Material World – Insurance: a branch of the betting industry
It may seem oddly Monty Python-esque, but insurance agents have become significant players in the Russo/Ukrainian war. In August it was reported that: ‘Insurance companies have notified charterers of ships operating in Russia’s Black Sea ports of an increase in additional payments known as “war risk premiums”’ (tinyurl.com/4p5rwap9). According to the same report, this could take the cost of an insurance premium for one oil tanker to over $1 million. At the same time, Ukraine was negotiating with insurers to cover its grain shipments through the Black Sea: ‘Insurers and a local state-owned bank would share the risk, the Financial Times reported, with the public portion of the risk backed by Ukraine’s state road fund’ (tinyurl.com/muy64jp8″).
Insurance is essential for doing business, especially in a war zone, as the capitalists seek to share the risk of doing business there (and other capitalists try to profit from that risk, taking a share of the surplus value generated through the business in exchange for covering it). In fact, the insurance industry is a branch of the gambling industry. You go up to the insurance broker, and say you want to place a bet that your house will burn down this week, and they bet it won’t.
Of course, they’re not insane, so part of the terms of the bet includes the precise circumstances in which they will pay out, and the steps they expect you to take to avoid a fire starting. Unlike a bet on the horses, though, there is a focus on trying to ensure that the bet would cover the entire cost of replacing the house: that is, the focus is on the property as a value expressed in money.
All societies need a surplus in case of emergency or accident, but capitalism is unique in using a universal equivalent in the form of money. Unlike, say, a granary full of grain, an insurance fund can be infinitely subdivided, so the risk of accident can be spread very far, with insurance firms able to sell slivers of their bets to multiple cash holders, so that no one individual or firm is entirely exposed to all of the risk. They make their profits as a cut of surplus value, matching the perceived risk of having to pay out to how much they can demand as a premium (stake) from the person they are insuring. Their business model is for their customers to compare the cost of borrowing to recover losses, or having enough savings on hand to pay for the losses themselves, with the cost of paying for a premium.
As such, insurance functions as an expression of collective capital. The decisions about whether activities can or cannot be insured (and the terms on which they can be insured), structures economic activity in very great detail. It limits the rights of individual property holders to behave entirely as they wish with their wealth. Firms wishing to offer contracts for goods and services routinely ask for insurance cover as part of their terms and conditions, so it becomes very difficult for any substantial capital to operate in business without accepting the terms on which insurance may be purchased.
This is worth bearing in mind for the fantasies of so-called anarcho-capitalists, for whom insurance and charity could free everyone from ‘the state’: they’d soon find themselves confronting the same costs and regulations as the state imposes because they are a part of industrial society and capitalism itself, not mere creations of the state.
An example of this is the key role insurance played in enabling the slave trade. Investors required insurance before they would undertake the highly profitable, but risky, business of capturing and enslaving human beings. They could even get insurance against slave revolt (the analogy was that revolts – and their suppression – was like when animals aboard ship stampede in a storm). One of the most notorious incidents of the slave trade, The Zong Massacre ( en.wikipedia.org/wiki/Zong_massacre), in which the captain of the slave ship Zong tried to enact an insurance fiddle by murdering his human cargo (on which, running low on water, he was facing a loss) in order to claim that insurance value. The insurers objected, and this led to a series of court cases: which affirmed that it was legal to murder enslaved human cargo, but in this particular instance, the captain of the Zong was at fault for navigational errors.
This is, it’s worth mentioning in passing, a useful example of the notion of base and superstructure which Marx and Engels introduced in their book The German Ideology. The insurance industry is part of the superstructure built on the base of material practices of capitalism, but it remains essential and instrumental in enabling those activities to continue. That insurers would provide the means to enable a despicable trade is no surprise, because they were in the business of taking bets to try and make a profit for their investors, but at the same time, their activity influenced the shape of how that horrific trade was carried out.
The influence of insurers will come to be seen in the coming years in discussions about global warming and the climate emergency. The devastating wildfires on Maui have caused an astronomical cost, as the New York Times reports (tinyurl.com/4p22tsz3), as much as $4-$6 billion in potential claims for destroyed residences. So much that ‘private insurers, already grappling with the costs of climate-related disasters in California and Florida, are also reassessing a home insurance market they had long considered both predictable and profitable, and whether they should charge residents of Hawaii higher rates.’
Aside from raising premiums (or just leaving the market altogether), insurance firms will begin to press politicians to take steps to limit their risks, and just as they demand terms from those they insure to protect their bets, so too will they demand the state step in collectively to protect their interests. This may well manifest as a dispute between insurers (as representatives of finance capital generally) against industrial capitalists who will bridle at their restrictions.