Insurance in an un-free market

17 August 2009 by Mike Gogulski
Posted in economics, history | 7 Comments »

How many insurance products are you paying for? How much do you pay? What do you really get for all that? Is it a good deal?

For American families, the list of insurance types they subscribe to includes most of the following at various times, with some variances:

  • Homeowner’s or renter’s insurance
  • Mortgage insurance
  • Title insurance
  • Life insurance
  • Health insurance (multiple policies)
  • Auto insurance (multiple policies)
  • Social “insurance”, in the form of Social Security
  • Credit insurance, via credit card fees
  • Unemployment insurance
  • Disability insurance
  • Bank deposit insurance (FDIC, and does FSLIC even exist any more?)

All that adds up to a whole bunch of money over a lifetime. With the exception of Social Security — more accurately described as a fraudulent investment scheme based upon extortion — insurance premiums are almost always paid to (generally large) corporations with insurance and/or banking licenses.

Lots of folks will tell you that insurance is one of the best businesses to get into. Why? Because operating as a privileged corporation with an insurance license makes you a member of an elite cartel uniquely positioned to extract massive rents from the market. If an entrepeneur wants to start an insurance business, the barriers to entry are very high: university educations, certifications, licenses, capital reserve requirements, specific corporate and capital structures, legal fees, accounting and audit compliance, government reporting and so on.

There is no free market for insurance today. The economic distortions introduced by artificial barriers to entry, extensive government regulation and all the privileges which attach to holding an insurance license make it impossible to say that anything like free competition in insurance exists. Indeed, because of this, we can’t look at today’s insurance markets for a whole lot of guidance as to what free market insurance might look like.

It’s quite possible that today’s policyholders are being ripped off relative to a free market, in that premiums would be lower absent the distortions. It’s also possible that premiums for some types of coverage would tend to be higher, since many of the distortions can be interpreted as subsidies which allow insurance companies to offer lower rates than possible otherwise. Additionally, providers of mandated forms of insurance might enjoy fewer policyholders.

Much of the insurance market in the United States today is decidedly un-free, though you can spot signs of freer times in some insurers’ names, where they include words like “mutual”. Time was when a lot of the insurance functions being provided today by the state and by large, privileged and even global corporations were handled by local mutual aid societies, industrial sickness funds, benefit societies, rural co-ops, fraternal associations, churches and just plain old good neighborliness within local communities.

The modern insurance system seems to me a great game, a trick increasingly used to enslave people. And with America now heading full-steam toward some sort of either mandated or state-provided health insurance scheme, well… the profits for politicians and their buddies in the insurance and banking industries will be enormous, while the average American is shackled with ever more mandatory premiums and compulsory coverage while service quality falls.

For the agorist, this is a business opportunity.

  1. 7 Responses to “Insurance in an un-free market”

  2. By Chris Blizzard on 17 August 2009

    Socialised medicine is evil for one reason more than any other – it weakens the self-preservation instinct. Apart from smoking for many years (which I have now stopped) I took care to avoid injury and illness, and in 15 years made only two visits to the doctor.

    A person such as me – that doesn’t want any insurance of any kind, medical, automotive or all the other pointless gambles – should be free to live their life, and then visit a treatment clinic with a pay-as-you-go tariff, to receive the care I require. If I cut my left arm, I’d stitch it myself. If I cut my right arm, I’d go to someone who wasn’t left-handed.

    Restricting the free market is always bad.

  3. By Brad Spangler on 17 August 2009

    I’m wondering how we could somehow crowdsource it. Instead of peer-to-peer lending like Kiva does, imagine peer-to-peer insurance. Instead of aggregating funds the way a conventional insurance firm does, it could perhaps aggregate *pledges* of funds later directly xferred peer-to-peer under contractually defined circumstances.

  4. By Joe on 17 August 2009

    The FSLIC was abolished in 1989 and its functions passed on to the FDIC. No family pays for FDIC insurance (not directly, at least). The FDIC-member banks pay premiums to the FDIC, which supposedly adds them to a fund (which incidentally is nearly bankrupt

    I don’t see how you can consider credit card fees as any kind of “insurance.” It’s bad enough that most health insurance policies (as well as Social security) aren’t insurance at all, as per Wikipedia’s definition: “Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss.”

  5. By Mike Gogulski on 17 August 2009

    Joe: The credit card fees I’m talking about are charged by many card providers as insurance in case the cardholder dies or becomes incapacitated. On the occurrence of such an insured event, the cardholder or decedent cardholder’s estate is relieved of the debt via an insurance payout.

  6. By Joel Laramee on 18 August 2009

    Thanks for this post, Mike. I agree that the current insurance mess is an opportunity to present something better. I hope to someday see non-state linked insurance organizations that specifically serve a metro region, like Philadelphia. I think the metro region is small enough that there could be a sense of “belonging” by the inhabitants, and sense of “neighborliness”, but big enough to have critical mass in terms of the required capital.

  7. By bonanzaman on 24 August 2009

    Insurance is just another form of banking invented by the ancient bankers.
    Interest is collected in advance instead of arrears. Much better that way.

  8. By Elaine on 23 January 2011

    When my eligibility for COBRA health insurance expired the premium rose from $379 to $780 per month. If I chose to keep that same policy I would be paying over $10,000 per year for health and auto insurance alone. That figure is relatively low since my auto insurance is much cheaper in Santa Cruz, CA than when I lived in Bridgeport and New Haven, CT. That’s not counting all of the other insurance ‘payments’ that Mike listed above!

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