Engineering Schools, Insurance Companies, and Other Influential Institutions
There are a host of institutions at the periphery of this study that obviously play an influential role in the achievement of public safety objectives. These institutions interact with private standards-setting in ways that are not well understood and deserve more attention. The rest of this chapter contains speculation about the policy implications of the influence of three "external" institutions on private standards-setting.
The discussion is organized in decreasing order of speculativeness. That is, the institutions most peripheral to the case studies, about which only the most tentative statements are possible, are discussed first.
Engineering Schools . One important institutional influence on standards-setting comes through engineering education. The influence is diffuse and difficult to measure but nevertheless important in shaping the ethics that predominate in the private sector. Engineering education has been criticized for being too narrow in focus. This study does not examine the details of engineering education, but it supports the conclusion that revisions might improve private standards-setting. A greater educational emphasis on economic trade-offs and human factors might improve the reasonableness of standards in two ways, respectively making them less demanding when the benefits are low and more demanding when human factors account for significant injuries.
Building Code Organizations . By design, this study also concentrates on "paired" public and private cases. In reality, however, private standards typically come in connected pairs or interlocking webs. The tendency of the private sector to separate product standards from installation and use codes is exemplified by the division of labor between UL and NFPA. The symbiotic relationship between these organizations is somewhat mysterious, and at times problematic. Matters are complicated further by the process through which these standards most often become law: municipal building codes. Building codes draw on the efforts of NFPA and UL, as well as those of various regional building code conferences—organizations that draft model building codes. The importance of the linkages between all these standards is clear. How to improve building code enforcement and achieve better coordination between installation codes and product standards is not. Perhaps the recently abandoned federal housing code deserves reconsideration. Possibly the government should institute a mechanism for bringing together those who write installation codes and product standards. Without improvements in the enforcement of building codes or the integration of design and use standards, it appears likely that some improvements in private standards will ultimately prove ineffective.
Insurance Companies . Insurance companies are also key actors affecting public safety. Not only do they spread risk, but, through
insurance underwriting, they determine which risks are insurable and at what rate. If premiums accurately reflect risk, then insurance can help internalize externalities and improve public safety. Several major standards-setting organizations, including UL and NFPA, trace their origins to the insurance industry. Safety standards help insurers in two ways: (1) they provide convenient underwriting criteria, and (2) they promote general loss control. But what about the reverse influence—that is, how insurance companies affect standards-setting? Two possible influences are indicated by the case studies. Both seem rather weak, however, suggesting the potential for improvement.
The first way insurers affect standards-setting is with information. Insurance companies identify problems and manage information. In theory, they should be able to provide standards-setters with helpful data on the size and nature of various hazards because insurers pool information on claims through institutions such as the Insurance Services Organization. In practice, however, insurers apparently contribute little useful information to standards-setting efforts. An insurance company representative testifying in favor of the CPSC woodstove rule was embarrassed by questions about the actual magnitude of the problem. In an analysis of residential fire insurance, David Hemenway concludes that "the insurance industry has not been especially helpful in providing useful [loss control] data." He suggests several policies that might improve the situation, but all require further study."
Second, as one of the primary users of safety standards, insurers are potential watchdogs for the quality of these standards. Unlike many participants in standards-setting whose interests are vested in particular products, insurance companies have a purer motive: reducing losses. Insurers certainly make use of these standards. Product liability insurers require compliance with UL and AGA standards. Some grain elevator insurers require compliance with NFPA 61B. But the case studies suggest that insurers are not very demanding users of private standards-setters. They are seldom involved enough in the details of particular hazards to know a good standard when they see one. Insurers play almost no role in the NFPA committees on aviation fire safety, even though individual fires can be catastrophic. The grain elevator standard is sadly lacking in critical areas of grain elevator safety, but reinsurers are apparently unaware that more effective standards for safety are possible. Moreover, in neither the grain elevator case nor the woodstove case does it appear that the premiums charged by insurance companies reflect differences in risk. Airline
officials also contend that their premiums have nothing to do with their loss control efforts.
This study suggests that insurance companies could improve the quality of private standards if they were more demanding. A small reinsurance company was apparently instrumental in getting UL to change its requirements for metal chimneys. But the low priority that many insurance companies seem to place on loss control has been noted by Hemenway. How to maximize the potential of insurance as a regulator of risk has long been a puzzle in the area of workers compensation. Somehow, the critical role of insurers as assessors and regulators of risk should be more widely recognized so that these issues are addressed in various areas of public safety.