Economic Approach I: Insurance Flashcards
How does insurance manage risk?
By distributing loss across a population - pooling risk.
BUT:
- Does not remove risk
- How depends on asset type:
*Diversifiable assets does not necessarily need insuance (you can spread the risk so consequence does not affect you so badly).
*Unpooling into categories by insurance companies may be solved by re-insurance.
How is insurance social?
It is constructed and changes over time.
How is insurance political?
It is used as a technique of governance.
What is insurance based upon, and how is it measured?
Rationalist model: It is based on statistics (past).
Frequency (propability) x severity (impact).
What assumptions are insurance based upon?
- Risks are external to the agent
- Large population (risk pooling)
- Quantification / calculability (probability)
- That the insurer has full information of that to be insured
- That events are independent
What 5 principles is insurance logic based on?
- Knowledge production and commodification
(need to objectify things to make them calculable - insurance does not deal with the risk itself or the asset, but instead the risk/harm is monetized to be calculable). - Risk community
(pool risk - population has a stake in the risk). - Futures market
(insurance makes you think of responsibilities in the future, creating futures markets despite being retrospective). - Managerial and judicial
(Manages populations through surveillance & disciplines through auditing and assessments across time and space). - Technology of governance
(Insurance is political - social tool for governing consumers, citizens and employees - loss reduction and limiting harm to population).
How does insurance govern at a distance?
Produces a particular thing to strive for, shaping a persons environment, internalising external environment values. Connects the social responsibility in the group to the individual and his/her ethical conduct (risk-pool in the community).
How does insurance create social risk management?
Socialises risk by creating a community, makes people in the community aware - subjects become ‘responsibilitised’. Insurance as an institution and a way of thinking, making you think about your identity in a particular way.
Two ways that rare events can be viewed?
- Low probability/ high impact.
2. Uncertain and unpredictable.
View from insurance companies?
The probability of a risk is always out there and can therefore be insured. Use re-insurance (risk transferred to third party) as a tool to deal with some of the difficult risks.
Can terrorism be insured?
Huber: terrorism insurance is difficult to forecast and price
and thus needs government backing and regulation!
Smetters: terrorism insurance can be priced by an
unfettered insurance market even without forecasting
What type of risk do insurance companies often re-insure? (Reinsurance lecture: Tryg)
Catastrophe risks (involving 2 or more risks at the same time): e.g. pandemics, natural disaster, terror
What is an un-insurable risk? (Reinsurance lecture: Tryg)
A risk is un-insurable if it is impossible to set a risk premium (commodifying and calculating risk) or there is no diversification (possibility of spreading risk).
E.g. Terror attacks with Nuclear, Biological, Chemical or Radioactive (NBCR) weapons.
How to deal with un-insurable risks? (Reinsurance lecture: Tryg)
Re-insurance through market pools/private pools/ state guarantees.
