Department of Mathematics
Illinois State University
Normal, Illinois
Title
Conspiracy Theory of Insurance
Synopsis
Insurance is commonly defined as a means of protection from financial loss in which, in exchange for a fee, a party (the insurer) agrees to compensate another party (the insured) in the event of a certain loss, damage, or injury. The word “protection” is naturally associated with the word “insurance”. In this work, we challenge that premise.
Instead, we propose that the social purpose of private insurance is to encourage greater risk-taking by absorbing some consequences of risk-taking by insurers, in return for compensation received in the form of insurance premiums. We illustrate this with the historical pattern of the creation of modern private insurance in the late 1600s in London (while prior insurance arrangements existed in the world, those developments in London were a crucial turn in history, in our view). We then compare and contrast those developments with social insurance creation in the late 1800s in Germany. We note how those developments in the late 1600s and the late 1800s were not merely some marginal developments in insurance, but rather, they marked two crucial turns in the economic and political history of the world. We observe how certain aspects of those two developments seem largely ignored in the common perception of insurance, thus creating an apparent “conspiracy.”