Many libertarians say that the insurance industry would regulate behavior in a free market. I have probably mentioned it on the site before, I work in the insurance industry (Life, LTC, DI, Annuities….If any of you out there sell insurance and need a new BGA, don’t hesitate to contact me!). This past week I was out on the West Coast visiting one of the insurance companies we represent. It was a very nice week. They put us up in a great hotel, we got to meet several people I normally only talk to on the phone, plus we learned about their products, their niches, some sales ideas, and tons of other good stuff. However, I think the most valuable time was spent talking to the underwriters.
Underwriting is a pretty cool job. They get an application, the insured’s medical history, a prescription drug check, and the insured does a short paramedical exam, then the underwriter decides if they are going to make an offer to the client. Anyone who has gone through this before know the underwriter can decide to issue the policy as it was applied for or they can modify the contract and offer a rated or limited policy. The prospective insured can then decide if they agree to the terms and put the policy in force. It is a great example of voluntarism in the real world!
One of the questions that came up during the Q&A with the underwriters had to do with legalized recreational marijuana in Washington and Colorado. “Now that recreational marijuana is legal, will you treat it like you treat alcohol? If someone has a glass of wine every night, you do no hold it against it, will you now do the same with marijuana?”
Good question, I guess. The answer was what I expected, but was encouraging none the less. The underwriter said. “There will be no changes at the moment. As of today we will handle it the same way we have been; we will issue a policy to an occasional marijuana smoker. We’re not concerned so much with legality, we’re more concerned with the risk of making a claim.” The underwriter also mentioned that in 5 years their attitude might change, since now they will have better statistics on pot smokers since it is now legal.
This little question and answer makes a few points: first is that the person asking the question doesn’t really understand how insurance works (I’m going to assume she went to public school!). She is fixated on the state. If the state says no then it must be wrong and we all must say no! From the insurance company’s viewpoint, they don’t really care what the law says (shouldn’t we all!). Instead, they care whether or not this is going to cost them money in the long run.
If they find that people who test positive for marijuana make more disability claims than people who do not smoke marijuana, they will raise the rates on marijuana smokers, if there is no difference, the rates will be the same. Maybe they would even find out that if you smoke marijuana, you are less likely to make a disability claim. If that is the case they would lower rates for marijuana smokers. That is exactly how they will help regulate the free market!
If you choose to take on risky behavior, your insurance rates will be higher. You can choose to take that risk! You can also choose to self-insure and not pay any insurance premium at all. Pot smokers generally aren’t hurting anyone, at least the act of smoking weed isn’t, but it might hit their wallets a little harder if it is truly a dangerous activity. If a certain company hates marijuana and they want nothing at all to do with pot smokers, they can raise the rates through the roof or they can flat-out decline them. If in reality they’re a decent risk, another insurance company would be happy to take them. It’s amazing how the insurance industry works!