As I was watching the morning news, I heard some pundits, who obviously had no
idea about insurance, claim that those people whose businesses, buildings, and
inventories were destroyed by fire, vandalism, and theft during the so-called
mostly peaceful demonstrations were not victims, nor were they harmed, because
they were indemnified by insurance. That conclusion is unconscionable and
totally wrong on its face. They have apparently never read, let alone learned
from history.
When I was a young man, the Watts riots of the 1960s destroyed a great part
of South Central Los Angeles. Those whose properties were destroyed who had
insurance found it was impossible to rebuild and do business in the area
because of the riots and the attitudes of those who destroyed their businesses
coupled with the reluctance of the insurance industry to insure any business or
structure in Watts. It took more than 3 decades for the destroyed structures
and businesses to begin to be rebuilt.
It took so long because it is a truism that entering into business or owning
a building requires a person or entity to take a risk that it will be lost or
destroyed by some contingent or unknown event. The concern is usually about
losses from fire, windstorm, hail, lightning, or theft. The risk of loss is so
great that few individuals or businesses are able to absorb a loss on their own
assets. For that reason, insurance exists to spread the risk to many so that
there are sufficient assets to indemnify the rare person who incurs a loss.
That spreading of risk is the essence of insurance.
How Insurance Works
To understand why the conclusion that insurance eliminates the status of
"victim" of the people whose property is destroyed or stolen, it is
necessary to understand how insurance works to protect those insured and still
make a profit. Insurers use the profession of underwriting to determine what
risks to take that, when spread far enough, will allow the insurer to pay all
legitimate claims and still make a profit. Insurers use actuaries, who are
professional mathematicians, to calculate the potential losses a property or
properties face. With that information, they can calculate an appropriate
premium to have sufficient funds to cover the anticipated losses. Insurers will
not take on a risk of loss that is certain.
Insurers are loath to write earthquake insurance on the San Andreas fault,
fire insurance in wildfire zones, vandalism insurance for areas inundated with
gatherings of unhoused, fire insurance for vacant properties, or flood
insurance on the shore of the Mississippi River that traditionally floods every
3 years. No one, therefore, should be surprised if an insurer logically refuses
to insure a business against the risk of loss by fire, vandalism, or theft in a
location where "mostly peaceful demonstrations" were prevalent. When
insurers decide it cannot be profitable to write insurance in those locations,
few, if any, will be willing to invest. It becomes unwise, illogical, and
impossible for a reasonable insurer to do business in that location.
Riots, civil commotion, and civil demonstrations that were prevalent in 2019
and 2020 in many US cities destroyed billions of dollars worth of property.
Many of those destroyed properties were insured. However, some were not insured
at all. Those who were insured obtained indemnity up to the limits of their
policy and even obtained payments for loss of earnings. Those who were not
insured lost everything they had invested in those properties. Those who were
insured were, and are, faced with the need to make the decision to rebuild
because they will probably not be able to buy insurance to insure against the
risk of loss of the rebuilt property.
What those insured did not receive after their buildings burned down was the
ability to insure for a reasonable premium the business after rebuilding. What
they did not receive was a place to do business for the year or more it took to
replace the building that was destroyed. Often, insureds will take the
insurance money, demolish the remains, leave an empty lot, and use what is left
of the insurance money to start a business in a place deemed safer and more
secure.
Other Victims
There is a large group of victims of the fires and vandalism caused by the
"mostly peaceful demonstrators" beyond the affected property owners.
These other victims include the following.
- The residents of the community whose properties were not destroyed,
vandalized, or looted because insurance will not be available
- The uninsured small business owners
- The community whose tax base has been reduced
- Every person who purchases insurance in the United States, since their
insurance premium must go up to cover the extra losses
- Every city where demonstrations occurred because the cities will not be
able to reinstate the destroyed businesses
- Every insurance company that insured against the risks of loss for the
properties destroyed or damaged or the victims of theft
Conclusion
These are not victimless crimes. They destroy the communities where they
occur, make them uninsurable, and often make it impossible for the communities
to recover. I hope the cities damaged by the "mostly peaceful
demonstrations" avoid what kept Watts from being rebuilt. I'm afraid
that if history is repeated, the areas affected—Portland, New York City,
Chicago, or Minneapolis-St. Paul—will not recover for decades.
© 2021 Barry Zalma, Esq., CFE