Coming to Terms with Chance by Gandy Jr Oscar H

Author:Gandy Jr, Oscar H.
Language: eng
Format: epub
Publisher: Taylor & Francis (CAM)
Published: 2016-02-14T16:00:00+00:00

Insurance and Risk Management

We need to be reminded that insurance does not eliminate risk; it relocates it. The ways in which risks get shifted around vary as a function of the underlying social philosophy that governs the entity providing insurance to the market.

It is these differences in philosophy that explain some of the major distinctions between public and private insurance. Public insurance primarily seeks to relocate risks from individuals to a larger social group. We might say that the role of public insurance is to socialize, or redistribute the risk more equitably throughout the population. This may, or may not mean that explicit redistributive goals are pursued, where low risk individuals pay higher rates than their risk profile would suggest. This framing sidesteps for a moment the question about whether or not anyone pays higher or lower rates than they “should” pay. This notion of “ought,” raises questions about the fundamental meaning of fairness in the context of rate-setting, and as we will consider, the meaning of fairness is still open to debate. It is assumed, however, that low risk individuals are made “better off” by virtue of the good luck that they apparently have in one area of insurable risk, whereas high-risk individuals bear the burdens of bad luck in the same area.

Part of the willingness of the public to tolerate “inefficiencies” in the health insurance market is to be found in the broadly shared sense that access to health care is a right, rather than preference, governed by market factors and relative wealth, or “ability to pay.” The same arguments that many find compelling with regard to the market for health insurance don’t have the same force with regard to life insurance. It seems more reasonable that life insurance is provided through private mutual insurance, while health insurance should be provided through institutions committed to solidarity (Mittra 2007).

It has been my position throughout this book that people who have bad luck in one area, are likely to suffer from bad luck in other areas as well. This is the essence of cumulative disadvantage.

Social insurance, organized under principles of solidarity, where access and coverage is independent of risk status and ability to pay, is typically provided by public, rather than private entities. Mutual insurance, a voluntary alternative provided by profit-seeking commercial entities, derives short-term competitive advantage on the basis of its ability to set price in relation to subscriber risk.

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