Law Commons^™

The Limits Of Regulation By Insurance, Kenneth S. Abraham, Daniel Benjamin Schwarcz

Indiana Law Journal

Insurance is an enormously powerful and beneficial method of spreading risk and compensating for loss. But even insurance has its limits. A new and misleading aspiration for insurance—that it also can and often does substitute for or significantly complement health and safety regulation—is increasingly in vogue. This vision starts from the uncontroversial recognition that insurers typically adopt measures designed to counteract “moral hazard,” the tendency of insurance to blunt policyholders’ incentives to take care. But proponents of this vision go on to contend that the risk-reducing potential of insurance is significantly more extensive than is traditionally imagined, because insurers are …