Personal insurance pools natural-disaster risk because location barely affects injury odds

Evidence

Among the difficulties encountered in insuring property against damage by flood is the fact that no broad distribution of the risk can be obtained. The risk of injury or death as a result of natural disaster is a very small fraction of the total risk of death or of injury or death by accidental means, and no problem of adverse selection is created. The house that is close to a river is bound to suffer damage if the water rises high enough, but the inhabitant of that house is still unlikely to be injured and less likely to be drowned. It seems reasonable to conclude that the chances of either injury or death due to natural disaster are about the same for one person as for another regardless of where he lives or what he does, and for anyone the chances are very small. — Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process, 1831

Categorization

• XREF: Sharp illustration of the adverse-selection principle from earlier chapters applied to the property-versus-person insurance distinction. — connects to: Floods cause more suffering and damage than any other U.S. natural disaster — Henry M. Hart, Jr. and Albert M. Sacks, The Legal Process: Basic Problems in…, 1795