Normally I'm no supporter of socialist economics as I view it as having been shown (by history) to be inferior to market capitalism at serving GDP.

However I believe the Insurance Industry may be an exception if it were both more efficient, and justifiably used to serve almost everybody due to state intervention.

My idea is simple…
If e.g. a insured house structure is worth £100,000 and completely burns down, then £100,000 worth of capital will have to be converted into repairing what previously existed before. So the world economy is worse of after the fire than before, regardless of who actually foots the bill.

If the house never burns down but over 20 years £20,000 is collected by the insurance company then only some of this money is put into repairing-placing others property. The rest is spent on marketing, wages, renting offices for staff, heating and electric bills for company HQ and then it’s taxed. Only whatever money is actually left is reinvested in the world economy.

Wouldn’t it be better if the government said…
Dear taxpayer: How about we automatically insure you’re home structure against fire to 80% of its value? That way there will be almost no bureaucratic costs because it’s a straightforward simple formula. And because it’s only 80% of the properties value there is no incentive for you to light a fire deliberately.

Now of course some people will want the other 20% insured.
I say let them go ahead. This means they’ll be using a private insurance company which (as now) has an incentive not to waist money, firstly because that’s potential profit, and secondly because the Consumer can shop around. Also (as now) they’ll still waist money on the things (previously listed) they find a necessity, but at least its only a wastage based on 20% of the properties insurance (unlike the 100% it is now).

Stopping The Government From Screwing Up…
Of course there is still one way the government can get things wrong: Someone has to value what the burnt out property was worth before it was burnt down.
Now you might not have thought this was much of a task, after all people get property valued all the time, local councils have a good idea from Council Tax. But hay it’s the government!!!
Before Margaret Thatcher the government used to own in England…
1. The coal mining industry
2. The power generating industry
3. All the railways
4. All the aeroplane industry
5. All the telecommunications
6. All the water-sewage companies
7. Almost all the shipbuilding industry

Yet they managed to run ALL of these (bar a few exceptional years individually) at a continuous loss, to the point where in the late 1970’s it was a significant burden the governments total taxpayers income. On top of that most of these industries where run down, if not completely then at least in far many more places than they would be allowed to get away with in today’s regulative and financially competitive environment.

Understanding the ability of well meaning elected governments to screw up with their taxpayers money can be something very hard to you’re head round. Basically it works like this…
1. It’s not really the politicians own money
2. They’ll happily do things inefficiently just to be popular-electable
3. (Most importantly) most politicians are skilled at making promises, spin and deception. Very few of them actually have serious qualifications in economics, of those that do it’s often something they learnt many years ago when they were at university or school. And if you’re a politician most far more readily consider someone for an important post based upon that persons political loyalties to themselves, than on what school qualifications they have, and don’t have.

So How To Do Things Efficiently…
About two ways that come to my mind…
1. Demand that in order for property owners to apply for the governments 80% Insurance they must get private insurance for the other 20% (who then do the full valuation in the event of a fire). This means the private sector still gets used because it has a commercial incentive not do bad valuations.
The political problem here: Is that it moves my idea more into a way of the rich benefiting the rich (poorer people will be less likely to get the 20% evaluation).

2. The government works out what it gives out on a average year through its 80% insurance. It then divides this figure by 80 and Times it by 20. It then gives this 20% back to the owner. The owner then legally has to find a private insurance company to insure the other 20% of their property. Because private companies (with operating costs) cannot be as efficient as mathematical formulas obviously the home owner will have to fork out a bit.
However if the government where to deliberately give out more than 20% say 23% then the home owner may be left in profit. (Through obviously it’s (effectively) only a quite modest tax reduction) (since my idea must be paid for by either tax increase, or spending cuts in other areas).

Ensuring Efficiency….
Like with many big industries the government still reserves the right to regulate. For the other 20% insurance I recommend they require that e.g. 80% of medium term insurance company revenue goes out on insurance company payments.

Conclusion…
All measures would make the insurance industry a minimum of 96% efficient, whilst allowing the entire country to be insured for all sorts of things.

Actually that's incorrect. The economy benefits from all the transactions involved in the repair. Stagnation and tied-up money is what stifles economies.

[edit on 30-10-2007 by SteveR]

Of course the economy benefits from re-construction. My only point is that the money has to be spent from somewhere, so perhaps it may as well be from the state? And if stagnation of capital is such a problem then you would have thought the government would make either as good, or even a better insurer as far as being able to average out expenditure on disaster better than 30 or so competing insurers with their own independent reserves. Only in larger scale disasters (where both entities borrow money) would state-and private sector be about the same.