Is it fair that young men pay more than older women for auto insurance, or that we get young healthy people to take out private health insurance to keep older consumers’ health insurance rates down? What about the fact that those who live in far northern Queensland pay far more than those in southern states for home insurance? While there is no correct answer to these questions, there is one incorrect person to ask: namely, an economist. Economists don’t do “fair.” very literally. In our research, we learned little about this, other than the assumption that political forces should answer questions of justice, not market forces. Dangerous flooding in northern Queensland in the aftermath of Cyclone Imogen as heavy rains flood Victoria and NSWRead onBut while economists have little to say about justice, we have something very basic and very important to say about risks: someone has to pay for them. We are so concerned about the expensive harm car accidents can do to individuals that we push them to buy liability insurance.
But when it comes to insuring your vehicle yourself, it would cost you a lot more to insure your car if you look like a person who crashes often, or if your car looks like a person who crashes often.
This is fair? In private health insurance, democratic notions of justice still play a significant role. Although most individuals are unable to foresee a car accident, people have a good idea of whether a new hip, obstetrics, or eyeglasses would be required.
As a result, people who know they will need costly medical care (especially older people) are willing to take out insurance, while those who are in good health (mostly young, single men) are not so keen.
This is why we have created a set of carrots and sticks in Australia to compel many young people, even though they don’t think it’s cheap, to take out private health insurance.
That ensures that young people spend more on private health insurance than they would like, and for older people, this holds insurance premiums down.
Does that sound reasonable? And what about Northern Australia Home and Content Insurance? The danger to property from hurricanes and cyclones continues to rise as the world warms.
Similarly, because of our coal exports, as sea levels increase, so does the risk of storm surges and coastal erosion that damage beachfront land.
If global emissions and climate threats continue to increase, should people who own homes in high-risk areas pay higher insurance premiums? For those fortunate enough to own a home in northern Queensland, can young tenants who don’t own a home subsidize the expense of home insurance? A recent ACCC report, demanded by Scott Morrison when he was treasurer, makes it clear that, just as insuring a sports car is more costly for young men than insuring a new sedan for older women, insuring a home in cyclone-prone North Queensland is far more costly than insuring a home in the western suburbs of Sydney. But North Queensland homeowners have strong political leaders, unlike young sports car drivers, and the Morrison government, in turn, is seriously considering subsidizing North Queensland homeowners. Although the ACCC carefully chose its wording when it indicated that “if governments want to provide immediate relief to consumers facing acute affordability pressures, subsidies [should]be preferred to other measures,” headline writers usually left out the “if” and wrote, “ACCC recommends government subsidize top-end insurance.” Will it be funded by less spending on other programs, or should a new tax be introduced? Economists love a fair tax or tariff, contrary to common opinion. We do not know about equity, but we do know that there is no such thing as free lunch, but for the simple reason that it is always better than non-user pay, we tend towards “user pays” When the products they use have to be paid for by individuals and corporations,