Friday, July 30, 2010

Insuring the uninsurable [updated]

Via BoingBoing, an awesome insurance anecdote.

No life insurance company would touch the first astronauts. But the Apollo crews knew that they needed to do something that would leave their families in good shape were the mission to go badly. Solution?
The answer was provided by NASA in the form of 'Insurance Covers', as seen here, a number of which were given to every crew member and subsequently signed by every astronaut involved, as close to launch as possible. Its value would instantly be high, but would no doubt sky-rocket (no pun intended) should the astronauts never return; the deceased's surviving family then at least safe in the knowledge that in future they could cash-in their makeshift insurance policy if required.
Now, insurance more formally is a way of transferring wealth from a good world state to a bad one. You're poorer than you otherwise would be if all goes well, because you've paid a premium or taken some other costly action, but you're consequently much richer should the bad state eventuate.

This mechanism produces artifacts that will be worth much much more in the bad state, but don't cost much at all to produce. Folks with access to this kind of technology ought to use it regardless of whether there exists an insurer who'd insure him at actuarily fair rates. If I could, every morning, sign a postcard that would be worth a million dollars in the event of my death and cost me nothing to sign, why would I ever buy life insurance?

The article says that these covers continued through Apollo 16. I want to know why they stopped. Even if insurance became available or if NASA started providing coverage for families, I can't see why the astronauts would have stopped doing this.

Update: Duncan points me in the right direction in the comments, below.

First, the government started providing insurance for astronauts: any astronaut who was part of the military was eligible for insurance cover through the military. And, in at least the Columbia disaster, the government paid the families (see here and here). We'd expect it to be optimal for the government to directly provide insurance coverage in this kind of case anyway. But regardless of the level of insurance coverage given to the astronauts, either privately or by their employer, signing the covers would still be optimal.

Discussion here suggests that the Apollo 15 crew sold off a whole lot of unauthorized insurance covers. There was always tension about to what extent the astronauts ought be able to privately profit from their fame; ability to sell the covers at a low price in the good state of the world may have been sufficient for the government to step on the use of them as insurance against the bad state.

2 comments:

  1. I see the covers were only for the Apollo 11-16 flights, sucks then to be on Apollo 8 (went around the moon to test the SM/CM) or Apollo 10 (tested the LM over the moon without landing). Seriously, it looks like the astronauts also had insurance for $50,000 each via the exclusive contract NASA had with Time/Life to publish human interest stories on the astronauts.

    Apparently there was some sort of "cover scandal" prior to Apollo 17 launch (possibly caused by the Apollo 15 astronauts who flicked 400 unauthorised covers off to a dealer) and I believe NASA pulled official support for the covers. Nonetheless there are postal covers (not technically insurance covers) for Apollo 17 floating around: http://www.paulfrasercollectibles.com/section.asp?catid=220&docid=3496

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  2. The NASA history of Apollo references the Apollo 15 sale of the covers and other items and briefly touches on the tension you mention.

    http://history.nasa.gov/SP-350/ch-8-8.html

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