Insurance can get weird

Yesterday’s post about insurance-related Guinness World Records got me thinking: what other weird insurance policies are out there?

If you know much about insurance, you know that the first place to inquire about weird insurance policies is Lloyd’s of London, legendary clearinghouse for the strange and unusual. (And innovative: they were the underwriters for the world’s first auto policy, the first aviation policy, and soon the first space tourism policy.)

Naturally, Lloyd’s has an entire webpage dedicated to what it (in what I imagine to be staid, Oxford-accented English) calls “innovation and unusual risks.” Some top hits include insurance coverage for David Beckham’s legs (£100 million), Keith Richards’ hands ($1.6 million), and cricketer Merv Hughes’ trademark mustache (£200,000).

My personal favorite is insurance for members of a Derbyshire Whisker Club who wanted coverage for their beards against “fire and theft.” Theft?

“Insurability”, or why we can have insurance for weird things

Weird insurance is an object lesson about “insurability.” Ideally, an insurable risk should have, at a minimum, the following features:

  • “Accidental”: insurability usually requires risks be accidental. Otherwise, an insured could just…burn down their house on purpose and collect the insurance money. That’s called fraud.
  • “Pure”: speaking of fraud, insurable risks should probably be “pure” and not speculative – meaning that an insured shouldn’t stand to gain financially from a loss.
  • “Measurable”: if a loss does happen, an insurer should need to know whether this can be measured in both time (can they tell when a loss happened) and money (how much should they pay out).

Fortunately for our hirsute Derbyshiremen, “beard insurance” satisfies all these criteria. Can a beard be destroyed by accidental fire? Check. The beard-wearer doesn’t stand to gain if his beard burns? Check. If the beard burns, we know when it happened and how much the loss would cost the bewhiskered gentleman? Check, check, and check.

There are other “ideal” features of an insurable risk, but they’re not deal breakers. They’re more like “nice to haves”. For example, some argue that an ideal risk is one that is common to a large pool of insureds, so that insurers can better project how much they might need to pay out in the event of a loss. Think of homeowners insurance: you’d probably want a large pool of homeowners to a) figure out the likelihood of certain losses and b) spread the risks out over a larger population.

Some underwriters at Lloyd’s clearly don’t think this is a requirement for insurability. After all, there is only one pair of legs belonging to David Beckham.

And it’s a good thing that a large pool isn’t always necessary requirement for insurability. For one, it means I can read about weird insurance policies. But for another, it means that as long as you’re not, say, abetting bad behavior like insuring an assassin or something, you can probably find someone willing to pay the price to cover your risks. Which makes for a better, more protected world.