Saturday, September 19, 2009

Not so evil insurance companies

As happened 15 years ago, the insurance companies are being demonized in the healthcare debate as greedy, evil bloodsucking profiteers. (As John Lott points out, the dominant health insurance company is often a not-for-profit entity like Blue Cross or Blue Shield).

People sometimes forget that insurance companies play an important role in enabling the market to self-regulate: because of their role, they have knowledge and scope and foresight that ordinary consumers do not. In many cases, the insurance company’s goals — of reducing claims — are well-aligned with those of consumers and broader public policy.

Exhibit A is Underwriters Laboratories (underwriters as in insurance underwriters) and the crucial role in played in reducing the fire hazards of appliances and other household goods.

Exhibit B would have to be the Insurance Institute for Highway Safety. They are the ones who buy cars and crash them to make recommendations about which ones are safer than others — ratings that are widely disseminated and certainly impact consumer choices.

The most fun video I’ve seen in months is the video released this week by the IIHS, showing a 2009 Chevy crashing head-on at 40 mph into a 1959 Chevy. The YouTube video is here. Commentary from IIHS is in the NYT account, which followed up with additional details about the 1959 test vehicle.

Industry will often do the right thing, given proper incentives — aided by a high emphasis on transparency and other information in the market. That’s what the government role is in a free market: not to pick winners or prop up losers, but to make sure both parties have fair and accurate information (and enforcement mechanisms to assure honesty and follow-through).

No comments: