Safety, Simplicity, and Transparency in Insurance

How could a government program have freed up markets to innovate? Simple: by getting the government to do something it already does decently well, which is to function as the insurer of last resort. Deposit insurance, pioneered by the United States, has basically halted bank runs. Pension benefit guarantees have made sure seniors don’t end up in penury. (The Pension Benefit Guaranty Corporation could be better financed, but that doesn’t mean the idea itself is bad.) FEMA essentially functions as an insurer of last resort for people struck by natural disasters. These programs introduce a certain amount of moral hazard, as people take more risks and underinsure themselves in the expectation that the government will pick up the tab. But when you look at the devastation these programs have mitigated, it is hard to call them anything but an overwhelming success.