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.
August 27th, 2005 at 9:38 pm
As a person with a diploma in Mathematics, I knew a fair number of folks who became actuaries – these folks are the ones that crunch the numbers to set the rates that companies charge for coverage of what ever you like. Insurance is a lot like a legitimized mob situation – atleast these guys won’t be coming to break your ankles if you don’t pay, but if you don’t pay you are not covered. In the end, we will all get screwed by the indusry – but meanwhile, you may be able to screw them a bit if you actually weed through the morass to make a claim and actually get paid. The unfortunate aspect of it is that the number crunchers also figure in a fair amount of cheating into the equation to calculate your rates. So, in the end, the company still makes cash on your body when you wash up blanched by the sun from being submerged too long in the water.
August 29th, 2005 at 4:12 am
Interesting thoughts. I’ve never thought about insurance as being a socialism of a sorts. Whatever it is, it must be the most capitalistic form of socialism we have available.
August 29th, 2005 at 1:39 pm
Health insurance is unaffordable to many, many people; a growing number, in fact. And even when you can afford it, it can offer substandard care (HMO nightmares). And if you have nothing, you’re screwed. People have been using the emergency room for regular healthcare, and hospitals are putting an end to that now, too.
Here is one idea I wish they would implement: Offer a monthly or annual rebate for unused services. For example, if you carry auto insurance but do not file a claim in a year, rebate. Same with health insurance. The incentive could improve people’s attitudes toward safety, but might lower profits, so admittedly is a fantasy.
August 29th, 2005 at 5:09 pm
If people actually watched trends, they’d see that health insurance always spikes in economic downturns or doldrums. Why? Because insurance companies often make bad investments and must recover that lost money somewhere. Most people are loath to “do without” treatment for illness, so they’ll pay.
In addition, the paperwork insurance companies require from Doctors is archaic, and forces Doctors to keep more staff than they’d like to simply for reasons of insurance paperwork. Insurance companies are downright Soviet in their efficiency, and this “efficiency” touches every part of the healthcare system.
I am a firm believer that insurance companies must be driven out of the healthcare system, for the reasons I have stated.
August 29th, 2005 at 6:26 pm
Another great one Ken,
As usual I couldn’t agree more. Personally I think this is the tip of a bigger issue that I believe has to do with something that would probably be termed socialist capitalism. What I mean is that people’s legitimate daily needs and or things that would make people in this country better so to speak should be the socialized industries.
Basic life needs like food, housing, water, electric, healthcare, education etc. should be the socialized industries so that people could get basic needs and services at regulated prices. The rest could be free market capitalism. You should be able to buy healthy food for your family and be able to live a healthy life, but at the same time it doesn’t mean you need organic pomergranates picked by virgins and polished by 100% chinese silk cloths – that would be extra.
When you combine this with real life common sense stuff like your major life change grace period idea from the Bankruptcy post – I think you could be onto something major – however, it would require a revolution, because if you thought ripping their guns from their cold dead hands was a tall order, just try taking their money.
August 29th, 2005 at 7:30 pm
The Insurance Industry has always bothered me with their unceasing attempts to cover less and less, and they get away with it. It seems to me like the industry mantra is “This would be a pretty good gig, if it weren’t for those pesky claims.”
But we don’t pay them just for the pleasure of lining their pockets, we pay them in order to ameliorate our situation when bad news befalls us.
Consider the insurance industry as a form of gambling, in which you bet on the situation you least want to have happen. Betting against the home team, so that if “your guys” lose, you have something to take away the sting.
Looked at that way, and continuing the analogy, imagine how quick the Feds would come down on a bookie or casino that tried to excuse itself from paying out on winning bets. “Oh, I’m sorry sir, but in order to collect with a natural 21 in Blackjack, you have to get pre-certification to be dealt an ace.” “I’m sorry, but your $10,000 winning bet is not eligible for payment because we have determined that the luck you used to win it is a preexisting condition. We only pay on winning bets based on luck you develop after walking in the door.”
And heaven forbid you actually get the property insurers to pay a claim, you end up paying it all back to them in the form of higher premiums or cancelled policies. I understand if you have lots of accidents it’s fair to cancel your policy, but one tree blowing over and falling on your house makes you no greater risk for a repeat occurrence than flipping a coin to “heads” makes it any greater chance that the subsequent flip will be “tails”.
It almost feels like we’d be better off without the insurance at all. Left to their own devices, insurance would rise to that level. When they reach the point that their base premiums are all pure profit, and virtually every claim is either deemed non-payable, or else recouped by higher premiums, it will become unreasonable to have insurance.
