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Insuring Your Future

We all hate insurance agents. They sell overpriced, misleadingly named products (e.g., "Life" insurance); they pester us to buy unentertaining things that will never benefit us personally (when was the last time you saw someone enjoying their life insurance policy?) And like most of today's "capitalist" industries, insurance companies spend a lot of time lobbying state legislators to drive out their competitors through regulation and price controls. (Sometimes, as in Texas, they have overdone it and come close to driving all auto insurance companies out entirely.)

However, there is a good side to insurance companies. Once they have our money, they don't want to give it back. This gives them the right incentives; it makes their interests coincide with ours. Fire insurance companies want to prevent fires, health insurance companies don't want people to get sick, and life insurers don't want you to die.

The National Board of Fire Underwriters (predecessor of today's American Insurance Association) was founded in 1866 to study means of reducing fire hazards; they helped push the installation of sprinkler systems and other fires safety measures. In the late 19th century, they founded Underwriter's Laboratory to test the safety of electrical devices; in 2003, it tested over 100,000 items. In the 20th Century, the Insurance Institute for Highway Safety was created to encourage the construction of safer highways and safer cars. UL and the IIHS operate in a voluntary fashion, by providing information and approval ratings.

Insurance companies can encourage safety in other ways without using force. They can simply offer lower premiums for better-designed equipment, or even for safer behavior. The lower premiums for nonsmokers and the nonobese provide financial incentives for health.

So insurance companies have actually done for over a century what government agencies like OSHA, FDA, etc. only claim to do: make people safer. The difference is that the insurance companies have the right incentives, and none of the wrong ones.

Suppose you are a low-paid FDA bureaucrat. You can improve your life by taking bribes from one drug company to delay competitor's products; you can make your life easy by just not approving anything. Or, you can work long hours, trying to approve the right drugs in a timely fashion… leading to the occasional inevitable mistakes and career calamity. And no matter how many good drugs you approve, you will still be a low-paid bureaucrat, despised by your wife, in-laws, and cat. You can't do anything about the cat, but in a private company setting your in-laws might eventually be forced to respect your success.

An Assurance Medical Association (AMA) funded by the life insurance industry to review drugs would have the right incentives. They would try to keep their life insurance clients alive and the premiums coming. If they can do that by not approving drugs, fine; if they can do it by approving them for sub-groups, or (eventually) individually for each person, they will do that too. Individual workers might be bribable, but not to the degree that FDA drones are captured by the industry they "regulate"; and the AMA would have every motive to use auditing, double-blind studies and cross-checking to root out dishonest employees.

More generally, the insurance industry is more suited to many jobs traditionally done by government than is government itself. Government benefits from calamity; the truism "War is the health of the State" is one piece of a larger pattern. Any catastrophe creates a panicked constituency for free help: crime, poverty, floods, fire, famine, bad art, whatever. Anything bad is good for government.

Conversely, insurance companies want people to be afraid, but they don't want anything bad to actually happen. That is why insurance companies are rarely caught funding and arming fanatic gangs of tornadoes to ravage the Midwest, or encouraging anti-Western movements among hurricanes.

Of course you have to use the right kind of insurance company for the right job. Using health insurance companies to review treatments doesn't work… they don't want to approve anything that costs money. Since that's what we're doing with HMOs, it's no wonder that the system doesn't work… driving us ever closer to 100% socialized medicine.

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You don't have asteroid insurance. You don't have war insurance, terrorism insurance, plague insurance, or bad art insurance (you never know when you'll be exposed to some new atrocity in front of a public building). You pay three-quarters of your income in insurance premiums for all these things, to… let's call them Union Static Assurance (USA). But they don't protect your family. In fact, they actually attract more risk, by using your premiums to fund war, terrorism, extra costs and delays in the development of medical products, and bad art.

So, what you need is to transfer as much of your insurance business away from USA as you can. Tell your insurance agent you don't want any more "car insurance," or "property insurance" with all those stupid exclusions. Tell her to get you some real war, plague, terrorism, and asteroid & comet policies; then you'll talk.

Insurance companies have done some good work; saving some lives and thus keeping some policyholders premiums. But the number of lives saved by UL and IIHS are dwarfed by the numbers wiped out by the FDA alone, let alone the rest of the worldwide government machineries. If the insurance industry ever wants to make the really big bucks (by keeping the ones it already has), it needs to found an Underwriter's Liberation Movement: an institute that studies and popularizes the damage done by government agencies. Let me suggest a slogan:

Insurers Unite! You have nothing to lose but our claims!

April 19, 2005