How does Universal Basic Insurance compare to Universal Basic Income?
Recently I have been discussing basic income and how its quantity can be objectively and mathematically defined from first principles. Unlike all other proposals for a basic income, it did not depend upon taxation, coercion or subjective evaluation of need. Now I wish to tackle the challenge for a system of universal basic insurance?
With the utter failure of Obamacare and the skyrocketing costs of the insurance bureaucracy many people are clamoring for a single payer system (aka a Government run system). Obviously a government run system would require taxation and would only increase the bureaucracy by mixing in politics.
Basic Income vs Basic Insurance
When you insure against an event that has 100% probability of occurring the outcome is basic income. Imagine purchasing death insurance and requiring universal participation. Everyone will die so probability of payout is 100%. You will never get out more than you pay in. In the case of basic income, there was an initial deposit of all the resources in the universe.
Insurance is a system that protects individuals from carrying the full weight of risks outside their control. If you assume everyone purchases insurance against getting struck by lightning at some point in their life, then those who get struck would receive a payout equal to 12,000 times the premium paid
There are two ways to implement the insurance: require everyone to buy the insurance or simply pay the victim of lightning strike by printing new money.
Risk Pools
The problem with insurance is that different people suffer from different risks depending upon their personal choices. If you want to engage in bull riding and mountain climbing then your risk of injury is significantly higher than someone who opts to stay home.
An insurance system where all people pay the same premium, but where some people are more likely to receive a benefit is a system of wealth transfer. This is a system where society subsidizes the risky lifestyles of some individuals at the expense of those who opt for a less risky lifestyle. The libertarian and voluntarists among us would not find that appealing.
Auto Accidents
When driving a vehicle there is some probability that you will end up in an accident. Some accidents are your fault, while other accidents are the fault of other drivers. There mere fact that you owned a vehicle and were driving means you were at least partially responsible for the circumstances that lead to the accident. On the other hand, the liability for the accident greatly depends upon the circumstances. If it turns out that you were the one who made a mistake then your insurance premium will go up; but if there was nothing you could have done, aside from abstaining from owning or driving a car, then there is no basis for your insurance to go up.
In effect, the risk pool that you belong in (and therefore the cost of your insurance) depends upon the probability that your actions contribute to a claim.
Injustice Insurance
An injustice occurs anytime you are a victim (violation of rights) of another person’s actions. This means someone else is at fault for your loss. This means the victim of rape, murder, theft, fraud, extortion or property damage. The presumption is that the victims would never be responsible for the actions of an aggressor.
While the presumption that all people are equally likely to face an injustice may appear to be true, the reality is that people can take certain precautions to minimize potential loss. Something as simple as installing locks, lights, and cameras can reduce the probability of loss. Where you choose to live (ghetto or suburban neighborhood) can also impact risk.
Insurance is Subjective
Not everyone will agree on who is at fault or the extent to which someone is responsible for their own victimization. In theory every man, woman, and child should feel protected in all environments and all of humanity should work to reduce the crime rates in all areas. In cases of injustice what is right or wrong is often entirely subject to the circumstances. It would be impossible to write an insurance policy that clearly outlined all possible injustices or a uniform schedule of reimbursements.
Insurance Fraud
Insurance fraud is just another example of how one person can commit an aggression against an entire group of people. The cost of insurance fundamentally includes the cost of insuring against fraud. The more fraud that occurs the higher the insurance premiums must be.
Deductible and Cost Sharing
The primary way to minimize fraud is to never reimburse anyone for 100% of their damages. If it were to become profitable to have your car stolen, then people would start acting in ways to encourage their car to be stolen. On the other hand, if someone had to pay 20% of the cost to replace the car, then it would not be profitable.
The purpose of insurance is to make the cost bearable by a single individual, not to completely offload all costs on the group.
Everything is a Risk with potential Profit and Loss
Every decision we make involves a risk and is an opportunity for profit and loss. Those who opt not to purchase insurance are taking a gamble. If they win, their profit is the savings on the insurance premium. If they lose, their loss could significantly impair their finances. The question before everyone is whether or not it is reasonable to allow our fellow man to take the risk.
In the case of auto insurance, imagine an individual without insurance totals your vehicle. Because he lacks insurance and is otherwise broke he is unable to repair your car. The cost of repair is now shifted to your insurance.
