed anytime.

Wait how is that the solution at all? That seems like might be a lot worse for
everyone involved, including innocent insurers. I would expect them to somehow
reduce the payout to only the cost of the flights or similar, resulting on a
net neutral for the insured.

~~~
martin-adams
I guess part of the reason people have insurance is to cover other losses,
such as hotels and onward flights. Reducing to the cost of the flight might
lose a lot of customers.

~~~
Cthulhu_
Yup, I've never heard of insurance for just a missed flight, but I have heard
of cancellation insurance for the whole journey.

~~~
webmaven
> Yup, I've never heard of insurance for just a missed flight, but I have
> heard of cancellation insurance for the whole journey.

If you only get insurance for outright cancellation, there is a "donut hole"
between that and what the airline will cover in the case of longer delays.

BTW, it can be illuminating to read what the slightly more expensive travel
insurance packages will cover; things like a helicopter medevac back to
civilization, or ransom payments in case of kidnapping.

------
SilasX
Heh, I actually did a junior version of this, myself. I play Dance Dance
Revolution (video game were you press the buttons with your feet), and buy
foam pads to play with. Stores loved to sell you their extended warranty,
which everyone tells you is a bad deal.

Well, I noticed that this particular brand/model (Red Octane 2.0 I think)
failed pretty quickly[1]. So I always paid the $3, which entitled me to a
quick, easily replacement (normally $50) when they inevitably broke down.

[1] Like after a few months -- not soon enough to be annoying, but sooner than
they're supposed to last.

------
freakynit
So the police arrested her. Why wouldn't the police seize insurance companies
assets when flights were not delayed? They do exactly same with people, right?

~~~
rdsubhas
Sorry, please read the article. She was not arrested for normally buying
retail insurance like how everyone does.

The woman faked different identities (illegal) to not fall under regular
insurance quotations, and used insider information (illegal/scam in insurance
policies, just how insider info is illegal in stocks).

This is akin to someone buying car insurance, faking different identities each
time, and plan in advance to crash the car every single time (the insider info
part).

~~~
unethical_ban
I won't argue with the fake identities part, but she didn't force the flights
to be delayed. She didn't "crash the car".

It would be more like her driving through a known dangerous intersection,
following all traffic laws, and still getting t-boned every few days because
of low visibility. She didn't "make" the crash happen, she just knew it would.

------
ggm
The problem was her access to privileged information about the flights. And,
misleading multiple identities. If she'd stuck to hedging and sold a service
she probably would have IPO'd by now.

The arbitrage function remains useful.

------
nwsm
> The Paper, citing Yangtse Evening Post, said she was able to receive
> relevant information beforehand that tells her if the flight was going to be
> delayed or cancelled.

Why does the title say she "predicted" they would get delayed?

~~~
globular-toast
I wonder that same thing. This changes it from really clever to insider
trading (ie. fraud).

------
Hitton
Even though it didn't end up well for her, it's nice example of how non-
technical person can "hack" the system. She definitely has hacker mindset.

~~~
chasing
Grifter mindset, you mean.

------
Pabblo001
And you are seeking side project ideas :)

------
javier123454321
Finally a story about a hacker in this forum

------
joering2
> The ones they checked with now have a clause that says they will not be
> responsible for any payout should the insured, at the time of buying,
> already knows or reasonably deduces that the flight can be delayed anytime.

I think if burden is on insurer, then insurance can get away with any payout.
They can always claim you knew weather is bad. So after all, insirance career
is a big winner here.

------
Markoff
that's not really that surprising, many travellers in Europe I know were
buying lot of flights during pandemic knowing they will be cancelled and they
will get bonus miles as compensation to accumulate them, you didn't even need
insurance for that

I know plenty of people who made hudnreds of euros on these low cost flights,
it's same people who are buying error fares

there is nothing fraudulent about it

you can do actually same thing with sending packages insured for much higher
value than is content to destinations where you know they are very likely to
be stolen/lost

------
ashishb
She got greedy and got caught. I wonder how many more might be doing this.

------
paulkre
I wonder how she predicted so accurately which flights would be delayed.

~~~
readarticle
_But instead of getting onto the flights herself, Li was making use of her
past travel service work experience to selectively take out insurance on
flights that she thought would be delayed.

The Paper, citing Yangtse Evening Post, said she was able to receive relevant
information beforehand that tells her if the flight was going to be delayed or
cancelled._

3rd and 4th paragraphs of the article.

~~~
wolfgang42
“receive relevant information” doesn’t really adequately answer the question
of _how._

~~~
heedlessly3
it's possible she was in talks with a co-worker who gave her insider info

------
larodi
She beat the game of insuring flights, what's wrong about it to have police
arrest her? She played fair, rules were set by those companies.

~~~
t0mas88
I guess the part where she used 20 fake identities to hide her tracks is
illegal?

~~~
lucianbr
Ok, fake identities are illegal. But why would she need to hide her tracks?
Was there something else illegal in the first place, that would necessitate
her using fake identities to hide? What?

~~~
WJW
You can only get one insurance policy per flight per identity and the maximum
profit per policy is limited. So to increase profits you can get more
identities and then get more insurance. Kinda how some people have dozens of
dropbox accounts to take advantage of the free storage every account gets.

~~~
webmaven
_> Kinda how some people have dozens of dropbox accounts to take advantage of
the free storage every account gets._

That's only part of the story (and trying to manage storage across multiple
Dropbox accounts is a pain). The real benefit would be the expanded free
storage your primary account gets as a referral incentive.

------
quickthrower2
Clever woman, she should have found a legal way to bet, or working for a
trading firm, because she is good at it.

------
fulldecent2
Woman buys insurance to make money... and somehow she is arrested.

This reminds me of the other articles -- parents pay $500k to private
university so their kids can be accepted... and then somehow they are
arrested.

When articles write about people being arrest, do bother to document what is
the violation.

Probably the best reading of "..." nowadays is "and making money is bad, so"
or "and this made somebody higher-class than them sad, so".

~~~
OscarCunningham
> Probably the best reading of "..." nowadays is "and making money is bad, so"
> or "and this made somebody higher-class than them sad, so".

My understanding of the university admissions scandal was that the parents
were defrauding the university by bribing the admissions staff to lie to the
university about how good the candidates were. It would have been legal if
they had instead been honest with the university and paid however much extra
was needed to convince them to accept their children. But that would have cost
them more than bribing individual staff.

So I don't think that example fits your mould.

------
mrkramer
How much money she would made when Corona pandemic started when all flights
got delayed?!

------
jiveturkey
too bad this article is so thin. i'd be interested to know how she made a
dime. what insurance policies pays you back more than the cost of the travel
arrangements themselves, which you are already out of pocket on?

------
mito88
from the article:

"Unfortunately, the police caught up with her misdeeds and arrested her..."

:)

------
vmception
-20 social credit

~~~
jacobush
double plus ungood

