I think this applies to private/for profit sectors of healthcare too: nurse practitioners are cheaper than doctors (who spend a lot more time in school and hands on training) so hospitals prefer to move as much patient care as possible to them (and hire fewer doctors).
Then, patient care suffers: misdiagnosed and incorrectly medicated patients die. And while it is possible to sue hospitals, it is too late and hospitals have evolved to cover up the misconduct (as a natural survival mechanism). And fire the NP to replace them with another MP isn’t a solution to the systemic issue of being profit driven without clear and direct accountability for patient outcomes. (And outcome driven medicine also has problems like panel shaping…)
Read regular arrow as “ more of this leads to more of that/less of this leads to less of that”. With a dot the influence is reversed—less of this leads to more of that or vice versa.
This is an interesting article. I've often wondered how automated the underwriting process is in the insurance industry. Are many applications for coverage accepted or rejected based solely on parameters deemed significant for input to the decision-making algorithms? Seems to me that a less automated process, considering the merits of each application, might be too labor-intensive to be profitable.
Too bad we don't have any technologies on the horizon that promise to replace human drudgery. The first insurance company that figures out to break out of risk shaving is going to have a massive advantage.
Really interesting systems view of the insurance industry. Thank you, Ken. I suspect this explanation also applies to the challenge of securing homeowners insurance coverage in the Florida.
If one company finds a way to take business from others by metabolizing *more* risk, then the competitors will have to respond by metabolizing more risk and around and around.
I see. If I can try to restate, the "good news" is that these loops can often run in both directions. If I'm trying to answer "how can I get from Boston to Worcester", I should be delighted to find a train that is currently running from Worcester to Boston; those tracks probably run both ways. Is that it?
That's part of it. Take a loop like "weight->shame->eating->weight". If the stimulus is "more weight" then we're going to end up with more weight. Using the same reinforcing loop, though, if the stimulus is "less shame" we'll end up with less weight. Same loop run to opposite goals. Does that make sense?
I disagree with your premise that insurance was created for a social benefit. In all your examples, the person paying the premium for the insurance is the primary beneficiary. He gets the mortgage. He gets the VC funding. He meets the terms of the divorce decree and obtains a divorce. The insurance company is a private business beholden to its stockholders, not "society." Selling products to willing buyers at a profit benefits the stockholders (and the customer; win/win). I don't see where "society" has any claim here.
I agree that all the risk-shaving creates a market opportunity. I hope an innovative company rises up to fill it.
Your argument implies that reducing risk _both_ increases and depresses sales. If sales are depressed, doesn't that leave money on the table for increased risk scenarios, essentially what you describe the market solving in Germany?
I.e. this sounds like a severe market failure. Why is this happening? I thought investment capital was (until very recently) practically endless.
I find this post very puzzling. In the UK all the major insurers will offer cover to individuals who have higher risks and these cases are all individually underwritten and have been forever. The rates for those without extra risks are still fiercely competitive. Premium rates are often determined in part by (international) reinsurers who help the direct insurer with pricing and will take on some of the risk.
Is it really so different in the US and if so why?
One of the most important lessons I've learned from following your work and the Extreme Programming movement is that it's important that we stay real and grounding and talk to each other.
To me, this, like many other problems we face this century have a common root of complex systems falling apart because they are fragile. Because they are based on unproven assumptions. Focused on wrong goals and outcomes. Our social code, much like computer code, has gotten so complex that it has outpaced our vigilance to making sure it's being done correctly.
I think this applies to private/for profit sectors of healthcare too: nurse practitioners are cheaper than doctors (who spend a lot more time in school and hands on training) so hospitals prefer to move as much patient care as possible to them (and hire fewer doctors).
Then, patient care suffers: misdiagnosed and incorrectly medicated patients die. And while it is possible to sue hospitals, it is too late and hospitals have evolved to cover up the misconduct (as a natural survival mechanism). And fire the NP to replace them with another MP isn’t a solution to the systemic issue of being profit driven without clear and direct accountability for patient outcomes. (And outcome driven medicine also has problems like panel shaping…)
https://archive.is/2024.11.22-235242/https://www.bloomberg.com/news/features/2024-11-22/what-happens-when-us-hospitals-binge-on-nurse-practitioners
Good insight, Kent !! Thank you . Could you please help with the below doubts:
- What is the difference between arrow (with circle dot) and arrow (normal one) ? - Also, does US imply us as in 'we' or as United States ?
Read regular arrow as “ more of this leads to more of that/less of this leads to less of that”. With a dot the influence is reversed—less of this leads to more of that or vice versa.
US means “us”.
This is an interesting article. I've often wondered how automated the underwriting process is in the insurance industry. Are many applications for coverage accepted or rejected based solely on parameters deemed significant for input to the decision-making algorithms? Seems to me that a less automated process, considering the merits of each application, might be too labor-intensive to be profitable.
Too bad we don't have any technologies on the horizon that promise to replace human drudgery. The first insurance company that figures out to break out of risk shaving is going to have a massive advantage.
Really interesting systems view of the insurance industry. Thank you, Ken. I suspect this explanation also applies to the challenge of securing homeowners insurance coverage in the Florida.
"It’s always good news when I find a reinforcing loop that just happens to be running backwards from my goal"
I've re-read this a couple of times, and I can't get my head around this one. I'd love to think of this as good news, but I can't see how?
If one company finds a way to take business from others by metabolizing *more* risk, then the competitors will have to respond by metabolizing more risk and around and around.
I see. If I can try to restate, the "good news" is that these loops can often run in both directions. If I'm trying to answer "how can I get from Boston to Worcester", I should be delighted to find a train that is currently running from Worcester to Boston; those tracks probably run both ways. Is that it?
That's part of it. Take a loop like "weight->shame->eating->weight". If the stimulus is "more weight" then we're going to end up with more weight. Using the same reinforcing loop, though, if the stimulus is "less shame" we'll end up with less weight. Same loop run to opposite goals. Does that make sense?
I disagree with your premise that insurance was created for a social benefit. In all your examples, the person paying the premium for the insurance is the primary beneficiary. He gets the mortgage. He gets the VC funding. He meets the terms of the divorce decree and obtains a divorce. The insurance company is a private business beholden to its stockholders, not "society." Selling products to willing buyers at a profit benefits the stockholders (and the customer; win/win). I don't see where "society" has any claim here.
I agree that all the risk-shaving creates a market opportunity. I hope an innovative company rises up to fill it.
Your argument implies that reducing risk _both_ increases and depresses sales. If sales are depressed, doesn't that leave money on the table for increased risk scenarios, essentially what you describe the market solving in Germany?
I.e. this sounds like a severe market failure. Why is this happening? I thought investment capital was (until very recently) practically endless.
I find this post very puzzling. In the UK all the major insurers will offer cover to individuals who have higher risks and these cases are all individually underwritten and have been forever. The rates for those without extra risks are still fiercely competitive. Premium rates are often determined in part by (international) reinsurers who help the direct insurer with pricing and will take on some of the risk.
Is it really so different in the US and if so why?
One of the most important lessons I've learned from following your work and the Extreme Programming movement is that it's important that we stay real and grounding and talk to each other.
To me, this, like many other problems we face this century have a common root of complex systems falling apart because they are fragile. Because they are based on unproven assumptions. Focused on wrong goals and outcomes. Our social code, much like computer code, has gotten so complex that it has outpaced our vigilance to making sure it's being done correctly.