Abstract

Crime creates demand for insurance but supplying insurance can inadvertently promote crime. How do insurers reduce uncertainty, pay-outs, and their exposure to extreme and correlated losses from crime? And how do criminals respond to insurers’ attempts to “manage” crime? In this paper we conceptualize insurance and certain types of crime as binary stars, co-evolving as each side innovates and responds to the other side’s innovations. We examine this in five case studies: auto theft, art theft, kidnap and hijack for ransom, ransomware, and payment card fraud. We find that insurers counter criminal innovations that challenge profits by engaging with insureds and third parties: to reduce criminal opportunities, limit damage, salvage stolen property and cap criminal profits. They also increase the risk of detection, capture, and conviction of criminals that defy the (implicit) rules of the game. Across the case studies, “insurance as crime governance” follows a market logic: it erects barriers to opportunistic crime and engages in strategic interaction with sophisticated and organized crime. Insurance tolerates crime if prevention is costlier than covering losses and avoids covering non-profit-motivated crimes.