What We Don’t Know About Liability Insurance
Today, it is almost impossible to find cheap liability insurance. Even though risks may be infinitesimally small each premium carries with it the additional burden of ‘wild optimism’ cited by former Federal Reserve chief, Alan Greenspan.
The biggest bail out of recent times wasn’t for a bank. AIG, an insurer in the US with thousands of dodgy mortgages on its books, was bailed out for $182 billion dollars. A week after the firm received the bail-out employees blew nearly half a million dollars on spa treatments and champagne at a weekend getaway to discuss ‘strategy.’
We’re the schmucks who pay for all this of course. As well covering the actual cost of risk we end up paying the bonuses of bankers and brokers and traders. They have managed to get to the top of the pyramid and cash out. We’re still stuck lower down watching our money, pensions and life savings burn.
The idea of offsetting risk has been around a long time. Liability insurance has existed in one form or another since Roman times. Merchants in the middle ages would share risks in order to minimise the effects of inclement weather or erratic navigation.
Time was when there was no Fire Brigade as such. Insurance companies each had their own fire services who would rush to fires only to watch uninsured homes burn to the ground.
Today we’d think it absurd for the Fire Brigade to be forced to make a profit but this is exactly what happens in other areas, like insurance against burglary. Far simpler, surely, to indemnify everyone in an area through a local taxation system and use profits to improve policing.
Public liability insurance helps businesses cover themselves against the growing compensation culture in Britain. Of course it’s reasonable for negligence to be punished and those who have suffered injury or loss to be compensated. Problems arise when over-zealous lawyers put a price on everything and insist that we’re all ‘owed’.
The insurance industry skims billions from the economy each year and has bet even more.
