Wednesday, October 31, 2018

Hidden Benefit

Insurance is a 'Grudge Purchase'. You don't receive anything explicit if something 'doesn't go wrong'. Ideally, you never need your disability insurance. In a hand-to-mouth world, it is pretty scary if suddenly you become unable to earn any money. If you become unable to look after yourself, and you need to rely on other people without feeling like 'you are bringing your fair share to the table'. If something goes wrong, you will certainly feel much better if you were insured. Yet, if nothing happens... it feels like the money you are paying is just getting thrown away.

In the 17th century, a London draper named John Graunt became one of the first Demographers. Instead of looking at people as individuals, thrown about by the waves, he stepped back from personal stories. One of the patterns noticed was that groups were far more predictable than individuals. The first 'Life Tables' illustrated that for a big population, you could intelligently guess the chance of something going wrong. The obvious one being death.

Another mathematician pioneered Actuarial Science. James Dodson, figured out a way to smooth the financial impact of these massively uncertain events. Instead of being destroyed, people could pool their risks and have a steady, smaller, outflow. Insurance Companies started out life as Mutual Societies. Voluntary Groups of people getting together to provide a service to each other. By accepting small outflows, any individual who had something awful happen... like death or disability... would be looked after. You don't 'get anything'... but you also don't get destroyed.

Uncertain events can seem very unfair if we look at individual stories. Why did this happen? Why me? Why now? Taking a step back, and viewing ourselves as part of a community, allows everything to seem a little more understandable. A little less scary.

One way to view a Universal Basic Income is as insurance against Poverty. Some of the biggest determinants of poverty are the country you are born, who your parents are, what community you are a part of, and the natural skills you are endowed with. None of this is under your control. Except we only become aware of how the dice have fallen after they are rolled. Contributing for society to have UBI would be like paying your premiums when you already know you didn't have the bad thing happen.

Personally, I am okay with that. I don't think having something bad happen is winning. I don't feel the need to get something in return for my insurance premium. I would much rather get to the end of the premium paying term having 'wasted' the money, then having had an accident. Funding a UBI is a little recognition of having won some of life's lotteries.

Life's Lotteries
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