Tue, 10 May 2005

Risk

I am a Quaker. Most (all?) branches of Quakerism have a testimony against (that is, a objection to) gambling. None of them have a testimony against insurance or investments. Some Quakers are confused on this point, and object to insurance as if it was betting. For example, one recently said this:

And it violates Quaker principles as it is gambling. You have a very complex array of options, and you have to gamble as to which one will work best for you in the coming year. This year I made a very bad bet! But why should I have to bet?

There is a difference between gambling, and other forms of risk. Life is full of risk. You could stumble as you get out of bed and crack your head open on the corner of your nightstand. Or you could stay in bed all day, and have your ceiling fall on you in an earthquake.

There is absolutely no way to escape all risks in life. Gambling is purely invented risk. You can escape the risks involved in gambling simply by not gambling.

Not everyone values risk the same way. Most people are happy to turn a small chance of a very bad thing happening into a certainty of a slightly bad thing happening. This is called insurance. You can buy different amounts of insurance, which let you take on more or less of the risk of the very bad thing in return for paying a little less.

This is not gambling. This is simply an examination of your life circumstances followed by a decision about the amount of risk you're willing to accept. It is not a bet. You can choose not to gamble. You cannot choose not to get sick. You cannot register a preference for one illness over another.

The Quaker quoted above went on to say:

The interests of private insurance companies are to deny or limit coverage whenever they can get away with it, and the health insurance industry (in fact, the whole health care system in America) is one of the least [honest?] industries that exist. We have to take it out of their hands and make it controlled by the public interest.

Unfortunately, it seems that many non-economists think that the solution to all business problems is to turn them into government problems. Curiously, these same people will happily relate problems that they have had in getting the government to do a good job. Particularly in this case, the market for insurance is not very free. For the most part, insurance companies don't have to compete for your dollar. You must buy automobile insurance if you own a car. If you work for an employer larger than some size, your employer will purchase health insurance, and you have no say in the matter other than to switch jobs.

Okay, so we've settled that this problem is not a market problem, it is a problem of regulation. The status quo is poor regulation. How do we fix it? Given the history of poor regulation, it would be insane to suggest that more poor regulation is likely to fix the problem. Before I could support a call for more regulation, I'd like to see the advocates of regulation fix the regulations we currently have. If that can't be done, then I'd like to see the poor regulations repealed, so that people can purchase insurance through some voluntary organization of which you are a member.

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