Trading Uncertainty. Insurance As Risk Institutionalization In Modern Society

Insurance is a core institution of modern society. Yet a sociology of insurance is still underdeveloped. Starting from the basic assumption that insurance is a way of trading uncertainty, the main hypothesis arises that the evolutionary advantage of insurance industry lies in increasing the self-produced uncertainty which can be absorbed in social systems through decisions. This implies the use of knowledge – statistics and probability theory – in order to sell ignorance. Such a paradox is made operative through the premium quantification. How can future uncertainty be reduced to a certain price? Premium itself is a double-side risk: for insurers the matter is to underwrite or not to underwrite; for policy holders the matter is to be or not to be insured. And both have to combine the uncertainty of expectations towards a determinate event with the uncertainty of events towards a determinate expectation. The only solution seems to be that of getting ready to cope with surprises. Some financial instruments such as weather derivatives and catastrophe options can be seen as an empirical evidence of this complex form of risk institutionalization.