In these days when I feel like I can’t turn on my computer, radio or TV without hearing someone talking about how terrible government mandates are, I was honestly shocked to see the article in the December 6, 2010 edition of the National Underwriter by Brian Fechtel entitled [“The Case for Requiring Life Insurance.”] But shocked is interested, so I read it first of all the articles in that issue.
Mr. Fechtel doesn’t really say that he proposes a government mandate that we buy a certain amount of life insurance, but rather he looks to tie the amount of life insurance that we “voluntarily”purchase as a reflection of our own determination of our economic value to our survivors. That amount would then be used to measure any wrongful death damages in the event that we died by accident rather than natural causes. He states that then we would all be forced to look at our need for life insurance and purchase enough to fill that need. “After all, heart attacks and brain tumors are more prevalent causes of premature deaths than wrongful accidents. Don’t we as a society want those bereaved families to be as well taken care of as we want those who survive their breadwinner’s wrongful accidental death?” As I said…interesting.
Mr. Fechtel then argues that the costs would go down for all of us because the pool would be larger. But a typical economic argument would say as the costs go down, at least some of us would buy more life insurance, which would of course ultimately drive the price back up. What does that do to the argument that the amount of life insurance purchased is a reflection of our own determination of our economic worth. Did I become more valuable in wrongful or natural death because the life insurance rates went down?
So ultimately, I don’t think I agree with the idea the Mr. Fechtel puts forth in the article, but I do think it is interesting and I do think it is worth thinking about. I am always interested in thinking about what motivates we humans to behave in a particular way, particularly from an economic perspective. I do not believe that we live in a society where the “invisible hand” of true capitalism really exists. For that, one of the requirements is that all market participants have perfect information and clearly we have a lot of information, but not perfect information. In industries such as insurance there are also many barriers to entry, another obstacle to a free market. Once we have moved away from true capitalism, we are into the realm of manipulation and motivating behavior that is desirable and creating obstacles for behavior that is not desirable. This article brings that discussion to life insurance and I, for one, enjoyed thinking about it!