We Are All Going To Die, and There’s Insurance for That

– May 12, 2020 Reading Time: 4 minutes

I do not mean the title in an alarmist Neil Ferguson-type way. I mean it in a Pink Floyd way, specifically in its song “The Great Gig in the Sky,” where a voice whispers, “If you can hear this whispering you are dying.”

Well, duh, we are all dying all the time. Life is in many ways the process of dying. Sometimes death comes quickly and sometimes it comes slowly. Sometimes it comes “early” and sometimes “at a ripe old age.” Billy Joel claims that only the good die young but he shouldn’t be taken literally as any of us could die at any time from myriad causes.

Only two things, it is said, are inevitable, death and taxes. I admit the former but believe, along with John Lennon in “Imagine,” the latter is far from necessary. I don’t even believe that national defense is a public good, as I can imagine a competitive market in “all perils” insurance that would induce insurers to protect people in Area A from military incursions by people in Area B.

I can also envision private insurers protecting populations from pandemics. I described a narrower COVID-19 life insurance in a previous post. What I describe here is a system where private insurers would have incentives to provide what is usually taken to be a public good, “public health” measures like vaccines and quarantines.

To reduce potential market failures associated with asymmetric information, the fact that my doctor knows more about healthcare than I do, the interests of doctors and patients should be carefully aligned. Likewise, to reduce potential government failures associated with public choice, the interests of health policymakers and the health of the general population also should be carefully aligned.

Under our current system, which I have taken to calling the pharma-insurer-HCP medical complex after President Eisenhower’s military-industrial complex, incentives are badly misaligned. The medical complex has incentives to overtreat, and to hook people on medications instead of curing them, while the national government has incentives to subtly speed the demise of present and future Social Security annuitants.

Americans need to jettison this complex of (premature) death and adopt instead a system where large, sophisticated organizations possess strong incentives to help individuals lead the longest, fullest lives possible.

Imagine, I wonder if you can, a world where everyone has life insurance, enforceable not “at law” but with competitive market forces and reputational and financial capital backstopped, implicitly, by the threat of violence against any insurer that would dare to deny a just claim or lie about its financial strength. Some people in this imaginary but plausible world have more insurance than others but to minimize moral hazard insurers provide coverage of no more than, say, 5 or 7 times annual income from work, on top of a base, regardless of income from work, of maybe $50,000 for “final expenses.”

Now imagine a deadly novel virus appears somewhere on the globe and begins to spread. Instead of jealous governments jostling with each other over who sucked the worst or botching test development, insurance companies immediately realize that they stand to lose large sums if the epidemic gets out of hand. With no government, no government bailouts are possible, so the insurers enter the crisis well-prepared.

Most likely, they react like South Korea did and move decisively towards large-scale testing and tracing. They work together because they realize that their interests are closely aligned with each other and those of their insureds. Like most businesses, they compete on price and quality, not backstabbing during crises.

If testing and tracing don’t work, insurers cannot force people to shelter-in-place but they can offer premium reductions to those who choose to do so. In the case of COVID-19, that would entail very large premium reductions for older folks, none for the young, and a sliding scale for those in between. People would be compensated for staying home and young workers would not panic because they would know that their life insurer has at least 50,000 reasons to keep them reasonably safe.

In fact, life insurers would have incentives to ensure that employers were taking every rational precaution in their workplaces, perhaps using their clout on the buy side of the securities markets to ensure cooperation. Likewise, insurers would encourage businesses that posed outsized threats to customers to modify their business models or even close if necessary.

If that sounds a lot like what governments are doing, it isn’t. Insurers would act only on actual data and realistic models, not political whim. And they would take a holistic approach, not one that minimizes deaths due to some salient cause while increasing them via other channels.

Most importantly, life insurers would work hardest to protect the lives of the largest policyholders, i.e., people with incomes earned through work. That does not mean throwing no-workers to the coronavirus wolves because in this imaginary but plausible world everyone has a policy worth at least $50,000. So you can bet your boots life insurers would not throw COVID-19 patients into nursing homes as New York State did in April.

Life insurers would, however, concentrate efforts on those most valuable to society’s continued existence, including agriculturalists and HCPs, without making nonsensical distinctions between “essential” and “nonessential” workers.

Human beings the world over have turned over too much power to politicians by allowing them to ration their most precious good, their very lives, via political mechanisms. I don’t know about you, but when something like the coronavirus hits the fan I would rather receive support from an institution with a clear and convincing interest in extending the lives of myself and my family members than from an institution with an equally clear incentive to hasten the demise of at least two of my immediate family members.

All that prevents the formation of life-affirming private institutions like that described herein are regulations and taxes. Remove those impediments and watch free human beings flourish, even when faced by novel viruses, murder hornets, and much worse, until death inevitably overtakes them.

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.