War Insurance: World Peace Through Capitalism

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The service
provided by the U.S. military, and probably most of the world’s
militaries, is commonly described as “national defense” or “protecting
freedom.” The Department of War changed its name to the Department
of Defense decades ago. From this, we might infer that what the
public wants is not a globe-spanning empire, but insurance against
war and terrorism. We want to be secure from aggression.

As Rothbard
points out:

A supply
of defense services on the free market would mean maintaining
the axiom of the free society, namely, that there be no use of
physical force except in defense against those using force
to invade person or property.

A free market
in defense and military services could lead to some strangely familiar
institutions, but such institutions would be turned to entirely
different purposes than in today’s world. Following are some ways
in which a free market in defense might function, and some of the
institutions that would likely form. For simplicity, we assume that
both war insurance and security services are provided by the same
company, though in actuality the security work itself could be outsourced
to third parties.


Because war
insurance companies would be financed by voluntary payments rather
than taxation and inflation, they would have to operate within the
market constraints of profit and loss. The cost of war would be
a loss. This is just the opposite of politicians and defense contractors
today, who grow rich from war precisely because it provides an opportunity
to milk the taxpayer, who is forced to pay the bill regardless of
whether he supports the war policy or not. Tax-funded public
relations efforts
often help to sell the need for the war.

In a system
of freely competing war insurance companies, the major producers
of war would profit more from peace than war, a reversal of the
current incentive structure. Soldiers for insurance companies would
always have a single clear mission: put down aggression and protect
the innocent.

Because providing
protection against war is a specialized, capital-intensive job,
potentially requiring anything from tanks to aircraft carriers,
war insurance might be purchased primarily as reinsurance by other
property insurance companies. These “retail-level” insurance companies
would then be free to focus on protecting their clients from crimes
like theft and violence, as well as natural disaster. Because of
the expense, an entire continent might support only a few companies
focused on war, but these could also reinsure themselves through
each other and through other war insurance companies located elsewhere.

Some private
property owners might find it worthwhile to purchase war insurance
directly. Those engaged in shipping would need naval insurance.
This might be provided by a company specializing in ocean security,
providing defenses ranging from marines posted onboard commercial
vessels to missiles, submarines, or aircraft for attacking hostile
ships. The naval insurer would also monitor the ocean, probably
by satellite, and keep watch on suspicious ships that could threaten
their policyholders. They would be prepared to deal with pirates
as well as state navies.


While millions
of people may not purchase war insurance, this would not differ
from today’s situation. Currently, millions of Americans make too
little money to pay federal taxes. Millions more are net consumers
of tax money, whether they are government employees, contractors,
officials, or entitlement recipients. None of these contribute to
the cost of defense, yet the American military still manages to
be the largest in history.

We envision
war insurance as one part of a property insurance policy that would
protect against natural disasters and crime, including the provision
of security and emergency services, as described by Rothbard (linked
above). Those who rent their homes might contribute and be protected
by way of the landlord’s insurance.

To save costs,
some insurance carriers might decide not to subscribe to war insurance,
and some customers might prefer not to purchase it. They will have
to bear the risk of war alone, but they may see war as unlikely.
The level of available defense spending would ultimately be set
by the level of war risk, as determined by the market.


War insurance
companies would need to identify, study, and minimize sources of
war risk affecting their customers. For this purpose, they would
likely form or hire private intelligence agencies for risk assessment.

Today, insurance
companies jointly finance research through nonprofit institutions
like the Insurance Research Council
and share information through CLUE
reports, produced by a private company. This allows them to have
the full benefit of data while paying only a fraction of the research

War insurance
companies might create joint intelligence centers to study war risk.
There would be no incentive to distort intelligence to fit a political
agenda or protect a state’s image, since these intelligence agencies
would serve the interests of millions of customers, rather than
a few politicians. The insurance companies would focus on preventing
loss, not starting wars.

The intelligence
center would likely rate a nation’s war risk according to its military
strength, history, and the current ideology and practices of its
policymakers, as well as any covertly gathered information. Specialist
teams could be formed to study each state or terror group that poses
a risk.

