Insuring Against Crime

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What if there were a company that would patrol your neighborhood and be financially liable for losses due to crime on your property…would you be interested in subscribing? Could something like that actually work and be profitable, and would it be preferable to tax-funded patrol?

This idea has been suggested by a number of libertarians, from Molinari to Rothbard to Benson to Hoppe to Barnett. Some people think the insurance component of such a venture would completely swamp its viability.

So how much would it take to just cover the payouts for losses? My friends and I decided to find out. We took data from the FBI Uniform Crime Reports and the Department of Justice (sic) National Crime Victimization Surveys, picked a specific location in the US, did a little bit of math, and found out:

To insure against the peril of murder, assuming each victim’s estate would be given 1 million USD, it would cost about $8 a year per household.

To insure against the peril of rape, assuming each victim would be given 50,000 USD, it would cost about $21 a year per household.

To insure against the peril of battery/assault, assuming each victim would be made whole for monetary losses only, it would cost about $3 a year per household.

To insure against all property crimes (robbery, burglary, motor vehicle theft), assuming each victim would be made whole for monetary losses only, it would cost about $126 a year per household.

But wait — you already have car insurance and homeowner’s insurance! What if the payouts were capped at your homeowner’s insurance deductible, where your insurance company already starts picking up the tab?

Well, then, to insure against all property crimes, it would cost only about $25 a year per household.

Maybe the idea isn’t so crazy, after all.

Gil Guillory [send him mail] recently presented An Actuarial Analysis of Crime Data with Applications to Subscription Patrol and Restitution at the Southern Economic Association Annual Meeting in a session sponsored by the Society for the Development of Austrian Economics. He is an engineer living in The Woodlands, Texas, near Houston. Visit his website.

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