Insurance Starts Well-Meaning But Can Become Its Own Risk
By Paul Smart
There are two basic views of insurance. For the first, think of classic gangster pictures and the snarled idea that one needs some form of protection from all the bad things that could happen to one. The insurance offer comes with a somewhat veiled threat of violence should it be refused. Apocryphal or not, the underlying notion is that refusing insurance is tantamount to inviting disaster, and possibly complete ruin, to one’s property, health, or very life.
The other view, as with all things human, reaches into the ideal of communitarian humanism: The more people who share a risk, the less onerous and frightening it becomes. We all know the maxim: we’re always stronger together than alone. The best way to defeat the great unknowns represented by fate, whether it be to one’s property or health/life, is to incorporate the possibility of such bad outcomes into all one does, paying for it before things actually happen. Out of such thinking comes statistics, the idea of the median and the average, and idealism about societal needs and a common good.
We’ve been hearing much about insurance these days. As with so many ideas filtered into our nation’s black-or-white political dialectic, we look at it all in terms of personal versus shared risk, and future debt. Oh yes, plus a lot of other “us vs them” comparisons.
National leaders who are working toward health insurance for all are as aware as anyone of our personal needs for home, health, life and even vacation/flood and other forms of insurance, they see the concept in terms of its role as an enforcer of communitarianism, and a harbinger of collectivism.
The history of insurance comes close to mirroring the history of written language and mathematics. According to the Wikipedia entry on the concept, “Methods for transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.” Things developed from common-sense attempts to better distribute wares on river craft to the addition of funds, within money loans, to cover the potential for theft or some other form of product loss. Insurance contracts as a thing unto themselves started appearing during those years now attributed as the start of the Renaissance, in Italian port-states where a separate business covering the possibility of losses started to spring up in the late 14th century.
The splitting up of the elements of insurance started to form an “industry,” with particularized branches, in the 17th century. First came the idea of accommodating the possibility of tragic property loss following the Great Fire of London in 1666, followed by an Edward Lloyd’s (of London) plan to similarly cover possible business losses. And then people’s lives (usually the very rich, at first). BY the time our American colonies were looking into independence, the British had moved on to the concept of “mutual” insurance, that set “premiums,” or the amount needed to achieve an “equitable” payout should the worst happen, based on new mathematical formulas for figuring out mortality rates and the statistical probability of bad things occurring. This allowed the growing “insurance industry” the chance to start claiming a “scientific insurance practice.”
The inherent dangers of railroad and steamboat travel, which raced people across various land- and waterscapes at stunning speeds up to and beyond the pace a man or horse could run, pushed the industry forward. In our blooming United States, fire companies formed as another form of insurance: you paid to have the chance your home could be protected by firefighters before any fire was even lit.
Throughout Europe, coalescing national governments started applying the concepts behind insurance to better the lives of their citizens for political purposes. The idea was simple: the happier, healthier and better off a population was, the greater its productivity and more stable its governance. Some nations moved to insure the efficacy of entire segments of their economy through various forms of socialization… to ensure against too much loss, as well as too much profit. In the United States and much of Asia, new forms of shared insurance was set into place to cover people’s old age, and later the costs of care for a nation’s poor or less able.
Sure, this is all a simplification of what’s become one of today’s major areas of business and economic theory. Yet in the end, all insurance comes down to the pooling of funds to deal with perceived risks, to allow for the possibility of “indemnification” should the unthinkable happen,. Meaning “making whole of” bad situations, short of death (while still trying to acknowledge the ultimate leveler’s costs to others).
The dark side of all this, beyond the visible problems inherent in anything attempting to shift the nature of life’s trials and tribulations (a no-no for many religions who see insurance, at its basest, as a means of refuting faith)? How about the creation of false hopes that insurance reduces risk, and not just potential monetary loss from risk; that it insulates us too much from facts of life, like the wrongness of building in floodplains or on time-shifting beaches; and perhaps most-importantly, the creation of new levels of bureaucracy, often mandated (as in auto insurance, if not similar worries about individuals’ healthcare), that can easily “redline” people, population segments, and geographic areas as being too risky for coverage. Some even say we’ve become more risk-prone the greater we’ve insured ourselves. Oh well… so goes the humanity of the “”scientific insurance practices” we’ve spent the last two centuries perfecting.
On the other hand, there are those human roots beyond the gangster image making offers we can’t refuse: of people pooling resources so they can face fate together, and maybe better all lives in the process. Talk about another aspect of our lives, economic and beyond, in need of rethinking.