To understand insurance you have to study a pretty broad range of social sciences. In this series of essays I lay out some frameworks for understanding how insurance works based on sociology, anthropology, economics, philosophy, politics and religion.
The first puzzle I encountered in insurance was how angry and helpless some underwriters felt in the marketplace. Talking shop with some of these people is to wander into a world of good vs evil where competitors fail by lying and cheating and running from their bad decisions and also succeed by lying and cheating and running from their bad decisions. I did several podcast episodes explore these topics: Rick Lindsey, Agnes Callard, Mary Hirschfeld, Tyler Cowen.
The question I came to try to answer after all this was: “what is underwriting?” My answer is in Essay #1: Underwriters compete on moral judgment.
One of the most profound intellectual shocks of my adult life came as I went from selling reinsurance (insurance for insurance companies) to selling small ticket supplemental health insurance over the phone at a startup. I discovered that the ‘feel’ of the sales process was the same. The most and least sophisticated buyers of insurance in the world behaved in very similar ways. My training up to that point told me this couldn’t be true! How could it be true? I answer the question in Essay #2: All insurance purchases are compelled. The best podcast episode for this is with Howard Kunreuther.
I remember when I first started in insurance my boss said that most insurance people were at the top of the bottom half of their class (ha, me included!). Nobody wants to be insurance after all. Yet consider the difference between a charity and an insurance company. One of them supplies resources to those in desperate need and hopefully enables them to pull themselves out of their difficult circumstances to lead a successful life. So does the other one. Why does insurance feel so empty and cause its practitioners such embarrassment and lives of relative low status? My answer in Essay #3: Modern insurance is meaningless (forthcoming).
Life contains many risks that we love to signal our intense focus on. But we don’t measure them. Most of us don’t even have a coherent concept of what it means for one thing to be riskier than another. The lack of sophistication isn’t because of a lack of tools to assess risk. One of the great intellectual crimes of our society is that so few have heard of Doug Hubbard. He’s a brilliant practitioner of risk assessment and decision science. He takes fancy academic ideas and turns them into hard-nosed decision processes any person or organization can use. Nobody cares. What?! Why! See Essay #4: All politics is risk assessment (forthcoming).