A few such
intelligence organizations could potentially serve the entire insurance
industry, and they would also be motivated to share information
with one another, to cut their own research costs. These joint risk
assessment centers would do the job that the public currently expects
of state intelligence agencies: rationally study and report risk
in an unbiased manner, for the sole purpose of protecting life and


War insurance
companies would likely purchase reinsurance from one another in
case of outside aggression. Should war break out, the insurance
companies would then pool their resources to stop the aggressor.
(p. 347) notes:

all insurance
companies are connected through a network of contractual agreements
of mutual assistance and arbitration as well as a system of international
reinsurance agencies, representing a combined economic power which
dwarfs that of most existing governments.

States claim
a monopoly on the use of violence in a territorial area. To expand
their power, states invade territory beyond their borders to capture
resources and gain control over new territory.

However, if
a state invaded a free territory protected by insurance, this might
threaten clients of several different companies at once, since insurance
companies would not have territorial monopolies. Several companies
might be represented within a single neighborhood. These companies
would band together to fight the aggressor, along with their reinsurance

Because of
the interwoven nature of the insurance business, most of the world’s
large war insurance firms would tend to work together in case of
any major state aggression. Even those companies whose customers
are not injured in the initial aggression will want to stop the
invading party before it has a chance to harm the companies’ own

Hoppe also
explains that insurance companies would generally oppose any aggression
anywhere because “they operate on a nationwide and even an international
scale, and they own large property holdings dispersed over wide
territories and beyond single state boundaries.” (p.346) They have
tremendous diversified investments to protect, providing further
incentive to keep the peace and end wars quickly.

War insurance
companies would keep military assets ready in case of aggression,
from planes to tanks to professional soldiers. As with common intelligence-sharing,
some companies might pay a subscription fee to have forces on call,
while sharing the costs of training and support. They might even
co-sponsor war colleges to train officers in strategy and tactics.

Because of
reinsurance, and the fact that multiple companies can provide defense
services to the same territorial area, war insurance companies might
train their people for joint defensive action. War games would be
developed around the most likely war risks, as determined by the
joint risk assessment centers. Training would center on bringing
the conflict to a rapid, cost-effective close to avoid losses and

If the likely
enemy or enemies have a strong air force, the war insurance companies
would focus on anti-aircraft weapons. If not, they would shift resources
into other areas as needed. There would be no incentive to persist
in manufacturing unnecessary or obsolete weapons. The desire of
politicians to provide military-related money and jobs to their
campaign donors and congressional districts would not be a factor.
Spending programs would not become entrenched for political reasons,
but would be eliminated the moment they became unnecessary.

By providing
a common international defense against rogue states, the global
network of war insurance companies would play a role that the United
Nations is alleged to play today. It would constantly monitor war
risk and put down state aggression.


War insurance
companies would avoid violent conflict with each other by contracting
to settle disputes through private arbitration. Since war would
damage the bottom line of every company, it would be extremely rare
between insurance companies, if it ever happened at all.

A company that
violated such an arbitration finding would automatically suffer
damage to its credit rating, increasing its cost of doing business.
Its own insurance risk rating would suffer, and it would likely
lose its war reinsurance protection from other companies. Customers
would tend to switch providers upon learning their current insurance
company is dishonest or aggressive, or that it has lost its defense
allies and is therefore less able to protect customers.

Each company
would need expert negotiators to resolve conflicts. Negotiations
among insurance companies would be routine and follow contractually
specified rules and standards.

The wild card
would be negotiations with states, because states would not necessarily
share the insurance company motives of reducing risk, minimizing
cost and avoiding loss. States actually increase their revenue and
power through war (see Higgs, Crisis
and Leviathan
). States would be the primary source of war risk,
requiring a different approach to negotiation.

The risk assessment
center analysts focused on the nation in question could provide
the negotiators with a deep understanding of the particular state’s
interests, motives, policy makers, culture, and constituencies.
These specialized researchers and negotiators would play the role
of the State Department: addressing threats and minimizing conflict
through diplomacy.


A war insurance
company, however well-armed, would have little incentive to start
a war, and every reason to end one. First, it must pay the cost
of war out of its own pocket. Second, it would have to indemnify
any of its policyholders whose person or property is damaged by
the war. Additionally, war could threaten the value of the insurance
company’s investments, which might even be targeted by the enemy
as a means of economic warfare.

