Insurance

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In concept a great idea. In practice, often a stupid one which creates risks, costs and bureaucracy where none would otherwise exist. Much insurance is iatrogenics, in Nassim Nicholas Taleb’s argot, writ large.

An insurance contract protects a person of limited resources from a remote but outsized risk. The theory is that by being a small part of a large class of people each of whom paying an affordable running premium, you are protected from colossal costs that may never happen. Thus you mutualise your risk of loss.

Example: In a group of 1000 people, each has a 1% chance of a £100,000 loss in a ten year period.

This means the likelihood is 10 people will each incur that whole loss, and 990 will suffer no loss.

This means that over the group, over that period, the total expected loss will be £1,000,000.

That cost, spread over the 100 people and ten years, works out at £100 per year each (£1,000,000 divided by 1000 divided by 10).

Factor in admin costs, the risk that the damage might be more than that and, of course, a healthy profit margin and call the insurance premium £200 per annum each.

Who would not pay £200 to be immunised against a £100,000 risk?

Right?

Well, hold on tiger.

So, a shaggy dog story: Against his better judgement, the JC is, for reasons that are now too ghastly to recount or even remember, an accredited level 2 ECB cricket coach. During that accreditation course, which he would not recommend to his worst enemy, candidates suffered a presentation by the ECB’s Association of Cricket Officials — I know, right — about the benefits of membership of that august body.

Now every now and then the JC can come on all a bit misanthropic, and this rainy Saturday afternoon in March was just such a day.

“Why on God’s barren earth,” he wondered aloud, “would anyone want to pay money to be in an association like this?”

The best answer the fellow presenting — a member himself, of course — could give was, “because you would benefit from our public liability insurance policy. That is where the lion’s share of your membership dues go.” Now the “public liability” concerned was that of an amateur coach, on exercises with his team, when some accident befell one of the delicate little flowers in his charge, which might be attributable to the coach’s carelessness or lack of prudent regard.

Now here’s the thing. Coaching cricket is a pitiless pastime, in every possible way. You are not thanked for it, let alone paid for it. You certainly don’t grow rich from it — except spiritually, of course. You do it out of the goodness of your heart, a vague sense of moral obligation to the forthcoming generation, and a forlorn hope that some of the little ingrates might grow to love the game, for it is a wonderful diversion from the encroaching enormity of growing old. So, any parent who gets a Sunday morning lie-in while you stand in a wind-swept field explaining the rudiments of the back-foot drive to little Basil, but yet has civil litigation uppermost in his mind — and not profound, undying gratitude — should Basil cop a short one on the bonce, should rot in hell. He should be grateful, as a default disposition, rather than opportunistically extortionate.

All the same, cricket is a perilous pastime. That 5½ oz leather-encased cork ball flies about at a decent lick. If it clocks junior, or he sprains his ankle, gets run over or somehow contracts hepatitis, then (a) that will do him, and the world, the world of good, long term, and (b) unless you, coach, are some kind of pederast or have been egregiously delinquent when supervising young Tarquin, his adequately socialised parents — even neurotic North London ones — will shrug shoulders and figure that’s the price of being a lazy sod and letting other people look after their kids.

Will they sue you? Of course not. It is too much of a faff. For one thing, you are probably on the bones of your arse, and what judge is going to be in punitive frame of mind when considering a well-intended volunteer doing his best to look after someone else’s brat?

Yet all that might change, should you benefit from public liability insurance. Suddenly it isn’t your pocket that helicopter mum is going after. It is worth a claim. To be sure, the insurer will refuse the claim for as long as is commercially plausible, whatever its merits — that’s part of the funding model, for many of them — but in the mean time it will put up premiums, citing actuarial data, because of its assessed dereliction of obligation of the insured. Your own membership for the ECBACO might only go up a fiver, but in the mean time the insurance company is creaming it.

So, yes: public liability insurance encourages crappy behaviour from everyone concerned:

• You are disincentivised from taking suitable care because — hey, you’re insured, right?
• Helicopter mum is encouraged to be a dick and make a claim, since it’s not thou well-intentioned volunteer coach she’s going after but a faceless corporate insurer, and
• Faceless corporate insurer, being little more than a faceless corporate mode of extortion, will tell Helicopter Mum where to get off — there will be an exclusion — and gouge the poor old cricket association — and by extension you — by jacking up its premiums on account of its transparently negligent membership. Helicopter Mum, having embarked on the road to litigation may be inclined to put more money after bad in pursuing you in your person capacity, notwithstanding your impecuniosity.

The fastest car in the world: a rental car

Sits towards the “airbags” end of the “airbag - steering-wheel continuum” as insurers have no standing or view of the day-to-day risk situation and can't direct client activities to avoid it. The client, by contrast, is incentivised too run the model hard, since it is insured I'd the model blows up, but paid the same in premium however conservatively it drives. (Okay that is not entirely true, but even with telemetry and no claims bonuses, the incentives are comparatively weak).

See also

• Iatrogenics
• Nassim Nicholas Taleb
• Risk - Risk Article