If the world is going to end on Saturday as some folks are predicting, we’ve got a few things to discuss. Most importantly, rapture insurance is evidently being price gouged. Whoa.

Let’s unpack this from a libertarian perspective, one step at a time.

I basically see two separate questions here. But first some backfill:

Backfill: What in the hell is this?

The rapture is an event that a subset of Protestant churches believe will happen in connection with Jesus’ return to Earth as prophesized in the book of Revelations in the New Testament. Although there are theological disputes as to whether the rapture will occur before or after the endtime tribulations begin, the actual event is largely agreed upon: in an instant, those who have faithfully followed God will be whisked away to Heaven. All others will be left behind on Earth.

I doubt that even a majority of Protestants in America believe in the rapture (and I’m pretty sure it’s not even part of Catholic or Orthodox theology), but  it does lend itself to some fun jokes, like the bumper sticker I had on the interior roof of the back seat of my car in high school: “In case of rapture, someone grab the wheel.”

Now, rapture insurance is a service being sold by a group of atheists for the purpose of taking care of your pets after you are whisked away to heaven. I’ll let them explain:

You’ve committed your life to Jesus. You know you’re saved. But when the Rapture comes what’s to become of your loving pets who are left behind?   Eternal Earth-Bound Pets takes that burden off your mind.

We are a group of dedicated animal lovers, and atheists. Each Eternal Earth-Bound Pet representative is a confirmed atheist, and as such will still be here on Earth after you’ve received your reward.  Our network of animal activists are committed to step in when you step up to Jesus.

We are currently active in 26 states, employing 40 pet rescuers.  Our representatives have been screened to ensure that they are atheists, animal lovers, are moral / ethical with no criminal background, have the ability and desire to  rescue your pet and the means to retrieve them and ensure their care for your pet’s natural life.

Our service is plain and simple; our fee structure is reasonable. For $135.00 we will guarantee that should the Rapture occur within ten (10) years of receipt of payment, one pet per residence will be saved.  Each additional pet at your residence will be saved for an additional $20.00 fee. A small price to pay for your peace of mind and the health and safety of your four legged and feathered friends.

Question #1: Should rapture insurance be legal to sell?

As a libertarian, I’m not particularly torn on this question — I think this should be perfectly legal. But there are some issues that are worth discussing..

First, should people be able to sell insurance to which there is no living human beneficiary? I think this is a clear yes. Lots of different contracts are made all the time without human beneficiaries, or even any living beneficiaries. We pay people to take care of our gravestones in perpetuity, even though there might be no clear human beneficiary. That doesn’t strike me as problematic.

Second issue: should people be able to sell insurance in situations that it can’t be verified they will pay out? Again, I don’t think this is a problem. Insurance fraud is insurance fraud. While it’s true that the rapture insurers could fail to meet their obligations if and when the pet-owner is whisked away, that would be fraud, plain and simple. No different than if the graveyard stops taking care of my grave in violation of our contract. But, you say, the graveyard upkeep can be enforced by either my descendants or other interested parties. This strikes me as true for the rapture insurance as well. So long as I publicize to my neighborhood that I have purchased the insurance, it will be quite evident if my pets are not being taken care of after the rapture. This doesn’t strike me as any different that making sure non-beneficiaries know you have life insurance and that your children are the beneficiaries. Or making sure your family knows where your will is kept.

Third issue: I think many people will say that rapture insurance should be illegal because the rapture is made-up, and the insurance claim can never be paid. They are just selling snake-oil. I don’t think this argument holds water. All insurance contracts are predicated on the idea that the benefit may never be paid; in fact, most insurance we buy (car insurance, term life insurance, homeowner insurance, etc.) is predicated on the hope that the benefit will never be paid. And while I think it’s highly unlikely that the rapture is a real future event, I don’t think the probability is zero.  And therefore, I don’t even think it’s unreasonable to buy rapture insurance if you believe it may be coming.

In fact, it might be a smart purchase in a functioning market (one that had enough buyers/sellers to provide some liquidity and price information). I would imagine that a functioning market wouldn’t price rapture insurance very high — the cost of basic lifetime pet care can’t be more than a few thousand dollars per pet, and a market probability of the rapture occurring during your lifetime would probably be less than 1 in a 1000. So I don’t think it’s inherently insane to spend $3 (or maybe 3 cents) for the peace of mind that Rover will be fed and sheltered in case of rapture. In fact, many awful events that might occur in the next 50 years could easily be mistaken for rapture: asteroid collision, nuclear war, alien invasion. You might get a payout you don’t deserve!

