Tag Archives: solidarity

From Premium to Contribution: Recovering Solidarity

This post was originally written and published in French, De la prime à la cotisation: retrouver la solidarité

Well, let’s start with something everyone can observe. Insurance has a bad image, a bad press. It is often suspected of being a cold bureaucracy, a paperwork industry, a partner that looks for loopholes precisely when you need it. We talk about premiums the way we talk about a price, and we end up judging insurance the way we judge a purchase. Did I “get my money’s worth” this year. Did I “lose” money if I had no claim. Was I a good customer if I kept quiet. With questions like these, the very idea of solidarity quickly feels out of place.

And yet, if we set aside the forms and the marketing campaigns, insurance is first and foremost a social technology. It makes a simple reality livable. Some events are rare, hit hard, and cannot be financed individually without tipping into ruin. Insurance says the following. We do not know when, we do not know who, we only know that one day someone will have an accident, fall ill, see their home damaged, or cause harm to someone else. And because we cannot decide in advance who that person will be, we choose to be many to carry the associated financial burden. We pool a small share of our resources, and we agree on rules so that, when the day comes, the burden is bearable. For everyone. It is not only a service, it is a common.

I had already tried to look at the issue from a concrete angle, the angle of claims settlement, and the way it can disenchant a tool that is, in principle, virtuous, in an earlier post When insurance falls apart, the silent crisis of claims settlement. And there are other posts too, revolving around pricing, perception, and what we truly expect from an insurance contract, such as The value of life, The paradoxes of segmentation and discrimination in insurance, Cheaper personalized insurance premiums thanks to AI, or Insurance, a zero sum game. But what was missing was a broader lens, more sociological, and probably more political too. And as often, going back to classic works in the social sciences helps clarify what is at stake.

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The Government Will Foot the Bill!

This post was initially written in French https://freakonometrics.hypotheses.org/87308

Who has never heard this phrase? It comes back almost automatically as soon as a collective risk becomes visible. After a flood, after a wildfire, after a storm, after a drought that lasts too long, you hear, in passing conversation or in an op ed, a formula that sounds like both an obvious truth and a conclusion. That familiar The Government Will Foot the Bill, which I have kept as the title of this post. Sometimes it appears in a gentler form, The government must take responsibility. Sometimes in a harsher after the fact form, They have to pay. In every case, the phrase says something about our relationship to the collective, to solidarity, to justice, and to public money. It also says something about the way we turn a disaster into a political problem.

I wanted to write a post that starts from this formula, not to decide whether the claim is true or false, but to understand what it means, what it hides, and what it forces us to make explicit. The expression has a particular power. It seems simple, but it compresses very different ideas, sometimes contradictory. It can express an expectation of protection. It can express anger. It can express a demand for justice. It can express a vague belief in an unlimited common pot (that famous magic money, as we call it in French) to reuse the well known phrase. It can also express a feeling of individual powerlessness. And depending on the country, the history of institutions, and lived experience of risk, the word government does not evoke the same thing. Still, it is worth noting that this debate about who pays often starts too late, because trying to clarify the government will foot the bill is already turning the phrase into a programme, fiscal and moral.

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Insurance against Natural Catastrophes: Balancing Actuarial Fairness and Social Solidarity

Our research paper, Insurance against Natural Catastrophes: Balancing Actuarial Fairness and Social Solidarity, with Molly James and Laurence Barry, is now published in the Geneva Papers on Risk and Insurance.

Natural disasters offer a special case for the study of private and public insurance mix. Indeed, the experience accumulated over the past decades has made it possible to transform poorly known hazards, long considered uninsurable, into risks that can be assessed with some precision. They exemplify however the limits of the risk-based premiums method, as it might imply unaffordability for some. The French scheme reflects such ideas and offers a wide coverage for moderate premiums to all, but is shaken by climate change: we show that some wealthier areas, that were not perceived as “at risk” in the past, have become exposed to submersion risk in the future. This singularly makes some well-off properties the potential main beneficiaries of a scheme that was historically thought to protect the worst-off. Acknowledging that some segmentation might become desirable, we examine several models for flood risk and the disparity in premiums they entail.

Insurance against Natural Catastrophes: Balancing Actuarial Fairness and Social Solidarity

Our research paper, Insurance against Natural Catastrophes: Balancing Actuarial Fairness and Social Solidarity, with Molly James and Laurence Barry, is now available.

Natural disasters offer a special case for the study of private and public insurance mix. Indeed, the experience accumulated over the past decades has made it possible to transform poorly known hazards, long considered uninsurable, into risks that can be assessed with some precision. They exemplify however the limits of the risk-based premiums method, as it might imply unaffordability for some. The French scheme reflects such ideas and offers a wide coverage for moderate premiums to all, but is shaken by climate change: we show that some wealthier areas, that were not perceived as “at risk” in the past, have become exposed to submersion risk in the future. This singularly makes some well-off properties the potential main beneficiaries of a scheme that was historically thought to protect the worst-off. Acknowledging that some segmentation might become desirable, we examine several models for flood risk and the disparity in premiums they entail.