Some
communities prefer to create virtual insurance amongst themselves by other
means than contractual
risk transfer, which assigns explicit numerical values to risk. A number of
religious
groups,
including the Amish and some Muslim groups, depend on support provided by their
communities when disasters strike.
The risk presented by any given person is
assumed collectively
by the community who all bear the cost of rebuilding lost property and
supporting people
whose needs are suddenly greater after a loss of some kind. In supportive
communities where
others can be trusted to follow community leaders, this tacit form of insurance
can work.
In this
manner the community can even out the extreme differences in insurability that exist among its
members. Some further justification is also provided by invoking the moral
hazard of
explicit
insurance contracts.
In the
United Kingdom, The Crown (which, for practical purposes, meant the civil
service) did not insure
property such as government buildings. If a government building was damaged,
the cost of
repair would be met from public funds because, in the long run, this was
cheaper than paying
insurance premiums. Since many UK government buildings have been sold to
property companies,
and rented back, this arrangement is now less common and may have disappeared altogether.
nice blog
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