This is seemingly a big week for risk and insurance articles in the popular press.
First, in this week's issue of TIME magazine, the Cover Story is all about Risk, and the irritating and self-defeating human capacity for ignoring large and persistent risks while obsessing over risks that, albeit often more "dramatic" and colorful, pose far lesser dangers:
Shadowed by peril as we are, you would think we'd get pretty good at distinguishing the risks likeliest to do us in from the ones that are statistical long shots. But you would be wrong. We agonize over avian flu, which to date has killed precisely no one in the U.S., but have to be cajoled into getting vaccinated for the common flu, which contributes to the deaths of 36,000 Americans each year. We wring our hands over the mad cow pathogen that might be (but almost certainly isn't) in our hamburger and worry far less about the cholesterol that contributes to the heart disease that kills 700,000 of us annually.
We pride ourselves on being the only species that understands the concept of risk, yet we have a confounding habit of worrying about mere possibilities while ignoring probabilities, building barricades against perceived dangers while leaving ourselves exposed to real ones. . . .
More interesting is the very long front page story by reporter Peter G. Gosselin running in today's Los Angeles Times under the title, "Insurers learn to pinpoint risks -- and avoid them." The article is so lengthy that I confess I haven't finished reading the whole thing yet, and will need to return to it in a further post.
The purported thrust of the piece is that insurers have become increasingly sophisticated at identifying the particular risks posed by a particular insured, to the extent that there is a move away from "pooling" of heterogeneous risks -- so that large groups of not-necessarily similar insureds pay essentially the same premium, with lower risk insureds effectively subsidizing higher risk insureds -- and toward case-by-case pricing, in which those who individually face heightened and particularized perils are charged accordingly high premiums -- to which the LATimes piece implicitly adds: "Whether they can afford it or not."
This is definitely reporting with a point of view, which seems to be roughly that insurance should be priced more on the basis of ability to pay than on the basis of the risk that the insurer is agreeing to undertake. The article is the latest in an ongoing series by Mr. Gosselin, not all of which have focused on private insurance, that the LATimes has titled "The New Deal." That link leads to a page on which the entire series is collected, and which features this statement of the persistent underlying premise of Mr. Gosselin's reporting:
Los Angeles Times reporter Peter G. Gosselin is examining an American paradox: Why so many families report being financially less secure even as the nation has grown more prosperous. The answer lies in a quarter-century-long shift of economic risks from the broad shoulders of business and government to the backs of working families. Safety nets that once protected Americans from economic turbulence — safeguards like unemployment compensation and employer loyalty — have eroded or vanished. Families are more vulnerable to sudden shifts in the economy than any time since the Great Depression. The result is a daunting 'New Deal' for many working Americans — one that compels them to cope, largely on their own, with financial forces far beyond their control.
(Emphasis added.)
As I said, I have not yet read today's article completely, and have not had the opportunity to sift and comment upon its assertions, evidence and assumptions. For now, I simply call it to your attention. I will return to it, and I encourage other risk, insurance and legal weblogs to contribute their own comments. Happy reading.
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UPDATE [1700 PST]: I do intend to follow up on this article, as promised above, but in the meantime Martin Grace has a detailed and authoritative take on many aspects of the piece, and on some of its more egregious lapses in logic, on his RiskProf weblog.
Thanks to Martin for his link earlier today to this post, and for kindly not taking me to task for being a bit sloppy in my terminology vis-a-vis heterogeneity and homogeneity of risk.
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