@argumate @collapsedsquid
The thing I like about the idea of mandatory safety insurance is that it introduces a new actor with new incentives into the problem.
Let us return to aircraft.
The State has determined that every airline company must carry two million dollars in insurance per passenger per flight, to be paid out in the event that the plane is destroyed and they die. It has set certain rules, for instance that the insurance company must be sufficiently well-capitalized and it can’t just waive paying out because the company did something stupid.
Executive Todd has plans to reduce the maintenance on Tumblr Airlines aircraft. He will be at the company for five years. There is a 90% chance that if he does this, there will be no crash, and he gets a million dollar bonus and leaves. There is a 10% chance that a plane will crash before he leaves and he’ll only have a personal fortune of ten million dollars and a mansion on Hawaii left, which he can retire to.
So Todd orders that the maintenance should be cut.
However, Blue Hellsite Insurance, Inc., Tumblr Airlines’ insurance company, depends for its funding entirely on carefully calculating risk and then charging a bit more than that, on an ongoing basis. To do so, as part of their contract (and thanks to provisions passed in law by the State), they can set insurance agents out to inspect processes, planes, and so on.
BHI’s reaction to a plan that results in a 10% chance of a plane crash is “you WHAT?!” Whereas the risk isn’t necessarily quite so visible or quantified to all others in the organization, or else they may have motivations to ignore it for the same reason as Executive Todd.
So BHI come back and say that either Todd’s plan isn’t going to fly, or the insurance rates are going to go up.
So what was an invisible cost that could have gotten kicked down the road to a successor is transmuted into a stubborn operating cost right now.
Tumblr Airlines makes less profit (upsetting shareholders), raises ticket prices to compensate (thus pricing the risk into the market and making them less competitive), or else doesn’t go through with the plan.
The State could even require that the portion of the cost which is the risk premium is printed on the ticket, informing consumers of roughly how dangerous a given flight is. This is actually an enormous information gain by consumers, who as non-experts find it very difficult to
not only
judge airline safety, but obtain inside information about aircraft maintenance procedures.
