Freakonomics is at the top of my summer reading list. With the lofty subtitle “A Rogue Economist Explores the Hidden Side of Everything,” you might expect a wild trip into the inner workings of secret societies and business cabals. But what you get is something else, indeed …

Authors Levitt (the economist) and Dubner (the wordsmith) build the case for many interesting views along the way.

This passage on term life insurance is a case in point:

In the late 1990s, the price of term life insurance fell dramatically. This posed something of a mystery for the decline had no obvious cause. Other types of insurance, including health and automobile and homeowners’ coverage were certainly not falling in price. Nor had there been any radical changes among insurance companies, insurance brokers, or the people who buy term life insurance. So what happened?

The Internet happened. In the spring of 1996, Quotesmith.com became the first of several websites that enabled a customer to compare, within seconds, the price of term life insurance sold by dozens of different companies. For such websites, term life insurance was a perfect product. Unlike other forms of insurance–including whole life insurance, which is a far more complicated financial instrument–term life insurance policies are fairly homogeneous: one thirty-year, guaranteed policy for $1 million is essentially identical to the next. So what really matters is the price. Shopping around for the cheapest policy, a process that had been convoluted and time-consuming, was suddenly made simple. With customers able to instantaneously find the cheapest policy, the more expensive companies had no choice but to lower their prices. Suddenly customers were paying $1 billion less a year for term life insurance.

I’ve spent time looking for term life policies online. While I can hardly imagine what it was like in the bad old days, I’d never truly stopped to consider how the net had changed the market so radically.

While the book is not without its faults (nor its controversies), Levitt and Dubner positively nail it when they write, “Information is the currency of the Internet.”

We’re all the richer for it.

Freakonomics is a mind-expanding read, whether the topic is selling term life insurance on the net, what we name our kids, or where have all the criminals gone. If you’re looking for a thought-provoking book to read at the beach, by the pool, or in the hammock, look no further.

[tags]life insurance[/tags]