Sure, they have a right to make a small profit, but their business is to help average the cost of disasters across a large number of people, not to take money and give nothing in return.
(Can you tell you touched on one of my “hot button” issues?)
Liam.
August 29th, 2005 at 9:11 pm
This is very interesting reading.Alot of good ideas here. It is a real shame what has happened to the insurance industry in this country. A friend of mine was in an accident a few years back where a man suffered a broken leg. It wasn’t her fault,she was forced into the oncoming lane by someone that came in her lane. Anyway she was leasing a Ford Explorer. So Ford paid all his medical bills and he also received a cash settlement of 750,000.00. After that they put in a new law that the manufacturer of the lease is no longer responsible. So either her insurance would of had to cover it or they would of had to refinance her house a few times to pay him off. Some doctors also had to close their practices due to high malpractice insurance.
Sure people should be compensated for their losses but 750,000.00 for a broken leg?
August 30th, 2005 at 6:36 am
(responses)
Windspike- Sometimes even when you do pay you’re not covered. And with the legal mandates for some types of insurance, it has become mob-like in it’s application- get it or get hit (with fines, not bullets.) Good to hear from you.
Christopher- Yes, definitely a type of socialist capitalism to be sure. Hey…whatever -ism fills the coffers, right? Thanks for the comment.
Shea- As I’ve offered my thoughts on health care before, and linked to it in this post, I’ll not go on here, other than to reiterate that with a Common Sense health care system, health insurance as we now know and hate it wiould be obselete.
I do like your idea of a rebate though. Obviously, insurers need to maintain a surplus to accommodate large loss situations, but only up to a point I think. Especially if we remove the health insurance portion from the equation. But an annual rebate or similar reward, in addition to these reforms, would have a positive impact on our individual economies and perhaps help shift the focus off of money as the primary motivator in life.
And I believe that industry can be forced to change its ways if the average person gets on board with the plan. (crossing my fingers doesn’t hurt either)
Jolly- I share your sentiment, as evidenced by my comments here and my series of essays on health care reform. Thanks for dropping by and leaving your thoughts.
Rudicus- Back for more I see. Thanks for that. Obviously I feel similarly as you regarding the profits generated from the basics of life. There are plenty of ways to make money, but not at the expense of someone’s ability to gather the basic necessities of life and a scrap of dignity.
All my reforms combined would be society shaking indeed, but at some point, our present course will shake society to its knees on its own, so maybe then (but preferably before) some of these concepts can be put into action.
Liam- I do like your analogy to the casino-gambler. It fits this industry nicely insome ways, and clearly highlights its audacious failings with light humor. Nicely done!
In many cases, insurance is only purchased because of the law. How many people want to report fender benders to the insurance? Fear of lost coverage or higher rates make it cheaper to pay yourself. What then is the point?
Anon- With legs like that, who needs a job? I’ve had two broken arms (as a kid) and I’m pretty sure it COST my mom money to have them fixed, not the other way around…she must have done something wrong.
But really, this is just the kind of thing that gives both insurance and the legal system a black eye- not to mention, human nature. I suggest some limitations to awards that I’m sure could be refined, just because of these kinds of absurdities.
Thanks…whoever you really are.
August 30th, 2005 at 3:23 pm
I worked in insurance and still carry my licenses…
Here’s a good metaphor:
The insurance company is ‘The House’ in Vegas. And like the House, the insurance company NEVER loses.
August 30th, 2005 at 4:52 pm
Great post as always Ken!
I gotta ask…why does a 55 year old man with a vasectomy need a health insurance policy that covers pregancy? A man can’t get pregnant.
Why does a 60 year old woman in menopause need coverage for birth control and pregnancy?
I think health insurance would be great if we were able to pick and choose our coverage.
I also feel that insurance is a great idea. I don’t mind paying into a policy that ensures I get a payout if I need it. What pisses me off is when these insurance companies drop people for ONE claim or even ONE phone call inquiring as to specifics about making a claim, when a claim has NEVER been made. If you call your home insurance company with a mere question about your home, just inquiring about a claim without making a claim, it goes on your report and counts against you.
My parents cannot make ONE SINGLE CLAIM on their homeowner’s insurance because they will be dropped. They need repairs from damage done by plumbing mishaps underneath and damage to part of the roof by an animal.
Yet they cannot make a claim or even inquire because they will be dropped.
Where’s the sanity in that? Oh yeah did I mention we all live in Flori-duh!
