How Insurance Companies Could Easily Replace Government

TDB's picture

Via The Daily Bell

Government is a big insurance company. Except you can’t shop elsewhere for insurance. And their price is super high. And they threaten you if you don’t want to pay them. And the services they deliver are sub-par for the price. And you can’t itemize your “insurance” to only include the products you need. And often just when you need them most, you find out how incompetent, corrupt, and overall ineffective they are at ensuring you against anything.

Just look at Puerto Rico after Hurricane Maria. Governments play politics with awarding repair projects, while the majority of the island is still left without power. Daddy Yankee was a bigger help than FEMA.

And because the government really doesn’t deliver on their promise of keeping people safe and coming to their aid, people still turn to private companies. People still find it in their best interest to use some of the 50% of their income left after the government plunders the rest to purchase insurance.

You pay property taxes, and these go to support indoctrination centers also known as public schools. They pay for local roads, local traffic enforcers, and firefighters. But these services are collectivized. The firefighters aren’t really there to save your home, they are there to keep the whole town from burning down.

Firefighters are likely some of the most dedicated public employees. The ones I have met often go into the profession for the right reasons, and take seriously their commitment to saving lives. Many are even volunteers. But still, they can only show up after they have been called. Many bravely rescue people from serious situations. But rarely is a structure saved.

That is where private insurance comes in. You purchase private home insurance so that in the event that your home burns down, you don’t lose all the money that has gone into it. But some companies go above and beyond when you purchase insurance from them.

Increasingly, insurance carriers are finding wildfires, such as those in California, are an opportunity to provide protection beyond what most people get through publicly funded fire fighting. Some insurers say they typically get new customers when homeowners see the special treatment received by neighbors during big fires.

“The enrollment has taken off dramatically over the years as people have seen us save homes,” Paul Krump, a senior executive at Chubb, said of the insurer’s Wildfire Defense Services. “It’s absolutely growing leaps and bounds.”

Chubb provides extra protection to the homes they insure in certain zip codes that are prone to wildfires. They get private firefighters on the scene before the building catches. This means instead of being left with a pile of ashes and a check to go about the arduous process of rebuilding your life, you are simply left with your home intact.

Obviously, this makes sense from the insurance company’s perspective as well. They are spending a little money on firefighters so they don’t have to spend a lot of money replacing homes.

So if we have insurance programs like this, why do we need government programs? All the incentives are there for the private insurers. And the outcome is better for the homeowners. But how many homeowners are lulled into a false sense of security by the “free” government services? Since they already paid for the public services, it doesn’t seem to make sense to buy extra protection.

If there wasn’t already a publicly funded organization to fight a fire, people would specifically shop for insurance that included it. Or they would install sprinkler systems, and their insurance company would give them a huge discount on emergency fire services. If they installed an emergency cistern to pump from, even cheaper.

This system also protects neighbors as fires generally spread house to house. Any protected property is a valuable buffer to stop the spread of a forest fire.

And again, we are talking about firefighters, probably the least corrupt and most dedicated government agency in existence. Still, the private sector has a system that makes more sense.

What About the Poor?

A disproportionate amount of poor people live in rented homes and apartments. The owners of these buildings have the same incentive to ensure their buildings are safe. Factor in liability for injuries and that adds more incentives to prevent destruction in the first place. That means more insurance discounts for safe practices.

The poor also benefit from their neighbor’s insurance. As in the case with wildfires, the property being protected is a buffer to other property which may also be saved as a byproduct.

Poor people are still hit with plenty of local taxes like sales tax, excise tax, and food service tax. Some localities even tax income and fuel. So the government already significantly burdens the poor with taxes. If the tax burden didn’t exist to pay for sub-par public “insurance” then it would be easy to afford a little extra private insurance.

The median home price in America is under $200,000 which means you could likely find solid insurance for under $100 per month. Contrast that to the median property taxin America which is $2,149 a year. Suddenly the cost of tacking on extras for your home insurance doesn’t seem so expensive in comparison.

Would This Work for Other Government Services?

So why can’t this be applied to other government services? It can, and is.

If you are insured against property crimes, it means that insurance company has an incentive to reduce the risk that anything is stolen that they will have to replace. Of course, this means the insurance will be cheaper in safer places. But it also means discounts for things like proper locks, security cameras, and maybe even alert dogs.

Home owner’s insurance also insures property against theft. This makes sense because the overall rate of clearing property crimes is 19.4%. That means over 80% of theft, burglary, arson, vandalism, and larceny go unsolved.

And when insurance doesn’t cover it, wealthy people hire private investigators to solve the crimes the police have no interest, or incentive, to solve. About 46% of violent crimes go unsolved. Over a third of murders will not see the perpetrator brought to justice. If your car gets stolen, you have a 13% chance that the police catch the thief.

Despite these stats, America spends $100 Billion a year on policing, and that does not include incarceration.

The insurance provider encourages behavior that should be standard from the start. But because of the false belief that the government provides overall everything insurance, people don’t protect themselves how they should.

Government Replaced By Insurance Companies

The more people that buy into a platinum insurance plan the more the risk is spread. That means cheaper plans. But the government makes people believe they are already covered by public services.

This is the idea behind government “insurance.” The risk is spread so far and wide that in theory, it should cost very little to be protected. But the government doesn’t run like an insurance company. Their incentive is not to reduce costs to themselves nor the people they protect. Because they don’t have to entice customers, they can charge more than a fair market price for their protection. Because customers cannot opt out, there is no incentive to provide good service. And since they are only tasked with protecting the property, and not replacing it, they have no actual incentive to prevent loss.

Companies like Chubb are setting a great precedent for the future of insurance. If the government didn’t take so much of our money, there would be an endless array of insurances to choose from to replace everything the government does now. And it would be better service, for cheaper.