Sometimes, bad things just happen. It’s a fact of life, plain and simple. Houses burn down. Stores get robbed. Cars get wrecked. People get cancer. In each of these scenarios (and any number of misfortunes) there is likely to be emotional, physical, or material damage. There is also a negative financial impact that can run into the hundreds or thousands of dollars. Such unexpected expenses can often spell disaster for average, middle class citizens, but thanks to a concept called insurance, the financial strain can be somewhat lessened. Insurance originally developed in ancient Babylonia to protect shipments of goods, whereby traders would front the funds for caravans and get paid back with interest upon safe delivery of the goods. Later, the Romans would add another wrinkle through their burial clubs; soldiers paid a fee and in return would have their funeral costs paid as well as a little something for their survivors. Today we have insurance for just about everything under the sun, from house, health, auto, and life to wage insurance, liability insurance, even product insurance and pet insurance. Insurance has become big business, earning $17.3 billion net income industry wide in the first quarter of 2005 alone.

Insurance is a semi-socialist endeavor that pools the money of a lot of people to pay for the misfortunes of a few and the peace of mind of the rest. But all too often, insurance is viewed as a type of public lottery system that can deliver an unexpected, and in many cases undeserved, windfall. What started out to be a safety net program for infrequent yet expensive life events has instead become wrought with fraud and greed, perpetrated by both the consumers and the insurance companies. Companies seek to maximize their profits by minimizing their claims. Consumers retaliate by inflating their claims to increase their recovery. And companies in the middle, those who ultimately get the cash for fixing the broken whatever, play on both sides of the fence. This mutual distrust has spawned a regulatory and legal labyrinth that ultimately costs more for the consumer while providing less. It’s an environment that has pitted the company against its customer, greed against good.

Insurance is a very good idea that has become altogether too complicated, so perhaps it’s time to simplify things, and in the process eliminate the opportunities for fraud so that we can keep costs lower for everyone, while providing the important coverage that everyone needs. Let’s look at the big four- health, home, auto, and life.

The first one, health insurance, is the most expensive and is filled with fraud. Rather than working to ensure that patients receive the care they need, health insurance companies are driven by the profit line in an industry where costs spiral out of control. Take a look at any hospital surgery bill and you’ll find single doses of aspirin being charged at several dollars a piece, in some cases over $10 a pill. And this example is among the smallest but most numerous type. (Consider the fact that many hospitals receive these medications at much lower prices, but charge these ridiculous sums to recoup costs associated with treating uninsured patients.) Notwithstanding the clear inappropriateness of accountants dictating medical care, a system that allows itself to be abused in such a way is hopelessly broken. The good news is that we could eliminate the need for any kind of health insurance by reforming our system of medical care in this country. (See Affordable Health Does Not Mean Free Health Care) Health Insurance companies will be loathe to adopt most health care reforms though simply because they will lose their lucrative business, but this is where the government, run by the people, must step in and make the change. Health care should be about health, not profit.

Next, combine home and auto insurance into one blanket property coverage policy, with a mandatory minimum policy available at affordable rates that provides up to a half million dollars of coverage for up to three events without a rate increase. A tree falls on your house, you’re covered and the rates stay the same. Rear-end another car on the freeway? You’re still covered and the rates stay the same. Accidentally set fire to the neighbor’s garage in a welding demonstration? You’re covered for that too, but this time you’re rates can increase. Because most of these kinds of events are rare, the probability of an insurance company paying out often to the same person is unlikely, and fraud would be easier to detect. Blanket policies would eliminate confusing policy restrictions, because once fault is determined, the insurer would be required to settle the claim quickly. Determining fault should be completed in no more than 90 days. In cases of no fault, the determination should be made as quickly as possibly. One caveat to the property insurance policy would be for homes built in repeated natural disaster locations. If you live in an active earthquake zone that is likely to result in damage or a hurricane lands in your neighborhood every other year, an insurance company should not be required to extend coverage (or should be aloud to charge a much higher premium) if your home has been destroyed once, and if you choose to rebuild in the same place. Furthermore, the federal government should remove itself from this kind of rebuilding effort. Its quasi-insurance endeavor, FEMA, should stick to offering aid and clean-up assistance and stop using tax dollars to keep rebuilding homes in these places. Finally, a cap on damages should be instituted that limits awards to actual property repair/replacement costs and eliminates most kinds of non-compensatory awards. It’s high time for people to quit pretending that their entire psyche has been irrevocably damaged from tripping on the curb and that only money can make it better. Establish an account to cover medical co-pays, but all other medical concerns would be handled under each persons medical care plan. Insurance companies would probably fight these reforms too, but they’d actually save a ton of money in legal fees, bogus awards, and medical claims to cover most property damage claims and still gain a profit.

Life insurance is really a misnomer because we’re actually talking about a policy that pays your survivors when you die. Nevertheless, life insurance policies are the most capricious of all. You are basically betting on when you will die. You buy the policy thinking that you may die during the term and your family will be taken care of. The insurance company is betting you’ll live through the term of the policy and pay premiums without getting anything in return beyond your piece of mind. But if the main reason for life insurance is to provide financial support from beyond the grave, a national pension plan (A National Whole Life Pension Plan) provides many of those same benefits for families with children and makes unnecessary these policies for older couples. Offering a policy to cover the funereal costs seems like a pretty good idea though, at least saving your loved ones from having to handle the details. This would actually become more of a prepaid account than an insurance policy, assuming you lived long enough to cover the costs. Insurance companies could still offer additional life policies, but their appeal would likely diminish with the acceptance of the National Pension Plan in place.

All other insurance coverage could still exist in a carte blanche marketplace with rates and reliability not regulated beyond the normal rules of fraud and theft. Reforming the insurance industry won’t be an easy task, but it will result in better, more focused coverage, lower costs for individuals, and a renewed sense of what insurance is really supposed to be about. Like medical care, insurance as it exists today, preys on the misery and misfortune of others, or the inevitability of it. To make a profit for services rendered is one thing. To make an obscene profit while denying use of the very product you are selling is heartless. It is even more so when your product is mandated by law.