The cost of
war would naturally lead to higher premiums, pushing customers away
to cheaper providers, if the policyholders do not support the company’s
war. This is the ultimate market check that is unavailable in our
current system – the ability to refuse to fund any war we oppose.

de Molinari
, the first to propose that individuals purchase
defense services through voluntary association rather than live
under state monopoly, noted that the private security provider must
“establish certain penalties against the offenders of persons and
the violators of property, and that the consumers agree to submit
to these penalties, in case they themselves commit offenses.”

The reinsurance
companies could specify that an insurance company pursuing an aggressive
policy would forfeit all war reinsurance. This would prevent the
industry from being dragged into an unnecessary conflict by a rogue
company. The companies would only pull together in situations of
defense, like a confederation.

Any aggressor
company would act alone, and would draw the wrath of the entire
war insurance industry down on it the moment it aggressed, since
they would all have customers and property to protect.


There could
be cases of a justified, defensive war, such as when a state aggresses
against insured territory. The major potential weakness in an insurance
company waging war against a state is the state’s ability to finance
its efforts through taxation, debt and inflation.

War insurance
contracts might provide for the possibility of supplementary premiums
in times of defensive war, which would be similar to a temporary
tax hike to raise revenue. However, this would likely be avoided
if possible, since customers might resent the use of it, as people
resent tax increases today.

The company
would also have emergency insurance as well as credit facilities
prepared in advance. Those who are being defended, as well as people
around the world, could be asked to buy stocks or bonds of the war
insurance company to help support the war effort, similar to the
war bond campaigns of World War II. Additionally, charities might
contribute to those fighting the war, as today they give CARE packages
and other relief to soldiers in wartime.

The war insurance
company could mirror the state in the areas of taxation and borrowing.
The private company could not raise revenue by printing currency,
however, unlike states with central banks. The question remains
whether the international network of insurance providers, with all
their resources, could withstand a prolonged war against an inflationary

An insurance
company would, however, have the option of selling some of its investment
assets to raise money if needed – paying for war out of savings.
Few states have any savings, and they prefer not to sell off their
assets, since this represents a loss of power and prestige.

There is another
way in which insurance companies could use their investments when
confronting war. If the Ruritanian Army invades an area protected
by Walldavia Insurance (a charter member of the International Defense
Network), Walldavia, Inc. and its allies might wage economic war
by selling off their investments in Ruritania, as well as any Ruritanian
government bonds they may be holding. This approach allows them
to turn their savings into cash for war funding, while financially
damaging the enemy at the same time.

The insurance
companies might discourage war by buying the debt of governments
they see as war risks. They would have plenty of opportunity, since
bellicose governments with large militaries would tend to incur
more debt than peaceful ones. Owning the state’s debt would give
the insurance companies more leverage over the state’s policy. If
the state aggresses anyway, the insurance companies would then punish
the rogue state by dumping the bonds – and, as mentioned, use
the proceeds to strike back against the state.

Bribing politicians
could also be an effective method to encourage peace. Also, Walldavia
Insurance could spend millions of dollars on an advertising campaign
promoting peace among the Ruritanian public, who might pressure
their aggressive politicians toward peace – making it that
much easier, incidentally, to bribe the Ruritanian politicians toward
that policy.


In the essay
linked above, Hoppe also indicates that security insurance providers
would encourage gun ownership and self-defense measures, because
these would decrease the cost of claims to the insurance company.
Today, one might receive a discount on homeowner’s insurance by
installing a burglar alarm and security monitoring system.

War insurance
companies would encourage all forms of self-defense, from security
systems to gun ownership. Security insurance companies would probably
encourage, and even help organize, “neighborhood watch” groups to
reduce crime. In case of foreign invasion, these neighborhood watch
groups could serve as guerilla units against the invaders. Membership
in such voluntary groups might come to be seen as a matter of civic
or patriotic responsibility, as well as a way to save on insurance.


Since insurance
companies would only fight defensive wars against aggressors, they
would tend to have public opinion on their side in every conflict,
which is a great advantage in war.

