The super-rich have insurance. But it’s a different type of insurance.

3 February 2017

Some people don’t need “insurance” in the way we normally think about it. If you’re Bill Gates, or a modest multi-millionaire, then you probably don’t need life insurance, trauma insurance, or income protection insurance. If something happens to you, your loved ones will probably be okay. You can self-insure.

But the “insurances” we traditionally think of don’t cover all of the types of low probability, high impact events that you might want to take steps to manage. .

There are many things that can go wrong. And the more resources people have, the more resources they can dedicate to preparing for all of these contingencies. 

Enter a recent New Yorker article by Evan Osnos, titled “Doomsday prep for the super-rich“. 

Some excerpts:

Technology rewards the ability to imagine wildly different futures, Roy Bahat, the head of Bloomberg Beta, a San Francisco-based venture-capital firm, told me. “When you do that, it’s pretty common that you take things ad infinitum, and that leads you to utopias and dystopias,” he said. It can inspire radical optimism—such as the cryonics movement, which calls for freezing bodies at death in the hope that science will one day revive them—or bleak scenarios. Tim Chang, the venture capitalist who keeps his bags packed, told me, “My current state of mind is oscillating between optimism and sheer terror.”

[The CEO of a large tech company who did not want to be named] noted the vulnerabilities exposed by the Russian cyberattack on the Democratic National Committee, and also by a large-scale hack on October 21st, which disrupted the Internet in North America and Western Europe. “Our food supply is dependent on G.P.S., logistics, and weather forecasting,” he said, “and those systems are generally dependent on the Internet, and the Internet is dependent on D.N.S.”—the system that manages domain names. “Go risk factor by risk factor by risk factor, acknowledging that there are many you don’t even know about, and you ask, ‘What’s the chance of this breaking in the next decade?’ Or invert it: ‘What’s the chance that nothing breaks in fifty years?’ ”

I asked [Justin Kan, co-founder of Twitch] what his prepping friends had in common. “Lots of money and resources,” he said. “What are the other things I can worry about and prepare for? It’s like insurance.”

In some respects, Osnos questions the motivations of the people who are preparing for the worst. At one point, he states that “Fear of disaster is healthy if it spurs action to prevent it. But élite survivalism is not a step toward prevention; it is an act of withdrawal.”

This suggests that taking precautionary steps is inconsistent with committing resources to having a functional, healthy society. I think this is a false dichotomy.

For one thing, bad things can happen because of events that are outside of our normal realm of control. Natural disasters can occur, whatever you do to improve political systems and institutions. The amount you’ve donated to your local homeless shelter isn’t going to change what North Korea does. 

Managing uncertainty (risk and luck) is about identifying and preparing for good and bad situations. The more resources you have, the more contingency plans you can have.  

There are multiple ways of managing uncertainty and risk. You can take steps to make events less likely. You can also take steps to mitigate their effect if they happen. In large part, the approaches complement each other. They don’t discount the other. 

Some other interesting points:

  • Another reason for having eye surgery is so you aren’t reliant on glasses or contact lenses, should they no longer be available. 
  • If you need to get out of dodge, motorbikes will be much more effective at getting you away than cars. You can’t weave through traffic in a 4WD.  
  • New Zealand isn’t just a great place to be now, but many people think it would be a good destination if things went bad elsewhere:

Reid Hoffman, the co-founder of LinkedIn and a prominent investor, recalls telling a friend that he was thinking of visiting New Zealand. “Oh, are you going to get apocalypse insurance?” the friend asked. “I’m, like, Huh?” Hoffman told me. New Zealand, he discovered, is a favored refuge in the event of a cataclysm. Hoffman said, “Saying you’re ‘buying a house in New Zealand’ is kind of a wink, wink, say no more. 


insurance, managing risks, uncertainty

About the author 

Sonnie Bailey

In his spare time, Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or that he is an orthodontist. He is none of those things. In reality, Sonnie is a financial planner based in Christchurch. Through his business, Fairhaven Wealth (www.fairhavenwealth.co.nz), he provides independent, advice-only, fixed-fee financial planning services. Sonnie is a “recovering lawyer”: he has specialised in trusts and personal client work. He has also worked as a financial services lawyer for many years.

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