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Life Health > Life Insurance

What is Life Worth?

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When I was in college, I took an economics class in which the professor asked us what a human life was worth. While my classmates argued that you couldn’t really place a value on life, I argued that somehow, you could. After all, if you were in a lifeboat and you had to dole out food and water to keep just one person alive, and on the boat with you was a genocidal maniac and a person who would publish a cure for cancer once she got back to shore, the choice would be easy. The maniac goes hungry. In that extreme-to-the-point-of-silliness example, it is easy to assign value; the cancer-curer is obviously worth more to those around her than the killer. Reality, of course, is not so cut and dry, but the truth of human value remains, as much as we would rather not think about it.

This came up recently when Indiana newspapers reported on how funds would be distributed to the various victims of the August 13 stage rigging collapse at the Indiana State Fair that killed seven people and injured numerous others. More than $1 million in total funds, much of which was donated, will be split among a pool of 28 victims, including the estates of those killed in the accident. But like any dispersal, there is controversy over who is getting the money and how much. One stage hand who claims he has not worked since the accident, is getting nothing and feels cheated, for example. Another victim has been offered compensation but claims it is not enough.

The line from this story that struck me was from Kenneth Feinberg, an adviser for the State Fair Commission, who asked the rhetorical question, what is a life worth? He defended how the State Fair Relief Fund dispensed some $400,000 to collapse victims, saying that the commission was doing the best it could what what would appear to be an impossible calculation. Feinberg, as you might recall, had a similar task when trying to get folks to join the September 11 Victim Compensation Fund, His job was no easier then.

However, lives do have value, regardless of any controversy involving the stage collapse. An interesting article by the Cato Institute from winter 2004-2005 discusses how the “value of a statistical life” is the benchmark for putting value on human life in general, but even then, there is no one single method for computing what we are worth. It notes the various methods used to calculate a life’s worth, and points out how different estimates come up with substantially different values. Most seem to come in around $2 to $3 million for a life, presumably an American one.

(I recall while writing an article on airline liability costs some 15 years ago that the average liability cost for a passenger fatality was north of $1 million for Americans, Canadians and western Europeans, slightly less for other people depending on what part of the world they hailed from. This is why families always sue airlines after a crash, by the way. The Warsaw Convention, created to limit airline liability in its early days now caps the liability cost for a passenger fatality at a mere $75,000 absent any sign of negligence, which always prompts survivors to sue airlines for negligence after a crash. Why the industry does not change that, when it would gladly settle for more to avoid unnecessary legal action, is beyond me.)

Interestingly, the federal government, which you would think would definitely have a single figure it applies across the board, is all over the place on the issue. Case in point: the Environmental Protection Agency took a lot of heat a few years ago, during the Bush administration, when it revised down its estimate of the worth of a life, prompting critics to suggest that the EPA was merely trying to lower the cost of the impact of environmental problems as justification for loosening environmental regulations in general. Meanwhile, today, a variety of agencies, including the EPA as well as the Food and Drug Administration, the Department of Transportation, the Consumer Product Safety Commission and the Federal Aviation Authority (there go those airline liability numbers again), all hold to different figures, ranging from $5 million to $9.1 million.

One imagines that the lack of uniformity is to give various governmental agencies political wiggle room when it tries to push for whatever it is pushing for. Perhaps the lack of a single figure is to skirt acountability for government initiatives when their costs come home to roost. Case in point: the 6,290 American service members who have died as of this writing in Operations Iraqi Freedom and Operation Enduring Freedom would yield a human cost of $31.45 billion at the $5 million/life estimate, and a human cost of $57.23 billion at the $9.1 million/life estimate. You don’t want to know how much the WWII U.S. service member death toll would have been.

Where this concerns the life and health industry, of course, is how life valuation figures into product pricing. When buying life insurance, customers are sometimes asked to imagine what costs they want covered by their coverage rather than to imagine what their life is really worth. When getting group health coverage, one’s own value appears to be nowhere in the equation; the coverage provided is the coverage the company can afford. This calculus of human worth is never an easy one, and the intangibles involved make for deep schisms between how we pay for life and the worth we assign to it. The case of comic legend Bill Mantlo is an excellent example of this, and it is just one example amid many in which the general public gets the feeling that the life and health industry really does not have its policyholder’s best interests at heart. 

That is a broad criticism and one often made without a whole lot of knowledge as to how the industry really operates, or what challenges it faces itself. Having said that, though, transparency can be a very good thing indeed, and perhaps if more insurers made publically available how they come to value a human life, it could not only help drive a wider openness to insurance pricing and claims management, it could drive better competition between insurers, as well as drive a larger conversation among the public that even though we all like to think of ourselves as priceless, when it comes right down to it, there is a price tag over each and every one of our heads. Better we acknowledge it and live with that information constructively than to pretend it’s not even there.

The value of a statistical life


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