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

Phil Koopman koopman.cmu at gmail.com
Tue Apr 13 02:17:18 CEST 2021


I appreciate the various replies -- thanks!

I'm still sorting through my particular angle on this topic, and further 
comments are welcome, but I wanted to pause to express my appreciation 
at response so far.

It seems that at least in some cases a confounding issue is whether an 
elevated risk is associated with increased profits. For example, if 
insurance premiums are small compared to profit, then you could increase 
profit more easily simply by scaling up operations even at elevated risk 
rather than spending time reducing a small piece of your expense pie.  

This would argue against insurance premium economic pressure necessarily 
leading to lower risk in the absence of regulation.

A potential case in point here might be commercial maritime operations.  
I understand the primary pressure to keep risk in check here is 
insurance rather than regulation.  But that has resulted in a 
significant fatality rate.

For example:
https://www.cdc.gov/niosh/programs/cmshs/marine_transportation.html
"From 2011–2017, there were 87 fatal injuries (18.4 per 100,000 workers) 
among marine transportation workers, nearly *_six times the rate of all 
U.S. workers_*."

This one shows some improvement over time, but still a high ratio 
compared to other occupations:
https://academic.oup.com/occmed/article/64/4/259/1464740
"During 2003–12, the fatal accident rate in shipping (14.5 per 100 000) 
was *_21 times that in the general British workforce, 4.7 times that in 
the construction industry and 13 times that in manufacturing_*. Of 20 
merchant fleets worldwide with population-based fatal accident rates, 
most have shown large reductions over time."

More to understand, but an interesting topic, at least to me so far.

-- Phil


On 4/11/2021 8:24 PM, Phil Koopman wrote:
> 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
(he/him/his)         https://users.ece.cmu.edu/~koopman/

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