Marine Insurance shows why Obamacare won’t Work

Posted by PITHOCRATES - February 22nd, 2014

Week in Review

As ships began to ply the world’s oceans some of them did not make it to their destination.  Instead, they ended up on the ocean floor.  The financial loss for a ship lost at sea was enough to bankrupt a shipper.  Which greatly inhibited early transoceanic trade.  But then the good men at Lloyd’s of London began selling marine insurance out of a London coffee house.  Spreading the risk of a large financial loss across all shippers.  Where each shipper paid a small fee (i.e., an insurance premium) to cover the financial loss for the few ships that sank.  It was an excellent system.  Mitigating the risk of the very risky transoceanic trade.  It worked so well we still use it today (see Ship loses more than 500 containers in heavy seas by Tim Lister posted 2/22/2014 on CNN)

On any day, between 5 million and 6 million containers are on the high seas, carrying everything from potato chips to refrigerators. But not all of them make it to their destination, as the crew of the Svendborg Maersk have just found out.

Their Danish-flagged ship was in the Bay of Biscay last week as hurricane-force winds battered the Atlantic coast of Europe. Amid waves of 30 feet and winds of 60 knots, the Svendborg began losing containers off northern France. After the ship arrived in the Spanish port of Malaga this week, Maersk discovered that about 520 containers were unaccounted for. Stacks of others had collapsed.

It’s the biggest recorded loss of containers overboard in a single incident…

The Through Transport Club, which insures 15 of the top 20 container lines, has put the loss at fewer than 2,000 containers a year. But other industry sources say the number may be as high as 10,000. That would still represent far less than 1% of the containers traversing the world’s oceans. Maersk, one of the world’s largest lines, says that its highest annual loss in the last decade was 59 containers.

If we crunch some numbers we can see how insurance works.  Let’s make some assumptions.  Conservative ones.  Let’s assume the low end of 5 million containers.  And the high end of lost containers (10,000).  This puts the total loss of containers at 0.20% of the total shipped.  Which means that 99.8% of all containers shipped reach their destination.  So the insurance pays for a very small number of lost containers.  Now let’s assume an average value of $250,000 per container.  That makes the value of all containers shipped $1.25 trillion.  And the value of containers lost $2.5 billion.  Or 0.20% of the value shipped.  Which is a small fraction of the total.  If we spread this amount over each container shipped that comes to an insurance premium of $500 per container.  A small price to pay to avoid a $250,000 loss.

This is why marine insurance works.  Because it’s insurance.  Where shippers pay a small premium to insure against a very large possible financial loss.  Which is why Obamacare won’t work.  Because Obamacare isn’t insurance.  Neither was health insurance before Obamacare.  Because people expect a free ride.  If they have ‘insurance’ they don’t want to pay for anything.  Which isn’t how insurance works.  That would be like shippers having someone else pay for their marine insurance.  And then expect to ship things across the ocean for free because they had insurance.  Marine insurance doesn’t work like that.  And neither should health insurance.

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Pottery Stored Food Surpluses and Created Advanced Civilizations

Posted by PITHOCRATES - October 26th, 2011

Technology 101

An Advanced Civilization requires a Food Surplus and Something to Store it In

Take a look around your kitchen.  Your pantry.  What do you see?  Storage jars.  Canisters.  And, of course, cups and plates.  They’re so prevalent in your life you don’t even notice them.  You just use them.  You drink from them.  Eat off of them.  Shake salt and pepper from them.  Store flour in them.  Sugar.  Coffee.  And tea.

It would be hard to live your life without the things in these containers.  It would be harder still if you had no containers to store these things in.

And it’s been this way since the dawn of civilization.  In fact, there would be no advanced civilization without one invention.  Pottery.  Because to form an advanced civilization requires a food surplus.  An excess of grain.  That they had to store.  Where animals and bugs could not get at it.  Or moisture.  Today we use storage jars and canisters in our pantry.  Back then they used pottery.  In their homes.  Even in their granaries.

Pottery allowed the Farmer and Artisan to Eat at the Harvest and Long After the Harvest

Pottery and agriculture were attached at the hip.  They both needed each other.  The mass farming of these early civilizations, before the plough simplified farming, required a lot of labor.  Which produced highly populated cities.  With a lot of mouths to fed.  And they did produce a lot of food.  So much that they had a food surplus.  To feed the farmers.  And the non-farmers.  The artisans.  At the harvest.  And long after the harvest.

They could grow a food surplus.  And did.  But a surplus without the ability to store it was useless.  So following the great agricultural developments came the all important granary.  And pottery storage vessels.

The development of pottery required a dedicated work force.  A division of labor.  The potters couldn’t farm.  They needed to spend all their time mass-producing pottery to meet the demands of their civilization.  Plates.  Bowls.  Cups.  And storage vessels.  To store that food surplus.  So both the farmer and artisan could eat.  At the harvest.  And long after the harvest.

The Division of Labor gave us Agriculture, Pottery and an Advanced Civilization

The hunter and gatherer life was simple.  You followed the food.  And hunted.  Which pretty much consumed all of your time.  And kept you on the move.  That changed after some key advances.  Agriculture.  And pottery.  To name only two.  The rise of these specialties allowed people to settle down.  To stop following food.  And, instead, to grow it.  And store it.

None of this would have been possible without the division of labor.  Which allowed the rise of artisans.  Specialists.  A middle class.  To make the things that made a civilization advanced.  And a food surplus.  Which allowed an advanced civilization to survive.

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