Have you ever thought about why we buy insurance to handle risk in our lives? After purchasing auto, home, health and life insurance, you’ll probably get a sales pitch from an appliance store sales person to insure your washer, dryer and fridge. Walk into an electronics store, like Best Buy, and out you walk with a new laptop computer insured against any failure for three years.
Many credit cards come with “free 90 day theft and loss protection” in case someone steals your laptop or you leave it at Starbucks. How about credit risk when some nerd steals your identity? Have a small business? You can cover that too by having a “security risk manager” assess your business for potential disasters. Construction companies need insurance in case a crane accident crushes people to death. Own an oil derrick? You need liability coverage, especially if you like drilling in deep water.
How about unemployment or workman’s compensation coverage paid by your employer? Maybe you’re traveling to the Ukraine and need political risk insurance? Then let’s not forget the securities industry and AIG, the company that issued all those CDO’s (credit default swaps) in case sliced-and-diced sub prime mortgages went sour. Oh, I forgot, you need mortgage insurance if you’re a first-time buyer to protect the lender.
We spend TRILLIONS of dollars each year to insure against the risks of life–bad things that might happen in our uncertain universe. From crop damage to neighbors slipping on your porch, we are a risk-adverse nation. We don’t like uncertainty. We live in a Wizard of Oz land where, eventually, all things are fixed and Dorothy and Toto return to Kansas. We seek inner security.
Every day over five million people search the word “risk” on the Internet. Nearly half a million look up “death.” Perhaps we insure ourselves from the risks of life because all of the terrible things that might happen to us spring from death, the ultimate risk. And all the other risks we face are subsets of our mortality.
Our insurance policies are the baby blankets in our minds. They comfort us knowing that some day, somewhere, someone may harm us, our families, our possessions. Yes, we need insurance in our uncertain Universe where, one day, the Earth stops spinning, the oceans recede inland and the risks we feared disappear.