Insurance Against Crimes is a Bad Thing

To me, insurance is about reducing risk. It's about a bunch of people getting together and agreeing to share the risk so that no individual has to face a catastrophic loss. For example, if you drive a car then sometimes the car gets damaged. Accidents happen no matter how careful you are. Suppose you have a 5% chance of incurring a $1000 cost. This means that the expected cost is $50 per year per person, but anyone who has the accident would have to pay the $1000. Insurance lets everyone pay an even $50 per year and then helps the unlucky person with their huge bill.

That's a perfect example of a good and useful insurance. Other examples include medical, home fire, failed crops, job loss, and countless others. However there are some that definitely seem wrong.

Here's one: At the bottom of my PC Financial Mastercard bill, every single month, is an excited introduction to Identity Restoration insurance. For only $59.97 per year I will have the services of a professional in case my identity is ever stolen. Why is this odd? Because identity theft isn't something that happened to me! Identity theft becomes a problem when a bank lends the wrong person money or releases funds to the wrong person. It's the bank who was duped by a criminal, not a chance accident. I didn't even sustain the loss! So why would I even find it a little bit necessary to pay $60 per year to protect me against no loss?

I have a product for you: Want to buy insurance against some guy in Brazil tatooing a purple flower on his arm? Who cares you say? That's about how sensible identity insurance should be. The only reason it's not is because our banking and credit systems are filled with insecurity and they put the onus back on the individual, not the criminal or the institution that doesn't bother with enough security or the government that doesn't know how to capture criminals or identify citizens.

The same thing with insurance against classical theft or vandalism. This is a bit of a different problem, but I still think that theft insurance should not exist. The reason is that it's a crime against society, not just an individual. We have a police and justice systems to prevent and repair such things. Except that they don't really work that well, so we all have to buy our own little insurance for the times when the bad guy gets away. From personal experience I know that our police don't even try to solve the crimes that aren't big enough. Crimes have happened to my family that were solved by the family, but the police and justice system could not get their act together enough to follow through to a conviction.

I would much rather all our theft insurance premium go right to the police, and have them pay out if they can't solve the crime. Theft insurance just turns into an additional tax going directly into the hands of thieves. As I mentioned, insurance is like a group sharing of risk. If we all pay, say, $300 per year of our car insurance towards a theft component then altogether that's huge money. It should go towards reducing crime, not appeasing the thieves.

I was prompted to write this quick little rant as I did my taxes, making note of all the parasites I'm trying to fight off, successfully or not. Insurance is a great idea but it isn't clean. It isn't fair either. What about the people who can't afford insurance? Does that mean they should be exposed directly to crime? No, all crimes should be fixed.