Economic approaches I: Insurance, costs and benefits Flashcards
What is the Smetters text about?
It is about who should insure against terrorism; private market or the governement?
Who does Smetters think should cover terror insurance?
Generally people think that the state should insure, but Smetters disagree. He argues that private companies should pay, but that there is a policy problem preventing companies from holding enough surplus capital due to taxation
How did the insurance market change after 9/11?
Before 9/11: terror wasn’t excluded despite the car bomb 8 years earlier. Might have been due to lobbying for subsidy or the expectation that a new attack would be an act of war, whereby it was already excluded
After: was excluded in almost all state’s commercial politics. Though not life insurances (weren’t allowed)
Did the insurance market fail a.t. Smetter?
Three factors worth thinking about:
- premiums would have to be significantly increased
- samaritan’s dilemma: if the state helped, it would create a moral hazard for ineffective risk taking
- might be due to low demand, since most landmarks are own by shareholders
Which arguments are there for government terror insurance?
- companies cannot calculate their losses due to lack of time-series evidence
- the government has better access to sensible information
- the government will end up paying anyway
What defindes the boundary between past and modern time a.t. Bernstein?
The mastery of risk
What does it mean that we can manage risk a.t. Bernstein?
It increases the capacity and willingness to run risks, thereby driving the economic system forward
1998
How does Bernstein see capitalism?
As the epitome of risk-taking; the growth of trade transformed the principles of gambling into the creation of wealth
Does it make sense to insure against terror a.t. Huber?
No, since it is planned, terror should be thought of as danger
2002
Which three rationale strategies for managing the consequences of terror does Huber mention?
- ignorance: its an act of god
- routinisation: exclude or increase premium
- state intervention (which Huber think is the most likely)
Which two types of intervention does Huber see?
Nationalisation (state insurance) or regulation focusing on precautionary measures.
The best would be to combine the two, since the first skews the market and the second should correct it.
Which three components does a state have a.t. Ericson, Doyle and Barry?
It is a country with territory, a nation and a sovereign authority
Uses Canada as example, and in the adds made by the government the state decentres its authority by mobilizing private corporations
2003
What is risk a.t. Ericson, Doyle and Barry?
Risk refers to external danger, e.g. natural disasters, technological catastrophes or threatening behaviour by humans
Which six principles are there for liberal risk regimes?
Minimal state, free market, educated people willing to take risks, individual responsibility, inequality resulted from risk taking is a choice, the state is a risk in itself but necessary
What does the liberal risk regime mean for welfare?
It is a reactive security mea- sure to protect otherwise selfish people who are better off, rather than a proactive well-being measure expressing collective solidarity
Unemployment is e.g. a result of a bad choice made by individuals
What is Ericson, Doyle and Barry’s main point?
That the insurance industry should be studied as a governance institution, since they have many of the same goals, uses the same methods (e.g. surveillance)
2003
How does private insurance differ from the state?
In the morale: it is not about redistributing wealth but about protecting certain economic interests
What does the complexity of the risk systems force?
Trust in the institutions, which creates a bias towards the centre and the central authorities
What is the Haufler text about?
She states that business decisions are to some extent based on norms and principles.
This debate has however moved to a global level, e.g. because how firms deal with each other can become a private regime or private authority on how to do insurance
Where can we see norms affecting businesses a.t. Haufler?
- Where businesses lobby governments on issues that affect them, e.g. trade policy
- traditional focus of IPE - business efforts of self-regulation
- new focus in studies of private regimes
1999
What are the assumptions about insurable risks?
Risks are external to the agent They have large populations They are calculable Full information Independent events (e.g. not terror where several events occur at the same time)
What is insurable?
It depends on how a risk is defined and whether it is deemed worth to insure
How is insurance a technology of governance?
Firms teach their customers how to avoid risks
What does it mean to govern at a distance?
It means to change or shape the society in a way that promotes a certain behavior. You make people think that it is their own idea to do something
Who should insure against terrorism?
Huber argues that the state should, since terror is a danger rather than a risk, and because the state have the sensitive knowledge, therefore increasing its change of forecasting
Smetters on the other hand argues that the market can insure if taxation is lifted to make a capital surplus possible. If the state insures, it will create moral hazards
What is the relationship between risk and insurance?
We run risks voluntarily, and because they are based on decisions, risks are predictable and controllable. This is important for the relation to insurance, because the predictability means that the consequences are calculable.
Insurance is a kind of risk management, because companies influence our behavior
What does the contract model of insurance entail?
Individuals get less freedom by paying premiums and agreeing to rules, but on the other hand more freedom in the sense of the risk that they can take.
How does risks and uncertainties differ?
Risks are calculable, uncertainties are not - therefore only risks can be insured
What is the purpose of insurance for the insured?
The freedom to take risks
What is the purpose of insurance for the state?
It is the reallocation of wealth for the well-being of its citizens fx with the welfare state
What is the law of large numbers on which insurance is based?
if a large enough amount of policy-holders pool risks together, the expected losses can be more easily estimated because their approximation will be (nummerically) very close to the actual losses.
What is insurable a.t. Haufler?
The definition of what is insurable varies over time, and this definition is guided by social processes that rely on norms and principles of behaviour rather than objective, universal standards.
