Or increased premiums, or torture, or whatever. I think the idea is if you don't like what the insurance company uses as a threat of punishment you can just sign a contract with a different one.
This assumes that someone has the time to read full-length legal documents and comprehend them. A task that is difficult for a lawyer, someone who is not only trained, but paid to do such things. It also assumes that the market wouldn't stablize around an equilibrium that is good for the market and the companies, but bad for the individual -- something that frequently happens with regards to loan companies.
> Presumably, the insurance companies will be strongly motivated to teach their clients how to stay out of trouble.
Why? If your clients don't stay out of trouble, you get free indentured servants. It seems to me there is incentive to make it harder to stay within the confines of your contract.
In the framework proposed in the article, if an insurer's clients don't stay out of trouble, the insurer has to pay fines on their behalf. If they can't pay their insurance premiums, they become indentured servants until they can.
The indentured servants aren't free and probably aren't profitable. These are people who can't make enough money on the open market to pay their premiums, so it seems unlikely that the workhouse will be able to generate more profit per worker than that. Given that insurance companies will lose money for everyone that converts from paying premiums into a workhouse laborer, they'll be highly motivated to get them back into the real world with a job, modulo the risk of them getting into trouble and causing another fine. So I don't see the incentive you mention to get them to break the contract.
> I think the idea is if you don't like what the insurance company uses as a threat of punishment you can just sign a contract with a different one.
It's more than that. The requirement to have such a contract with an insurance company gives people an incentive to not engage in behaviors that will make it more expensive for them to obtain such a contract, just as the requirement to have auto insurance in order to drive gives people an incentive to not engage in behaviors that will make it more expensive for them to obtain such insurance.
More or less. There are other formulations in which the insurance-function is bundled with other things (membership in an HOA-like structure, other protective services, etc.), but this is a fairly common scheme supported by a lot of anarcho-capitalist types. You can find some academic economic treatment in _The Machinery of Freedom_, by Friedman, and Vernor Vinge (science fiction author) seemed taken with the notion, too. He experimented with it in the _Across Realtime_ stories. Edit: Also Neal Stephenson, sort-of in _Snowcrash_, explicitly in _Diamond Age_.
I strongly dislike the notion because I believe access to justice is a bedrock function of society. But folks who think like me should also think long and hard about how much access "we" (in the US, not speaking for anyone else) have to justice without a big bank account now, and to what extent this would really change much.