Friday, December 10, 2004


One factor which is shaping political discourse is that there are a number of issues that are either poorly understood or misrepresented, yet no one is trying to clear them up. I think that, the value and nature of insurance is one of these. Atrios over on Eschaton has done a good presentation on this, but I want to add a few points of my own.

Confusion arises because what you are purchasing when you buy insurance, at least what makes it worthwhile, is intangible. Added to this is the fact that there are, for some, apparently tangible returns to insurance.

When you take out an insurance policy, you are paying someone to take risk off your hands. That is the intangible. Without insurance there is some risk which you are assuming, loss of a car, loss of a house, personal injury, etc. The risk lies in the fact that you don't know what your expenses will be. They are likely small or nothing but could be huge, you just don't know. With insurance the insurer takes on the risk and in this way you know what your expenses will be. It is the security and stability that comes from knowing what your expenses will be that makes insurance valuable. You pay money to get the security and stability. And, like most other things you purchase, there is no expectation of other reward.

So, if you own a $300,000 house and have no insurance you will, most every year, spend nothing. But there is a small chance that you will have to rebuild the whole thing at a cost of $300,000. Rather a lot for most folks. So although the chance of loosing the whole thing is small the cost is so large that the risk is substantial. If, on the other hand, you insure the house with a policy costing $1,000 a year, you know what your expenses will be. The probability of the $300,000 hit is zero and your expenses will be, in any case, about $1,000 a year (there might be deductible, etc.) There is no risk, no uncertainty. Your expenses will probably be higher with insurance than without, but remember you are paying for the security and stability of knowing what the costs will be. That is the value in insurance.

This value should not be underestimated. The stability provided by insurance of all types (private and public) is a huge advantage for the nation as a whole. Stability and security are vital of a strong economy. People are much more willing to invest and spend under stable, secure conditions.

These are points that Democrats need to promote and spread. The kind of cooperation that comes through insurance is a prominent part of the great successes of the Democratic Party, from social security to FDIC. We need to help people understand why we value insurance in the form of SS and health care.

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