Business Daily from THE HINDU group of publications
Tuesday, Jul 11, 2006
Business Daily from THE HINDU group of publications Tuesday, Jul 11, 2006 |
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Money & Banking
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Life Insurance Life insurance: All bets off Sudhanshu Ranade
Chennai , July 10 In the good old days, people who got themselves bet that they would die by a certain age, while the insurer bet that they would not. If the chap did die, he `won' the bet. The insurer would then have to cough up the amount the fellow had bet; sometimes to his/her nominee(s), more often to the doctors and hospitals who had tried their best to help them lose their bet. Medics, of course, did not care very much whether people won or lost; either way, they won. To ensure a level-playing field at the time the bets were placed insurance companies insisted that people must share with them any special information that they had (or could reasonably have had - `contributory negligence' they call it) about how much longer they were going to live. For example, whether they had tested positive for cancer, or had a weak heart; or would have tested positive if they had undergone tests that it would have been prudent for them to have had. Murder, being an Act of God, did not count; but suicide was a different matter altogether. It would hardly do if, immediately after signing the contract, I took a lift up to the twenty seventh floor, and then relied solely on gravity to get me down again. To discourage such impulsive buys, insurers could for example stipulate that claims for death by suicide would not be entertained within 12 months of the day the contract was signed. Though disclosure norms and safeguards against impulse buying are still in place, it is now a very different ball game. There has been a complete reversal of roles. As often as not, it is insurers who bet that you will die; while you spend your money, or most it, betting that you will live on long after your working life. In other words, in olden days most people used insurance to provide for their families; people are a lot more self-centric today. As it happens, this has helped the pseudo-science of economics, more precisely the science of pseudo-economics, resolve the pseudo-puzzle that has been bothering it for decades; the puzzle of why so many `economically rational' people care enough about the well-being of anyone but themselves.
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