Of course, there doesn’t appear to be a functioning market at work here. The price is currently $135. So that might be problem. But that’s a market problem, not a fundamental problem with rapture insurance.

A more important problem is the question of whether such insurance could be paid out in the event of actual rapture. And this largely depends on how many people disappear. If the rapture whisks away 40% of Americans and leaves th rest facing things like the anti-christ, it’s not clear that the liberal structure of society will hold together in a way that contracts could be enforced.

And, finally, the claim that I think most people will make against rapture insurance: even if one begrudgingly accepts that the rapture is remotely plausible, this is a scam to prey on people, and the issuers of the insurance have no intention of ever paying out anything. This is a legitimate problem, but I don’t think the right mechanism in response to it is to ban the selling of the insurance. If anything, I think a simple set of regulations should prevail: all companies offering insurance on rare events could be required to demonstrate reserve cash holdings that can pay out claims. Because, to me, the real problem here is not that the atheists have no intention to pay out in the case of rapture, it’s that they don’t believe they ever will have to pay out, and therefore will not have the resources to pay out when it becomes their obligation.

Now, this is not unique to rapture insurance. Flood insurance runs into similar problems. Most insurance pays out a regular stream of claims each year (like car insurance). Thus, the law of large numbers can reduce the whole issue to an aggregate actuarial and accounting one. Cash flow simply needs to cover current needs, which can be easily estimated. On the other hand, rare event insurance (like flood or rapture) poses a different situation: claims typically only go out when there are thousands of them, and all the money is called in at once. This is why the federal government ends up in the flood insurance game: private insurers tend to go belly-up when a big one hits the Carolina coast. Rare-event insurance, that is, inherently generates some market problems.

But, no, I don’t think this should be banned.

Question #2: Should rapture insurance be legal to price gouge in the days before the event?

This one is much tougher. Much tougher. Price gouging itself is an example — perhaps the best example — of the perverse outcomes of a market failure. Demand ramps up far too quickly to be matched by supply. Consumers are often pitted in time-shortened situation, in which comparison shopping is impossible, leading to monopoly-like effects.  In normal circumstances, price gouging is perfectly legal, and laws against price gouging are perhaps unconstitutional in normal circumstances. Most anti-gouging laws, however, have been held constitutional because they only affect situations of civil disorder (i.e. market breakdown), which happens to be the only time you actually see price gouging in the U.S. , because the markets here almost never systematically break down in non-disorder situations.

From a libertarian perspective, any market failures are problematic. I suppose a pure libertarian might believe in an anarchy-based capitalist system, but that’s nothing but pap. Any sensible libertarian understands that government authority is necessary to ensure property rights and enforce private contracts. And those are the two main ingredients in making sure that a market-based economic system works smoothly. But while necessary, they aren’t sufficient. Markets can fail for any number of reasons, and it’s not anti-libertarian to demand that government play a role in making sure the markets work. In fact, that should be one of the main roles of government — ensuring a functioning market that preferences no one and nothing aside from the most free exchange of goods possible. So I don’t have any particular problem with laws designed to prevent price gouging, which by definition are a consequence of a market failure.

Insurance gouging is something I have never thought of, however, and it raises some interesting questions. First, is there even such a thing as insurance gouging? Maybe not. Insurance runs on a basic risk-assessment market to begin with: the insured accepts that he is paying a cost disproportionate to the risk, for the purpose of reducing the variance of his outcome. That’s the trade-off in all insurance purchases: I’ll take bad odds on the bet, but if the odds hit I won’t be liable for the horrible outcome. And therefore, the odds need to change as the estimate of the risk goes up. Just like life insurance is more expensive if you are old and flood insurance is more expensive if you live on the beach, it doesn’t strike me as odd that the cost of rapture insurance would go up if the probability of rapture increased.

In that sense, this isn’t even gouging in the current case. It’s just a market reaction in proportion to the probability of the event. It’s not like a company is raising the price of canned foods. In effect, insurance is not run on supply and demand, but on probability of risk.

Still, there’s something unsettling about all of this, mostly because the market for “rapture probability” doesn’t seem particularly rational. Much more likely to be a boom-and-bust kind of thing, with lots of bubbles, than a liquid market that responds smoothly to all new information. And what is really being sold here is peace of mind, which clearly has not changed in measure of supply.

So i don’t know how I feel about the gouging. Thoughts?