Insuring America: Market, Intermediated, and Government Risk Management Since 1790
Robert E. Wright
Augustana College - Division of Social Sciences
November 5, 2007
At first glance, American insurance history is Whiggish, the story of self-insured risks slowly becoming managed by intermediaries. A closer look reveals more complexity, many directions of change, and numerous questions of importance today. Why, for example, did mutual life insurers wax and then wane? Why did for-profit corporations supplant non-profit fraternal societies? Why did prepaid physician and hospital plans disappear? To answer those and similar questions, a thorough survey of both traditional branches of the U.S. insurance industry, income (life/health) and property (property, liability, and casualty) insurance, is necessary.
Typically, self-insured risks became predominantly intermediary-insured due to improvements in the technology of insurance - the nuts and bolts of setting premiums and selling policies, making appropriate investments, and paying claims - and increases in consumer confidence in insurer solvency and market competition. Competition helped to drive those technological improvements and also ensured provision of the best price and quality available at any given technology frontier. Extant companies, however, sometimes successfully resisted competition with cartels. Sometimes a certain type of intermediary or market dominated because it was the most economically efficient method of managing a particular set of risks. Sometimes, however, government regulation and taxation explain why friendly associations, mutuals, joint-stock companies, or markets dominated the provision of specific areas of risk management. Similarly, political rather than economic realities often best explain the emergence and expansion of government insurance programs.
Keywords: insurance, history, regulation, taxation, mutuality, United States of America
JEL Classification: G22, H25, H40, J65, K20, N2, N4
Date posted: November 9, 2007