Could insurance be considered as a form of common good? And if so, how might that have come about? And more importantly, how is it influencing the insurance markets of today?
First off, just what is a common good? It’s something that is held in the public domain for the benefit of a community. That community can range in size from a family, through towns and regions, and up to nations and society as a whole. It stands in contrast to private goods, which are held by individuals for their own interests.
On the face of it, the fact that a great deal of insurance is transacted in the private domain of liberalised markets points away from insurance as a common good. After all, the private sector is a framework for the pursuit of individual self interests. Insurers and brokers compete for business, intent on making profit for their shareholders. Decisions are taken with an eye on performance measures and bonuses. Not much common good there, you might think.
Yet there’s more to insurance than meets the eye. Let’s flip our perspective round and look at insurance from another angle.
Insurance is incredibly embedded in our everyday lives. Every vehicle, building, firm and event you connect with in daily life is insured. Insurance also brings considerable stability to our everyday lives. Without it, life would become much more precarious, with more poverty, less travel and fewer jobs and opportunities. It’s also a complex market that relies more than most on global interconnectivity – think of all those reinsurers spreading the risks of local insurers. And finally, it relies on a great deal of trust, built up over many years – Lloyds of London is a prime example.
Of course not everyone has it so rosy – there are plenty of uninsured cars, lots of poverty and the more than occasional loss of trust in insurers. Yet compared with earlier times in which the insurance market was still developing, progress has been achieved for many and insurance has been part and parcel of the modern nations, both developed and developing.
My central point here is that insurance markets may be populated with many hundred of private firms, but the importance that their combined activities have for the public domain is so significant that insurance as a risk transfer mechanism, and the markets in which it’s transacted, have become a common good. Note that I refer to insurance as a product, and markets within which it is transacted, not to the firms who choose to make it their business. To use the analogy, the actors are private, but the scripts and the stage have become public.
What signs then do we see of this in every day business? Most obvious is the progressive enforcement of first national, then regional and now globally coordinated regulation. Another is the growing recognition that things like ethics and professionalism are important not just for markets, but for the individuals and firms who operate in them as well.
It may seem odd at first to put insurance alongside other common goods such as scientific knowledge, but then, does it not stand some comparison with others such as the legal system and the audit system? There’s a case to be made, and it would be interesting to hear more of it in wider forums.