Why Insurance Matters
We have never been so close to WWIII and also so close to the use of nuclear weapons on the face of the earth since the end of WWII. Globalization has made the world a smaller place, with a greatly increased interconnectedness of individuals, communities, countries and regions. But just like almost anything in real life, higher interconnectedness in and by itself is not always a positive thing. While it has raised global production efficiency to an unprecedent level, it has also increased global liability (disadvantages, responsibilities) and risk exposures, making the world more vulnerable to, and less tolerant of, risks, hazards and perils.
Get the Terminology Right
Yes, these terms are quoted straight from insurance business. While preparing for my Property & Casualty insurance state exam for my license, I have been thinking about how we can learn from insurance theories and regulations to benefit global governance. Learning with multiple goas in mind can raise the learning efficiency exponentially, sometimes more efficient than tackling a single goal in our full force of power.
To get the terminology straight for latter discussions, risks are the chance of loss, and in the context of international affairs loss is almost always of multiple dimensions (deaths or bodily injuries, financial suffering, military casualties, national security, international reputation, morality). Loss also can be categorized into direct and indirect. Again, almost all losses in international affairs are mixtures of direct and direct loss, and sometimes the indirect loss is even more devastating than direct one.
Exposures are someone’s potential for loss. Hazards are factors or conditions that increase or create chance of loss, while perils are the most important insurance concept since it refers to the direct cause of loss. Insurance is all about transferring risks directly caused by one or several perils.
A Real Life Example of Insurance
The above concepts can be illustrated by a real life example involving dog attacks in the White House. The “First dog” named “Major” attacked several agents of the US Secret Service. In this case, the agents had an unusually high risk exposure to the aggressive dog, while keeping the dog in the WH without appropriate training creates a hazard for all staff and guests other than the first family. The peril that caused the bodily injuries and property damage of the agents — the direct loss — is the aggressive dog, or more accurate dog bites. What about the indirect loss? Let’s say one of the bitten agents later developed symptoms of paranoid and anxiety or even Rabies and can no longer work as a secret agent. That would be an example of indirect loss.
How Good Domestic Insurance Policies Are
Let’s continue with the above example to show how good the homeowners insurance policies (HOP for short) are in this country: The first family is just like other homeowners in the country, whose insurance policy HOP have standard, automatically included personal liability coverage exactly for accidents like that in the WH.
Notice the coverages to be discussed below do not apply to the so called “Dwelling policies” or DPs for rental properties of non-owner occupants. The reason is because homeowners are considered “good risk” for insurance purposes and they must meet a few qualifications such as either a single family house or at most two families, owner occupied and subject to home inspections for safety conditions. DPs are considered sub-standard risk involving more people or older properties.
Back to HOP, Coverage E of Section II of the HOP provides typically $100,000 per occurrence (not per person), which should be more than enough to cover all the losses by the Secret Service agents. Furthermore, Coverage F of HOP provides medical payment to others, usually at $1,000 per person, at least in California. Also note “personal injuries” are defined more broadly than bodily injuries, because it pays for pain and suffering, meaning the indirect cost of mental illness of the agent will be covered.
Dog attack is one of the top perils associated with owning a home, and there is little question that it is always covered. How about the damage to the agent’s coat in the dog bite? No problem — at least in California — where “property damage to others” will be covered for up to $1,000 per occurrence as one of the “additional coverages” of Section II of HOP. Would Biden’s HOP cover the White House where the accident occurred? It should. Temporary residences are covered for HOP, which has a liberal definition of covered locations: primary residence, a new residence, second homes, even rented premises.
Of course, as the POTUS the first family is most likely to be covered by taxpayers’ money for incidences like that. More specifically, the secret agents are to be covered by federal workers compensation, a liability insurance that has a liberal time limit for filing the claim (within three years of the injury) and a rather generous dollar amount cap because it is always paid by employers. Since the secret agents suffered the loss while they were working, and since they were hired by the US government rather than by Biden personally, Uncle Sam is the employer and should pick up the bill and pay (I hope the agents know their rights and filed the claim timely).
However as a personal courtesy, it would be nice for the Bidens to offer to use their HOP to cover a part of the loss to the suffered agents. Of course, the agents are better off getting checks from Uncle Sam, which is most likely more generous than a HOP can offer. So this is only a gesture. But at a minimum, the WH should not try to cover it up, which is a stupid thing to do because some dogs do bite no matter what. To cover it up is like to say the WH has some magic power to transform all aggressive dogs into friendly ones. It has not happened in the past and will not happen in the future.
The reason I spend so much time on domestic insurance is that we can borrow pages from it and apply them to global governance. At the first glance it makes little sense, as all insurance policies always exclude perils like war and nuclear attacks. Those are considered catastrophe and are beyond the capability of individual insurance carriers to cover. Other catastrophes like earthquakes, volcanic eruptions and large scale floods are also excluded by individual insurance firms.
However, here is the point we can borrow: Government, especially federal government, has sufficient resources to cover losses from catastrophic losses. California for example has a California Earthquake Authority (CEA) that mandates all insurance agents to offer earthquake coverage to all homeowners, mobile homeowners, condo unit owners and renters.
When it comes to global governance, national governments can work together to deal with, more accurately to prevent, potential catastrophes like the Russian-Ukraine war from occurring again. I will offer more details on that in the next post(s).