Could insurance be considered as a form of common good? And if so, how might that have come about? And more importantly, how might it influence the way in which insurance markets are allowed to digitally transform?
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. Examples of common goods that we should all be familiar with are public parks, the road system, museums and civil liberties.
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 being 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 first meets the eye. Let’s flip our perspective round and look at insurance from another angle.
The Consequences of Success
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.
Of course not everything is 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 helped with that.
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 form of 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 an analogy - the actors are private, but the scripts and the stage have become public.
21st Century Insurance
What signs then do we see of ‘insurance as a common good’ in everyday business? Most obvious is the progressive introduction of regulation. In other words, the market needs to be managed so that the public don’t lose confidence in it.
Another sign is the recognition that things like ethics and professionalism are important not just for markets, but for the individuals and firms who operate in them. Over the last ten years or so, we’ve seen this progression from markets to individuals happen in UK regulation.
And we've seen in developments like Flood Re the growing interest of governments and politicians in what insurance is up to.
It may seem odd at first to put insurance alongside common goods such as roads or parks, but what if you put it alongside other common goods such as the audit system or the judicial system? Insurance’s interests in liabilities and investments create a lot of inter-twining with those two common goods, and it’s not all one way.
Over the next few months, I’ll be bringing together and writing up the work I’ve been doing in relation to what to me are the big themes around insurance today. Fairness is central to that, but so is insurance as some form of common good.
The broad purpose of such work is to explore the most central and complex issue at the heart of 21st century insurance. And in doing so, I'm hoping to propose a narrative framework for the sector's various stakeholders to join together in dialogue, to ensure that the future of insurance is something that everyone can look forward to.