The only institution I have ever received justice from in my life was not a branch of government, but a humble insurance company. Since moving to the San Francisco Bay Area, I’ve had my car broken into no fewer than three times, and each time I was made whole by my auto insurance company. I have previously opined on how insurance policies can be used to regulate the sharing economy, and how such a regulatory system can form part of the foundation of an entirely peer-to-peer society. The flip side of regulation-by-insurance is justice-by-insurance: when a regulated entity’s non-compliance results in a provable loss, their insurance policy kicks in, which compensates the victim up to the covered amount. If the cost of the violation is over the covered amount, the violator would be responsible for paying off the difference to the victim, in addition to either having their insurance premium raised or having their policy canceled altogether. This is not dissimilar to many insurance policies that already exist, most commonly liability insurance policies that cover automobile or workplace accidents. What if we applied this kind of liability protection insurance policy directly to people?
Called “personal liability insurance”, this new kind of policy would compensate the victims of transgression by the covered individual, including sexual assault, battery, and property damage. If an insured individual were to cross these pre-defined boundaries, the victim could file a claim and, if the evidence held, would be compensated directly by the violator’s insurance company. Such an insurance policy would also cover policyholders against violations by other individuals, which could lead to a bounty being placed on the collection of the compensation amount plus recovery fees from the violator. A violator who does not compensate their victim (or their victim’s insurance company) would receive a negative reputation rating from the insurance company which would be recorded in a public reputation database, and the victim themselves would have the choice of providing their own rating. If a violator did provide compensation, they would receive a neutral rating from the insurance company but the victim would still have the opportunity to give the violator a negative reputation rating.
The question arises about what would happen if someone were victimized but there wasn’t sufficient evidence to trigger a payout from either their violator’s insurance company or their own. We could use the current justice system as a reference: the answer being, unfortunately, not much. The victim would have the ability to give the violator a negative reputation rating, but compensation for the violation would not be forthcoming. An insurance company could offer their policyholders tools to increase the odds of both preventing fraudulent claims and recording evidence of legitimate claims, such as a personal video and audio recording device that is activated when it detects sudden motion or elevated voices. Such a device could be a smartphone with a special app installed, a camera that hangs from a necklace, or similar. Surveillance cameras for the home could also be provided which are activated under similar conditions. In exchange for using these recording devices the policyholder could receive reduced rates on their personal liability insurance. Additional discounts could be given to policyholders with positive reputation ratings and a history of good behavior (or rather, a history absent of bad behavior).
When people know that non-compliance with regulatory insurance results in higher premiums or denial of coverage altogether, there will be a greater incentive to be compliant with the regulations imposed by the insurance policies. Those with a history of non-compliance will find it difficult to move around in society if, for liability reasons, businesses and other public places begin turning away those who do not have a minimum threshold of insurance or positive reputation. This can be enforced by facial recognition software built into perimeter security systems or access management tokens which use networked identity and reputation systems to determine whether or not someone trying to enter an area meets the minimum insurance or reputation threshold.
This system is not perfect (no system is) but provides a number of possible advantages over the existing justice system:
Victims are compensated sooner rather than later
Allows for a more granular application of regulation
Externalities are managed by the market rather than politics
Property owners have more control over their own risks and liabilities
Recidivism may be less likely since violators could be treated with more dignity
In a system like this, where interpersonal transgressions are dealt with by the market rather than political forces, questions will inevitably arise about what will happen to those who are uninsurable due to consistent non-compliance with their insurance policies. In the current justice system, violators deemed “high risk” by the law are isolated from society for long periods of time, or even for life, in jails, prisons, and mental institutions, at the cost of taxpayers in the law enforcement agency’s jurisdiction. Where these isolation facilities are privately owned and staffed, there is a perverse incentive for their owners and employees to lobby for as many laws which place one outside of compliance as possible, even if the behaviors in question are relatively benign (for example, possessing dried flowers).
In the new justice system, insurance companies would limit their regulations to only cover those behaviors which actually create a meaningful liability against others e.g. theft, property damage, sexual assault, battery, etc. Worth noting is that in today’s justice system, this limited set of non-compliant behaviors are often externalities of the political environment which violators inhabit. They engage in theft or violence because many other options have been closed off to them by mandatory regulations imposed by the political system (for example, using violence to resolve disputes in the black market rather than taking issues to court). This is not to say that compliance is impossible, but that when people are backed into a corner they will either cower (give up) or lash out (fight back). For those for whom refusing to back down is a matter of pride, fighting back becomes the obvious choice. In a system where options are not so artificially constrained, and non-compliance is only limited to behaviors which directly violate others’ persons or property, non-compliance will be relatively rare.
Even still, what of the people who are serially non-compliant, or mentally incapable of compliance? If they do not have a guardian who is responsible for their safety and the safety of those around them, isolation facilities may still exist. They would almost certainly be more humane than the ones which currently exist, and they would be funded by the insurance companies in order to align the incentives to reduce the number of regulations which result in isolation (more regulations + more enforcement costs = higher premiums for customers = less competitive insurance company). Another option would be for security systems to bar entry for these serial violators in nearly all areas of civilized society, effectively ostracizing them through social and technological means. The worst violators would be on their own for survival, and may even be hunted by bounty hunters looking to recover a debt or obtain a bounty. The way to avoid this fate is simple: don’t violate others’ persons or property, and if you do, make a good faith effort to right the wrongs.
What does any of this have to do with a peer-to-peer society? It’s about the structure of the relationship between the insurance provider and the insured. In a peer-to-peer society, everyone has equal rights of entry and exit. Everyone is free to enter and exit relationships with their peers. This means that there are not a small few who can claim the right to unilaterally impose regulations on others just because they happen to be located within a specific geographic territory. Instead, regulations would be opt-in through insurance policies, and anyone would be free to opt-out and find a new insurance company, or brave life without insurance at their own cost and risk, if they so desired.
Today, people can choose whether they want to opt-in to Lyft’s insurance and dispute resolution services or Uber’s, and choose to do business in a highly regulated marketplace like eBay or a comparatively free market like Craigslist. In the future, when the transaction costs have dropped enough to make such as system economical, people might be able to choose their own personal liability insurance programs which are unbundled from peer-to-peer services so that they can move freely between markets and social spaces and choose to interact with others who have a certain level of insurance coverage. Carsharing companies might only accept drivers and riders with a minimum amount of personal liability insurance to reduce the chance of, and minimize the damage caused by, spontaneous violence, and homesharing companies might follow suit to cover their own edge cases. Such a system would not be perfect – as previously stated, no system is perfect – but would provide a much more healthy balance between freedom of choice, justice, and regulation than is offered by the current legal system.
Thanks to Jeff Andrade-Fong for providing feedback on this post before it was published.