[SystemSafety] How far does insurance economic incentive push safety?

Mon Apr 12 18:23:26 CEST 2021

Phil,
Two comments that might not be going in the direction you’re intending, but . . .

1) Could you use the vast amounts of data that exist in the auto insurance business as a proxy? Do people drive more safely with an intent to keep their auto insurance premiums lower?  If this kind of effect is observable in the auto insurance industry then it could be reasonable to suggest that it carries over. On the other hand, if the effect is not visible where there is the most data, then it could be an indicator that the effect may not apply in safety critical situations either.

2) Your comparison seems to only care about higher premiums vs. lower premiums. The data that I saw—again out of the auto insurance industry—shows a different thing that might be considered more important. Namely, the availability of insurance at all. In places where auto insurance was not (at the time) legally required, the studies showed that those who did have insurance tended to be worse drivers than those who did not. Simply, having insurance reduces the insured driver’s financial exposure so they were less concerned about driving safely. They tended to drive more aggressively and got into more accidents because of it. When the driver was uninsured, they unavoidably suffered the full financial exposure of of all damage. So to avoid having to pay much greater amounts, they were generally better drivers. Could the same thing happen in safety-critical? If there were no insurance, the organization might be a lot more careful because they would be liable for 100% of the damages. With insurance, the liability is vastly reduced, so less financial incentive to be as careful?

Cheers,

— steve

From: systemsafety <systemsafety-bounces at lists.techfak.uni-bielefeld.de<mailto:systemsafety-bounces at lists.techfak.uni-bielefeld.de>> on behalf of Eric Marsden <eric.marsden at foncsi.org<mailto:eric.marsden at foncsi.org>>
Date: Monday, April 12, 2021 at 8:14 AM
To: Phil Koopman <koopman.cmu at gmail.com<mailto:koopman.cmu at gmail.com>>, The System Safety List <systemsafety at techfak.uni-bielefeld.de<mailto:systemsafety at techfak.uni-bielefeld.de>>
Subject: Re: [SystemSafety] How far does insurance economic incentive push safety?

An opinion on this interesting question: areas such as fire safety (see for example the US NFPA) and maritime safety are largely driven by insurance companies rather than safety regulators, and outcomes don't seem to be appallingly poor. In areas where threats to life are more important/visible to the public, there is a clear tendency to combine the use of multiple risk regulation instruments (prescriptive regulation, performance-based regulation, information regulation, liability law, insurance, "soft law"). Presumably the defence-in-depth benefits are assumed to outweigh the extra costs from multiple sources of risk regulation.

Previous work on this topic: a 2014 special issue of the Journal of Risk Research contains a few related contributions, drawn from a workshop on "Liability and Insurance and their Influence on Safety Management of Industrial Operations and Products" that my organization helped organize.

   https://www.tandfonline.com/toc/rjrr20/17/6?nav=tocList

I prepared a literature review on this topic which is freely available online; some of the references may be of interest to you.

   https://www.foncsi.org/en/publications/collections/industrial-safety-cahiers/risk-regulation-liability-insurance/

Eric

--
Foundation for an Industrial Safety Culture
Web: https://foncsi.org/
Twitter: @TheFonCSI / @LaFonCSI

________________________________
De : systemsafety <systemsafety-bounces at lists.techfak.uni-bielefeld.de<mailto:systemsafety-bounces at lists.techfak.uni-bielefeld.de>> de la part de Phil Koopman <koopman.cmu at gmail.com<mailto:koopman.cmu at gmail.com>>
Envoyé : lundi 12 avril 2021 02:24
À : The System Safety List <systemsafety at techfak.uni-bielefeld.de<mailto:systemsafety at techfak.uni-bielefeld.de>>
Objet : [SystemSafety] How far does insurance economic incentive push safety?

I'm looking for opinions and previous work regarding the proposition
that insurance premium economic pressure -- all by itself -- is likely
to result in an ALARP or similar safety outcome for life critical
systems (trains, planes, automobiles, etc.) in the absence of regulation
or any other safety pressure. Details below if this is of interest.

--------------

I am interested in the relationship between economic pressure from
insurance premiums and safety outcomes.  I realize these things are
messy, there are multiple factors in practice, "it all depends," and
that regulation to some degree puts its thumb on the scale (some domains
more than others), so I understand this is something of a theoretical
exercise.

I'd expect some correlation. In particular I'd think that as a
generality improving safety will over the long term yield lower
insurance premiums (assuming an efficient competitive market, not
worrying about negotiating power imbalance between individual consumers
and insurance providers, etc.). I'm aware there are complications such
as expensive crash protection consumables that are damaged in the course
of reducing harm severity that can push back against this correlation.
And I'm aware of liability issues, but let's say insurance ultimately
pays out for those too.  And "self-insurance" counts as insurance.

The pointed question of interest is whether there is a reason to believe
that insurance premium economic pressure, all by itself, is likely to
lead to acceptable safety for life critical systems.

My initial position is that I'd be surprised if insurance premiums alone
(with no regulation) necessarily result in an ALARP result for typical
modes of transportation. I'd expect they'd prevent a really horrible
result, but not necessarily safety I'd want to have in transportation
I'm personally going to use.

Among other reasons, if insurance premiums resulted in ALARP, I'd expect
we wouldn't need regulators (which we do need in practice).

But perhaps I'm wrong.  Or perhaps insurance economics driving ALARP
is
true in theory but not in practice for reasons that are interesting.

Does anyone know of a good treatment of this topic?

Thanks,
-- Phil

--
Prof. Phil Koopman   koopman at cmu.edu<mailto:koopman at cmu.edu>
(he/him/his)         https://users.ece.cmu.edu/~koopman/

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