August 30th, 2005 at 8:22 pm
Hmmm Insurance strikes me as a very odd endeavour on both sides of the fence.
From the point of view of the company, as you so eloquently pointed out, the goal is to make money. Tons of money. To the point where they will waste tons of money to prove a claim false in order to make tons of money. Health care is brutal. I could twist my ankle at a ball game, make my claim on my company health benefit plan, and get paid to sit at home with a mediocre injury. It costs the company (and ultimately the paying employees) a lot of extra money. However, small fraud like that can’t be all bad for the company. Since the rates go up from then on, and with each subsequent claim, the insurer is making more and more money.
From the consumer poitn of view, I suspect people tend to think a bit backwards when it comes to some insurance. Specifically, car insurance. People buy insurance expecting to get into accidents. So instead of using preventative driving techniques, they simply drive like arseholes and make their claims when they need to.
It is too bad that the business has become the capitalist beast that it is. You are absolutely right that Insurance is nice for funeral arrangements, or when that freak accident does happen. But really, life insurance? Some people have many policies out, all at once! Why not simply invest the money, or just save it?
August 30th, 2005 at 11:13 pm
Well, we’ve just got to find an alternative to fear and mistrust. I have minimal insurance. House and health, for which I’m grateful. But no more. I refuse to be scared into buying anything.
I wrote something a while back about the media, always selling us stuff based on our fears, physical, emotional, sexual. You’re supposedly in danger, from ten thousand possible directions, and everybody is willing to tell you that if they can make a few $’s. Creating fear is not a Right Livelihood.
Saying that, my sister in law had her house insurance cancelled after she made a claim when a storm blew down $10,000 worth of tree damage onto their house recently. How do you figure that out? File a claim, get dropped by the ins. company.. wtf?
August 30th, 2005 at 11:59 pm
I am from the “dark side.” Yes, I work in health insurance for a Blue plan. The basis of insurance is “unforeseen loss.” While you may be reading about astronomical surpluses right now, prepare yourself for the down side of the cycle. It ain’t gonna be pretty. There are so many drivers to the increases, it’s hard to note them all here but suffice it to say that new expensive technologies like MRI’s, drug advertising, and mandated benefits by special interest groups are driving the hefty increases along with a population that is 25% obese/inactive and lifespans that just keep getting longer. Sure … it’s easy to say it’s “the providers” or it’s “the insurers” or the “system” itself but the answers to solving this crisis are complex. As the first commenter notes … screwing the insurance company only screws you down the road. Costs are costs are costs. Add ’em up. Good post!
August 31st, 2005 at 3:52 am
You really need to invest in a Shrunk and White. Check out Amazon. Too many needless words.
August 31st, 2005 at 5:03 am
The insurance industry is a mess. I spent 6 years of my life working and managing claims with one of the top three property/auto carriers. You are correct that this is a two way street in regards to fraud. Insurance adjusters are poorly trained and overworked and are assigned a caseload that is near impossible to handle. Knowing what goes on in the inside, I would never trust one to adjust damages to my home or automobile. Consumer fraud is also a very big problem and very difficult to prove in most cases. In my opinion, insurance carriers try so hard to get the bad guys that they screw many innocent people along the way.
August 31st, 2005 at 5:36 am
(responses)
Phoenix- From the way I see it, insurance shouldn’t be about “winning,” especially since the consumer is already the loser if they come in for a claim. Furthermore, in Vegas, you know the score before you get there. With insurance, they’d never sell a single policy that wasn’t mandated by law if the were as upfront as you are being in this comment.
Thanks for adding your two cents.
Jessica- Nice to hear from you again. My essay(s) on health care offer some suggestions for reform that would pretty much do away with the present incarnation of health insurance, and the examples you cite are prime reasons why the system we have now should be scrapped.
And it should be illegal for insurers to treat their policy holders as they do. Especially when all lenders require insurance coverage for real estate and auto loans. The insolence of the insurance companies is akin to inhuman behavior. Again, all to satisfy the overbearing greed of the major owners and upper corporate structure.
Glyn- Thanks for joining in. I agree with all of your points of course, including the way people act once they have insurance and think they are protected and can act as they want. If insurance is procured to alleviate financial trouble in the case of an accident or catastrophe, it really doesn’t make much sense to actively seek out such things, unless your only intent is to get the system to pay you off (at the expense of the rest of the consumers.)
Chandira- These insurance companies could earn even more money if they streamlined their “nice” strong arm tactics a bit and just went door-to-door with a couple of mob enforcers and demanded their protection money.
