All Commentary
Monday, October 1, 2001

Will You Name the Car Crash After Us?

Insuring Planned Events Is Ludicrous

Imagine the following dialog:

SMITH (interested in auto insurance): I’m looking for some good auto insurance coverage.

JONES (an auto insurance salesman): You’ve come to the right place.

SMITH: Would your insurance cover me if I had an auto crash?

JONES: Certainly our insurance covers auto accidents.

SMITH (blushing): Well, I must admit I had an auto accident once, but that was several years ago. I’m more mature now, and take precautions. Now, I only have planned auto crashes.

JONES: I’m sorry?

SMITH: Yes, I think auto crashes are too important to take lightly. I plan all of them carefully. No auto “accidents” for me. But of course I want insurance coverage.

JONES: You say you plan on having auto crashes in the future?

SMITH: Yes, at least two in the next five to ten years. Possibly three.

JONES: And you want us to insure you for them?

SMITH: You said you sold insurance, right?

JONES: Well, yes . . . but typically people insure to avoid large expenses from unexpected circumstances. If you’re planning to have auto crashes, why not just set aside a fund to pay for them?

SMITH: Well, that’s silly. If I did that, auto crashes would be more expensive for me. If I have insurance, I’ll be able to take advantage of group rates. As you know, some people don’t have any auto crashes. Some, I believe, even have autos but never drive, making crashes extremely unlikely (though why they’d have the equipment and never use it, I certainly don’t understand). I’ll be able to take advantage of their driving records in a group policy, lowering my costs.

JONES: And raising theirs . . .

SMITH: Well, they were the ones to decide not to have auto crashes. If they choose to have auto crashes in the future, your company will pay for them, too.

JONES: That just raises the cost of auto insurance for everyone.

SMITH: Well, if the government didn’t think your paying for my planned auto crashes was good public policy, they wouldn’t have mandated that planned auto crashes be covered by all auto insurance policies.

Everyone sees that Smith’s argument is just crazy—economically foolish and morally obtuse. Amazing that when you change “auto crash” to “pregnancy” and “auto insurance” to “health insurance,” everyone thinks it makes perfect sense.