Premium insurance for "premium buyers"
In a sign of the times, AIG Private Client Group has been active in the Ketchum, Idaho, area spraying fire retardant on some of the million-dollar homes it insures to protect them from the raging Castle Rock Fire. In more "primitive" (and egalitarian) times, a broad spectrum of the population bought "insurance" that was functionally identical. They paid similar premiums and purchased similar coverage. Today, insurers provide a more sophisticated and specialized product that differentiates among socio-economic levels. The service of spraying homes in the midst of wildfire in Idaho is a good example of this differentiation.
U.S. Forest Service officers report that for the first time private insurance representatives are present at the scene of a fire being fought, acting to protect assets the insurer has insured. AIG sells this service to wealthy homeowners, and in a fire-threatened area like the Sawtooth Mountains, where luxury second homes are built by folks like Arnold Schwarzenegger and Clint Eastwood, there is ample market for the product. Reporteldly, Chubb, Fireman's Fund, and other premium insurers offer similar products to the well-to-do.
While the availability of "special" private protection in the midst of a natural catastrophe seems relatively new, it is really only another manifestation of the ability of the wealthy to better protect themselves from catastrophe. Hurricane Katrina provided a more common look at the opposite end of the socio-economic impact of catastrophe. Such "premium" protection is not new, however. In most states, for example, motorists are offered "uninsured" (UM) and "underinsured" (UIM) motorist auto insurance protection. In many venues, this is the best bargain on the insurance Declaration Page. UM protection pays your family member if the person who caused the family member injury is not insured; UIM pays if the at-fault has insurance but the coverage is inadequate. It is a wonderful product, but also a reminder of why catastrophe often sits harder on the shoulders of the poor and middle class who could not budget for this special protection in advance, given the remote likelihood of need.
Several years ago, Michigan's very conservative Governor made an effort to eliminate all motor vehicle liability and to limit all injury or death recoveries to coverage purchased by the victim. The effort failed due to the negative public reaction: the public was not ready to insulate drunk drivers from liability and to limit victim compensation to those persons who had been prescient enough, sophisticated enough, and wealthy enough to adequately insure themselves. Michigan was left with a hybrid "no fault" automotive liability system where only those insureds who had suffered "serious" injury or death could pursue the at-fault driver to recover for their injuries.
While "premium" insurances are excellent products, and it makes sense to allow consumers to decide which risks they will insure and which they can afford to carry, these insurances are also a tool that allows for further polarization and stratification of American society. When one segment of the society is immune from the financial impact of even the most profound natural disasters, we're no longer "all in this together". If the wealthiest one percent, or five percent, or ten percent, whatever, no longer needs to worry about the adequacy of public fire protection, or the need for adequate mandatory liability coverage, or the adequacy of hurricane response infrastructure, we create an artificial dichotomy in the demand for public regulations and services. This creates one more influence toward a culture of "haves and have nots", such as exists in many third-world nations in Asia and South America.