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A Reflection on Travel and Learning in 2016

A Reflection on Travel and Learning in 2016

From a travel and learning perspective, this was one of the best years of my life. I did a ton of travel which I never dreamed would have been possible.  I have always loved cities and I continue to love exploring them, but this year, I started to get out into nature mo read more

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Are the Rich Really Getting Richer while the Poor Get Poorer?

Are the Rich Really Getting Richer while the Poor Get Poorer?

Dr. Steve Horowitz says “No. This is just a myth.” Here’s his explanation. It grates me when one behaves as if he or she is clearing something up but he or she doesn’t make the distinctions required to indicate just what it is that needs to be cl read more

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Pick Yourself Up

After reading this, I couldn’t help but laugh a little to myself. While I can certainly appreciate some part of Palin’s message about providing a positive message to young women caught in such a difficult situation, and I share the desire that something as read more

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Code Craftsman, Code Warrior, or Just Sandwich Artist

Background So, there is some debate in developer circles about whether programming is an art, a science, or both. Recently, I have heard the word Code Craftsman and even Code Artist used by folks in the blogosphere. On the one hand, there is little argument that written read more

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The “Moral Hazard” of Insurance

In the insurance industry, the idea that the protection insurance offers the consumer promotes a more reckless attitude on the part of said consumer is referred to as “moral hazard”. Apparently, since we have the material possessions in our homes insured against burglary, we are less likely to lock our doors for example. While I consider this an issue of contention, I do see competitive insurance as a for profit endeavor to be a serious moral hazard.

All forms of insurance seek to achieve the same end. Take a catastrophic event like a fire in your home; The goal is to spread the risk of suffering a loss among a larger number of people. Essentially, we each contractually pay into a shared savings account. In the event of a fire, the burden of recovering from this fire is paid for by the shared account. The insurance company would rather it be said that you pay a premium in exchange for the company assuming the risk rather than you. This is not the case; effectively we are insuring each other against fire, theft, car accidents, flood, dog bites, and the like. So what does the insurance company actually do?

Well, the insurance company takes all that premium money and invests it. Then they make profits off the interest. They don’t really provide any sort of service. They actually sell us all our own money back to us at a profit. I call that a “moral hazard”.

To make matters worse, excepting legislation to protect the consumer (gee, wonder why that had to happen), the insurer is the arbiter of who gets insured, at what rate, and what benefits they are entitled to should a claim be made. This offers the insurance company the opportunity to control risk. You can see the power of abuse inherent in such an oversight of the basic function of insurance when you consider the pre-existing condition exclusions that are at the center of our national health care debate. This is another great example of a real “moral hazard”, and its not you and I failing to lock a door.

Allowing ANY exclusion or variance based on social characteristics (high theft neighborhoods have higher home and car insurance premiums for example) does not properly serve the interest of the consumer and is itself a near-certain moral hazard. Sure, if my home costs 2,000,000 to replace and yours costs 95,000, I would expect to have a proportional premium. Allowing geography to play into it, however, is punitive and a disservice.

Taking away the ability of an insurance company to assess risk, however, removes all purpose from the enterprise. Insurance companies, unlike other businesses, cannot control the supply of their service (Blue Cross can’t add more doctors to Summa) or otherwise add value. Instead, they must either reduce the quality of the actual service provided to the consumer (HMO’s and “Recommended Collision Repair Centers) or take advantage of statistical (but not certain) data about the social and behavioral characteristics of certain consumers. Both, clearly, are ripe for hazard of the moral kind.

All this makes insurance a unique “product” that’s very nature renders it unsuitable as a private enterprise. If being in the business of making money off the fact that suffering and misery WILL happen, but maybe to somebody else, isn’t a moral hazard, I don’t know what is.

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