Economists have long pointed to the imperfections of insurance markets and the problems of fairly and efficiently pooling

Economists have long pointed to the imperfections of insurance markets and the problems of fairly and efficiently pooling the risks we face.The first imperfection in the market is that of "moral hazard". There they believe that regulation or public provision is a far more cost-effective - as well as more equitable - alternative to current arrangements.But these weaknesses aren't new. For permanent health insurance (private sickness benefit), they argue that the private insurance market is even less efficient because insurers are desperate to avoid getting stuck with costly, sickly customers. Were mortgage protection insurance to be made compulsory, for example, and differential premiums strictly regulated, considerable savings could be made. The middle-aged man on average earnings who wanted cover for his pounds 250 monthly mortgage repayments, pounds 200 weekly sickness benefit and pounds 1,250 monthly long-term care cover would find himself forking out pounds 992 a year - about a half of his current National Insurance contributions.The Rowntree authors suggest that part of the reason for these high costs is the inefficiencies of current private sector provision. Authors John Hills and Tania Burchardt discovered, for a start, that the cost of private cover is currently extremely high. By insuring ourselves - whether against burglary, car crash, the death of a family breadwinner, unemployment, or disease - we share the cost with everyone else of the terrible things that happen to just a few of us.The trouble is that private insurance markets don't quite work the way they are supposed to - as a new report from the Rowntree Foundation into private welfare provision makes clear.

If we all had to save to cover ourselves for every eventuality and every rainy day, savings would be far too high; rainy days won't drench all of us all at once. So too are permanent health insurance (designed to provide sickness benefit) and cover for long-term care. Cover for monthly mortgage payments, should a homeowner get sick or lose a job, is one burgeoning addition. Little bits and bobs from the welfare state keep vanishing and popping up again - thanks to the Social Security Secretary - in the private insurance market. PETER LILLEY has been lopping. Stable prices are fine, for they ultimately help to establish a base for more stable growth.

The outlook is much more akin to the economic downturns of the last century when, in the long term, economic progress continued but was interrupted from time to time by sudden downswings. It will take place in a world of stable or maybe even declining prices.Does that mean we are facing a 1929-type crash and depression? Not really, for that period really was exceptional. The second is to point out that this recession will take place in a very different global economic environment than any downturn since the Second World War. The first is that the economic cycle does still exist and that therefore at some stage in the next four or five years there is likely to be another recession. But official forecasters get things wrong too: disagreeable facts of economic life, like recessions, are hardly ever predicted by mainstream economists.The purpose of this sort of scaremongering is to remind people of two things.

Things don't ever happen quite the way the scenario-painters predict. There is a recovery - there is always a recovery - but it does not get under way until 2001 and the early years of the next century are blighted by fairly slow growth.Of course, that will turn out to be wrong. By the end of this year it is clear that 1998 is going to be difficult for the world economy as a whole, but the next global recession really bites in 1999. Growth in the UK is fine through this year but tails off quite quickly in 1998.Four.