If the man had a basic income, then his basic income could be garnished to cover his liability in his uninsured accident. A single person opting out of insurance is effectively partially insured by his basic income. This may or may not be enough to pay full restitution. If it is insufficient, then one individual profits by not purchasing insurance while everyone else eats the loss.
Accidental Injustice
Whether we want to admit it or not, each of us has the potential to accidentally harm our fellow man. Whether we fall asleep at the wheel, suffer from a momentary lapse of judgment, drink just a tad too much, or own a dog who unexpectedly bites someone we will all eventually harm other people and potentially beyond our ability to make whole.
Acts of God
Getting struck by lighting is just one kind of “act of god”. Anything that no reasonable person could have predicted nor prevented could be considered an act of God. We are all at risk from these kinds of losses and there is no one to blame or seek restitution from.
Universal Basic Insurance
The concept of universal basic insurance is that everyone contributes to a fund that is used to protect individuals against unexpected and unpredictable burdens that are beyond their ability to pay. Everyone shares the cost so that every individual can enjoy a more secure life.
Imagine a system like Steem where instead of articles getting posted and up-voted, insurance claims were posted and up-voted. If the Steem community felt your claim was legitimate then they could vote to approve your claim. The total amount paid out for all claims would be equal to the inflation rate. The more claims that were approved, the less each claim would payout. Everyone would qualify for a minimal level of insurance, but anyone could opt to “power up” to increase their coverage. Because all premiums are paid from inflation and all payouts are limited to a multiple of your Steem Power, everyone would be paying an equal premium.
Ultimately an insurance currency would perfectly balance incoming revenue (people buying the tokens) with claims paid out (people selling the tokens).
If you combine the universal insurance with universal income and a dispute resolution system that facilitated garnishing of basic income to pay retribution then you end up with a self governing society that is able to partially protect its members from outside aggression.
Many wealthy individuals may not wish to participate in a system of universal income on its own, but when combined with a decentralized universal insurance and justice system the package makes sense to all. It would only take a handful of wealthy individuals to bootstrap a system for their own security to give such a token significant value. Imagine the constant inflow of capital to build and maintain insurance coverage and the constant outflow of redemptions.
Future Work
In a future article I will address how society might set the inflation rate used for universal insurance as well as how to improve the claim process to be decentralized while minimizing fraud.
Dan, have you thought about the effect of applying Steem rules to insurance? Each reward motivates the actions being rewarded. If you reward writing interesting posts, more posts will be written (both good and bad ones). If you apply the same rules on insurance claims, there will be also more of them.
I understand the economy behind it that with bigger number of posts / insurance claims the reward is split among bigger number of authors, so the individual payouts decrease. But some people perceive it as a lottery or just don't behave purely rationally, so the motivation is still increased.
Another thing is that you can't expect the same participation in reading Steem posts as in reading insurance claims. Who would be willing to read through all the misery that will be posted there? And if people won't read the claims, then they won't vote or their votes will not be well informed.
I think it is sad that you do not get paid for these articles. I think you should. And if you don't want to profit from it i think it would be better if you could collect the money and funnel it back into the ecosystem some other way. But overall i think it is fair that you as the creator of this ecology get to use and profit from it as well.
Amazingly, getting paid for my articles costs me (and Steem) more from a PR perspective than I would earn.
In the long run having more people on my side is worth more than having more Steem. Consider it a market force that is just as real and voluntary as any other.
I really like that long term thinking.
Reputation is almost always worth more than money. Public opinion and perception is also worth more than money, particularly because if you have reputation, public opinion, and perception, then you can always get money easily (take Trump licensing his name or Paris Hilton's perfume as examples). It's almost impossible to get money through legitimate means if reputation, public opinion and perception are lost.
This is a particular observation that I've made and you probably understand also as an INTJ that our behavior is constrained by public opinion.
I think Dan declines payments voluntarily, which I assume does go back into the ecosystem.
Exactly, it is automatically redistributed to all players. By declining payments I also get more honest feedback than I would if people were attempting to bandwagon curation.
That is really cool. I wrote kind of about this and the steem ecosystem, but I am too small for anyone to notice much. Its called A Parable.
