Can we assume that insurance companies will be able to do what they claim they will do under the ideology of fiat? If it seems not, what can be done to improve the situation? This essay aims to investigate the general situation of the insurance industry, likely problems that might evolve and potential remedies.
How does a general (non-life) insurance company operate? Say our company, InsureCo., provides automobile and housing insurance. InsureCo. takes in premium from their clients and pays out when required. The sum of premium earned but not required for pay outs comprises what is known as InsureCo.’s ‘float’ (or reserves.) The judicious investment of the float would give the management extra leeway in pricing v. peers. Without the imposition of fiat ideology, the float would most likely be invested in (gold coin) bills of exchange – a good that can be exchanged at ease for gold coin if required for pay-outs in order to compensate the insured for losses incurred at any moment and ahead of the bill’s maturity. If InsureCo.’s float became much larger than any pay- out that could be required, longer maturity assets such as (gold coin denominated) equity or property might be considered.
Under the imposition of fiat ideology, premium is taken in fiat and the float invested – on the whole – in government securities. InsureCo. is regulated and must keep a strict percentage of their total assets in ‘riskless’ government bonds. InsureCo. subscribes to government bonds at issue, holding to maturity earning fiat income in the interim and reinvesting the proceeds in the next issue. In a falling rate environment, each successive purchase of government bonds generates successively less income. InsureCo.’s are open – meaning the fiat ‘value’ of goods insured isn’t capped.
At some point, as fiat ideology precipitates market closures (beginning with the most marketable good; gold) InsureCo. will not be able to pay-out on claims for lack of ability; the fiat government bonds or fiat deposits on InsureCo.’s ‘asset’ ledger cannot be exchanged for the [combination of marketable] goods required for the pay- out. This is not likely to be because the fiat ‘price’ of the goods required is too high but because they’re unavailable for fiat at all.
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