- Insurance as Governance, and: Risk and Morality
One of the more unusual aspects of Michel Foucault's intellectual legacy has been the emergence of a small cottage industry of theorists with an abiding interest in the insurance industry. The reasons for this are not to difficult to find, since it is difficult to think of an institution that more closely matches Foucault's description of a 'power/knowledge regime' or 'government by truth' than the insurance industry (and its homologue, the 'social safety net' of the bureaucratic welfare state).
Foucault's basic view, it will be recalled, is that the dichotomy normally assumed between power and knowledge is a false one. Power produces knowledge, knowledge which, in turn, permits the reproduction of power. Thus a particular body of knowledge is simply the manifestation of a certain configuration of power in society; the terms represent different ways of analysing one and the same complex.
As a general approach of the history of ideas, this kind of naïve cynicism has little to recommend it. But in the case of the insurance industry there is enough of a resemblance to give anyone pause. It is quite clear that without the development of both population statistics and probability theory in the late eighteenth and nineteenth centuries, the emergence of actuarial science would have been impossible. Without actuarial science, there would be no insurance industry. At the same time, the emergence of the insurance industry, along with the demands of actuaries, is what provided the central impetus for the development of these bodies of knowledge.
Thus many social scientists sympathetic to Foucault have turned to the insurance industry as a way of demonstrating the 'cash value' of his methodological framework. Insurance as Governance is an excellent example of this tendency. Of course, the insurance industry is also a fascinating object of study in its own right, and much of the analysis in this book - based upon 224 interviews conducted with insurance industry insiders in Canada and the United States - is of considerable independent interest. A sense of the Foucauldian background is important, however, when it comes to understanding why theoretical reflections on the changing nature of 'governance' occupy the first one hundred pages, or why the conceptual framework employed in the book deviates so resolutely from the standard economic approach to the understanding of the insurance industry.
Indeed, the first thing about Insurance as Governance that many readers will notice - especially those with a background in economics - is that the authors eschew the concepts of 'moral hazard' and 'adverse selection' as [End Page 161] a framework for understanding the market dynamics of the insurance industry. The temptation here is understandable, since these two concepts have been subject to a certain amount of over-use in recent years. Nevertheless, it is not obvious that the alternative conceptual framework employed by the authors represents much of an improvement.
The concept of 'moral hazard' gets assimilated by the authors into a broader category referred to as 'moral risk,' which is defined as pretty much any circumstance in which one individual has the opportunity to externalize costs onto another. Their motivation for this recategorization is primarily political, based upon a desire to emphasize the ways that insurance companies take advantage of policy-holders, rather than just the other way around. Perhaps unsurprisingly, this sort of reasoning does not produce the most analytically perspicuous system of classification.
For instance, the authors describe both the problem of fraud and the problem of moral hazard as 'moral risks' that insurers must contend with. Yet the two are very different. In the standard run of cases, fraud does not increase actual losses, it merely involves misrepresentation. Moral hazard, on the other hand, actually increases losses - which can then truthfully be reported. Moral hazard is a rather counter-intuitive phenomenon, which affects the insurance industry in a very particular way. Fraud, on the other hand...