A war insurance
company would naturally have a media division to advertise itself
to consumers. A company would need to portray itself as strong and
reliable, “Like A

States use
media and propaganda to advertise their side of the story, and build
support for their policies at home, abroad, and often among the
population controlled by the enemy state.

War insurance
companies might also spend millions or more on propaganda efforts,
including the purchase of media companies through their investing
arms. Their interest would be in portraying themselves as strong
protectors to potential customers, but also in spreading support
for peace, not war. This could be part of a strategic effort to
reduce war risk worldwide, whether pursued independently or coordinated
with other war insurance providers.

They might
even offer programs teaching children about the many benefits of
peace. It would be in the interest of war insurance providers to
sponsor any educational, cultural, religious or entertainment programs
that promote peace and teach about the evils of war. This could
have a strong impact on popular and academic culture across the


So long as
war insurance companies face the threat of states armed with weapons
of mass destruction, they will need to be able to respond appropriately.
This may include keeping stores of vaccine to protect insureds against
bioweapons, or even maintaining nuclear weapons for deterrence.

However, every
insurance company would view every nuclear bomb and bioweapon, whether
owned by itself, a state, or another company, as a source of extreme
risk, potentially leading to unthinkable loss of life and property.
Every such weapon eliminated reduces risk for the entire insurance
community. Should war insurance companies grow to replace states
entirely, total nuclear disarmament would likely follow.


It is naturally
impossible to calculate what our property insurance rates would
be if the cost of military defense were carried by insurance providers.
We could start with the price we currently pay in taxes and inflation
for our current defense providers. In the United States, the cost
of our current military establishment, wars, veterans’ care, and
interest on war debt is easily more than a trillion dollars per

Subtract out
any unnecessary wars and interventions. Subtract out any wasteful
spending in the current budget. Subtract out any spending that does
not directly serve to protect the life and property of American
taxpayers. What remains might be a rough estimate of what it would
cost the insurance industry to provide the exact level of defense
we now enjoy. It could be even cheaper because of price competition
in a free market.

However, should
the whole world adopt this system, the defense budgets of the rest
of the world would also, in a sense, be available, since insurance
providers would work together to prevent loss, reduce risk, and
seek peace. As they successfully eliminate threats and promote peace
over time, their costs of supplying services would fall, and their
premiums would follow. In the long term, war insurance could be
quite cheap – and we wouldn’t be paying taxes, either.


In a stateless,
insured world, the defense industry would continue to exist, but
it would no longer be subsidized by the state. Instead, companies
would sell their services in a competitive marketplace.

Defense spending
would fall or rise to a level appropriate to existing risk, as determined
by the market, with the help of specialized researchers and actuaries.
The military-industrial-congressional complex as we know it would
vanish. The media would provide a pro-peace bias. There would be
no pro-war propaganda, because no one would benefit from war. (Actually,
third-party suppliers of defense services, such as mercenary armies
or air forces, might benefit. But their paying customers –
the insurance companies – would always seek to minimize conflict
and cost.)

The basic elements
for an insured, stateless society are already in place. The multibillion-dollar
private security industry is rapidly
, as is the private
profession. The world’s insurance industry is already
vast, and their resources would swell as they began receiving the
money that once funded police, intelligence and military agencies.
Many companies already sell war and terrorism insurance.

If you have
a policy with Bellwood
, and are kidnapped and ransomed, the insurance carrier
covers the “cost of experts negotiating with kidnappers and reimburses
the ransom.” Perhaps they will send in Risks
, who offer such services as hostage negotiation,
extraction, and repatriation.

Evolution from
a “state” to an “insurance” system depends primarily on public opinion,
or market demand. Molinari speculated that one day, people might
“agitate for the freedom of government, as they have already…on
behalf of the freedom of commerce.” Rather than supporting one party
or another’s desire to control the state, people might eventually
reject the idea that any group should hold a monopoly on defense

Once, it was
believed that freedom of religion would tear society apart, because
different faiths could not possibly exist peacefully in the same
territory. Instead, freedom of religion put an end to centuries
of religious warfare. It seems possible that freedom of government,
the liberty to choose our own protectors – or to choose none
– could put an end to war altogether.

25, 2008

L. Bryan
[send him mail] is a freelance

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