|Institutional Inefficiency, Actuarial Edition
||[Nov. 20th, 2009|09:22 pm]
So I asked my Actuarial Sciences (the math/stats of death and insurance), if a life insurance company or collection of companies could sell enough policies that it would be worth their while to invest in life saving research in order to collect premiums and avoid payments longer.
He said, "Oh absolutely, ICBC (Insurance Corporation of British Columbia) puts a lot of money into road safety and even commissions and recommends changes in traffic patterns and road setups just to avoid more car accidents."
Why doesn't that happen for the health of our bodies as well as our cars? Because ICBC is a monopoly. Every car registered in BC has to be covered, by law, by one of their policies. This means that anything they do to make driving less risky benefits them and not any other competing car insurance company. (There are other car insurance companies here, mostly at the retail level; they all work through and alongside ICBC.)
If a life insurance company (let this be Company A) was large enough that they decided that a grant towards cancer research would end up working to the company's financial benefit because it could collect life insurance longer before having to pay it off, then that research would benefit all life insurance companies. The other companies could then reduce their premiums now that the risk of death was reduced, but Company A must keep its premiums the same because it had the added expense of the research grant. This cost difference would eventually pull policy holders away from Company A, and thus costing them big time in the end.
So it's bad for a single life-insurance company to improve our health, but what if all life-insurance companies agreed or were forced to contribute the same portion of their earnings from premiums into health improvements. Each company on its own would be motived to find the most effective way to do this and they could collaborate in order to ensure the most health benefit per dollar (and therefore the most insurance payment savings per dollar) possible happened. Life insurance companies could go from insuring that the survivors are financially taken care of to actually ensuring that life continued.
I'm not the first person to think of this, and it must be obvious to anyone who's worked in the field for more than a year or two, but why hasn't it happened?
I can't understand people. These are supposed to be the most intellectual and financially savvy people in the world, and they can't organize themselves to save money together and earn some good will? What am I missing here? Is there some other reason why it doesn't happen, or are people (even the "best and brightest") really that irrational?
Possible thesis topic?