"A group of smart people get together and develop a money and government system allowing all in society to function more efficiently. At first all are excited and willing to be led by smarter ideas...."
Dan, I think your mind is amazing. And thank you for sharing it with us so much.
Let us also think about steem and how we can grow its eco system. I would love to hear more of your thoughts on this matter.
There are two key things I believe we must fix:
The content people write should live longer and people that are not so popular should get a chance to make small rewards over time. This can be fixed by displaying content differently and changing the reward structure.
We must make sure that outside money can come in and invest into the content and its creators more directly. I have proposed a solution to this via a bounty system that I believe would create a new form of monetizing content and fit well into the steem ecosystem. Please check it out some time. https://steemit.com/bounty/@knircky/wanted-how-to-bring-value-into-the-steemit-ecosystem-usd200-sbd-bounty
I hope we keep enjoying the fruits of your thoughts forever and sometime we can implement some of your other economic solutions as well.
Allowing people to invest in authors would be entirely possible if a percentage of all author rewards went to those who bought the authors tokens. I think there is a lot we can do to improve Steem.
I agree with that said it would also be nice to have those reputed authors to upvote the people who follow them at all times. The encouragement has to be continued so it can add up to the system.
like the idea of author tokens ... also, IMO we need to separate the social part and the blogging part of a user (e.g. more post types) and treat them differently. obviously author tokens belong to the blogging part.
We have one possible solution for boosting steem! Let's upvote only people that are thinking long term. Before giving any vote, just look at the recent history of the use and see if he is thinking long or short term! Is he powering up or he is powering down! Please check out our new curation model proposal! This could help us give STEEM a BOOST!
Good knowledgeable post @dan. Nothing is predictable by humans for sure. Every step is just like a scratch off ticket to say the next game will be a winner. But if we don't take chance we will loss forever. People need to know nothing is forever. We got to be better and smarter than the system. The reputation that the authors have is from there work. And so many follow and upvote the reputed ones. Thank you for your post.
Blockchain technology could certainly be used for several aspects of Insurance. For example it could be linked into reporting Blockchains, that record certain events such as Flight delays for travel Insurance, death certificates for life insurance etc. , however its likely its uses would be limited.
There are Mutual Insurance Companies which operate on a pooling of money basis. Not exactly the same as you describe however the idea is that for some group there is an incentive to share the risks associated with a big financial loss so that no one person loses out big.
I have tried to think of Insurance and how it would work on a Blockchain and I can only see limited use cases.
There is a need for an institution settling the complicated cases, driving sales, structuring products that share risk efficiently.
In Insurance as it currently stands there are layers and layers of risks; the public take out insurance, this is layered into a reinsurance contract, possibly a second layer of reinsurance ... This creates the stability or Insurance for the parties involved.
With respect to Risk Pools, have you heard of a "breadfund"/"broodfonds"? It's similar, a voluntaryist pool for sick leave.
Ahh ok so this is where the BIC token fits in. I was getting a little worried and thought you might be working on another crypto-currency all together. If I'm understanding correctly, we could see potential market ecosystem with businesses creating tokens and distribute to investors?
Hi @dantheman. I'm so glad to see that you are not powering down. We want to reward people that are powering up. We are doing this on steemboost.com and in our blog in posts like this one.
This is one independent voluntary initiative. We are sending you this message because we need to attract in our project more powerful STEEM users that really believe that Powering Up is expressing trust in STEEM.
Will you be so kind to help us with your voting power from time to time?
Got questions? We are on steemit.chat - @steemboost
Thank you!
On the topic of insurance, how about reputation insurance? What can a person do if there is damage to their reputation? Damage to reputation is possibly the worst kind of damage because it can cost a person their career, their family, everything important to them. At the same time due to technological changes it is becoming easier and easier to destroy increasingly fragile reputations.
Suppose a mutual aid society comes together specifically to protect the reputation of it's members with the understanding that it's members will be discredited in the future at some above average probability? Part of the reason so few want to be involved in politics is because it's a no-win situation for people who have good reputations and who want to keep it.
@dan is there a way where we can have all the user built there account to keep stable to a certain amount of steem power before the start powering down so they can still generate as well as collect for their expenses or there needs. In that way we are not drying the account to null. And the new comers also can take advantage of there own investment.