At least, this is how they make you feel if you ever try to get what you’ve paid for.
Stacey- The insurance industry has somewhere around $400 billion nestled away in surplus funds to pay claims. Even if the damage from Hurricane Katrina comes in at $50 billion, their nest egg would be plenty secure. (Non natural disasters are surely much less cumulatively than that too.)
Health insurance is about the biggest joke around, itself responsible for the rising costs of medical care by complicating the system, requiring more and more middle men (who have to get paid too) to just interpret the maze of regulation (self-imposed by the insurers) to get a claim paid. Expensive technology is artificially high, again to increase profitability of health care, which to me is antithetical to the creed “do no harm.”
And don’t get me started about the pharmaceuticals…
And I don’t think that the answer is all that difficult to solve, once the main problem is recognized and admitted for what it is: The insurance industry is a scam. (For more of my reform thoughts on health care, please find the four related essays in the archive listing.)
Thanks for the comments, and I don’t mean you any disrespect with my indictment of the industry you work in. We all have to make a living somehow, and this is the system in which we operate. For now. Hope to hear from you again.
Brian- You might look into a course on how to lengthen your attention span. Not every topic of worth can fit into the 10 second sound bite. In fact, depth of subject is a prerequisite to critical thinking and problem solving. Cheers!
Fred- Your points about under-educated (about their job, that is) adjusters are valid. I only touch on the most visible aspects of a system gone awry, but the truth is that there are hundreds of contributing factors that allow the system to be so corrupt and yet still function with an air of propriety. It does seem to be a screw and get screwed kind of business, doesn’t it.
August 31st, 2005 at 11:48 am
Dear Ken: this is unrelated to the topic and I apologize for that.. but I wanted to post the following in the effort to garner support for an idea i had:
I had an idea yesterday, that I would like to share with you and with your readers and fellow bloggers:
WHAT IF.. families, towns and cities in this nation were to “ADOPT” a family, town or city in the storm ravaged area? For example: I might adopt a family of four.. and either provide for them, or share with them from what I have of: bedding, kitchen items, clothing, furniture, personal toiletry items and makeup, toys for the children, tools for the rebuilding.. etc.. Towns might provide building materials, or even donated labor, etc..Churches might donate bibles, etc..
WHAT COULD WE DO.. to help a people that have lost it all? WHAT LENGTH WOULD WE GO TO.. to make a difference in the lives of others?
If you would like to look at this closer with me, i would appreciate your help in researching what would be needed to pull this off. Perhaps fellow bloggers here, could post on the same, and in the blogosphere, as we all know.. we CAN get the word out. Our prayers are wonderful.. our ASSISTANCE is that faith in action.
Feel free to visit my blog, for more info. Better still.. blog post on it and see what you find in your readership of the desire to render assistance. I will be doing some research today, to see what can be done.
Blessings to your readers..and may peace and solidarity prevail in our nation today.
September 1st, 2005 at 1:23 am
Insurance only starts looking like socialism when government gets involved.
If you look at the history – Lloyds of London covering shipping, say – it doesn’t look like socialism.
And even your big 4 are questionable. I don’t have life insurance. I have no dependents, so I don’t need life insurance. My 401K’s which are not part of my estate per se (they don’t go through probate but are paid as soon as a death certificate is available) contain more than enough money for cremation. Only people with dependents (kids say, or a non-working spouse) need life insurance.
I am glad to have health coverage for emergencies, but do we need health insurance for viagra? The psycho-active drugs perscribed in this country look like mass addiction, so I don’t think that has helped… or the latest is botox injections to reduce underarm persperation. Yeah, that’s how I want to spend my money…..
September 1st, 2005 at 5:56 am
Nariel- Your post speaks of the compassion for the fellow man that I wish we had more of. Americans tend to help out in these situations, and right now, money is key. Donate to who you feel comfortable donating to. (Or click through to the Red Cross with the banner on this site.) But in the weeks ahead, what you propose in very good and will be needed. Let’s all see what we can come up with, and I’ll share some of my ideas soon.
Thanks as always for being human!
Zendo- Certainly mandatory insurance seems somewhat socialist, but what I was referring to was the nature of the beast: we all pay in but don’t all get a pay out.
The nig four are not used by everyone, this is true. But generalizations aboout the common usage of insurance is more illustrative than examining individual situations, which are different with everyone. That said though, with the reforms in pensions and health care I’v epreviously suggested, those insurances would be totally unnecessary for all of us.
Thanks for the thoughts.
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