Capitalism, as we have known it, would not exist without the idea of insurance.

The deployment of capital to achieve some purpose entails risk:

• A farmer plants seeds in expectation of a harvest that will feed the family and leave enough left over to plant again next season. But if conditions of weather or war destroy the harvest, the farmer’s family will go hungry and he must abandon farming
• A trader buys a horse and cart to carry goods made in one village to be carried to, and sold in, another village where they are needed. If the horse and cart are stolen or destroyed by bandits, the trader is out of business.
• A merchant outfits a ship with captain, crew, and durable goods to be traded in distant lands for spices and silks. If the ship is lost to storms or pirates, the merchant is ruined.

In all these cases, the individual’s efforts to fruitfully deploy capital for economic gain must cease following one calamitous blow.

Insurance is a mechanism to spread risk across multiple entities (seasons/individuals/corporations) so that a mishap occurring to one will nevertheless permit everyone to continue.

Wise feudal lords stockpiled reserves to carry the community through a bad year, wise traders put aside enough resources to re-equip in case of casualty, wise merchants contracted as a group to reimburse the unfortunate member who suffers a disaster.

Of these cases, the feudal lord is the only one who could be said to be making a profit from offering the service of insurance. (The trader is self-insured, while the merchants are participating in what we would call a non-profit cooperative.) But even the feudal lord is also providing the service to the community of providing protection from violence, and if he failed in this project or he became too greedy in extracting excessive portions of the harvest, the peasants would revolt.

The fact that our capitalist society recognizes the service of insurance as a potential profit center—that we allow the incentive of accumulating tremendous wealth to warp the calculous of the service act of diluting risk—is obscene. We all know this in the gut.

Insurance is the only service industry where, when the service being sold is actually delivered, the company refers to the fact of delivery as “a loss.”