Love, Honor, and... Insure?

Why isn't there divorce insurance?

Perhaps the most famous mantra of conservatives is the "Invisible Hand" of Adam Smith.  Through this almighty power, shortages are replaced with plenty; monopolistic predators are superseded by beneficial competition; and economies experience limitless growth.

The feedback loop of the Invisible Hand not only helps avoid shortages of necessary goods and services, but also provides important indicators of underlying value.  That's how the stock market is supposed to work.  The stock market says that GM is worth less than Google because people believe GM to be a dying company whereas Google is growing, even though by normal accounting rules GM "should be" worth tens if not hundreds of times as much as Google.

Of course, markets can be wrong, and that's where large fortunes can be made - by making a contrarian call that turns out right.  When the markets go really wrong, and a panic ensues, prices become all but meaningless; but even then, a keen eye and firm hand can make a fortune by buying cheap, as Warren Buffet habitually does and as JP Morgan Chase is doing by buying Bear Stearns for pennies on the dollar.

The Importance of Prices

Because of this aspect of the Invisible Hand, we are used to using prices, in all their infinite combinations and permutations, to make decisions.  When we buy a car, we not only consider the cost of the car itself, but also (if we are wise) the insurance, registration, and sales tax.  It's going to cost less to buy a Ford Focus than a Corvette; it will also cost less to insure the Focus, because Corvettes are expensive to fix and the sort of people who buy them also tend to be the sort of people who get into wrecks.

Not only does the price of the insurance tell you something about the cost of the car, it also says something about the kind of person who wants one.

When you have a market in which there is no working pricing mechanism to help guide decisions, the inevitable result is faulty and inefficient decisions.  One of the reasons that the Soviet Union collapsed was that there was no market to tell factories what to produce; the result was constant shortages or overproduction.  There also weren't really brands - as people can use brands as indicators of quality based on the marketing given them, but in a communist economy, there wasn't any of that either.  This led to market inefficiencies, shortages, and overall generally low quality.

When one thinks of "markets", one thinks of tangible goods and services.  But there are other markets that are being overlooked - markets where faulty decisions are being made and improvements are desperately required.

Enter the marriage market.

The Cost of Faulty Data

It is a modern tragedy that most marriages end in an expensive and messy divorce, giving rise to a saying, "Love is grand, divorce is a hundred grand."  This is a relatively new phenomenon in world history, with grave consequences for the stability of our society.  We cannot yet foresee all of the potential bad consequences in detail, but we do know that when families collapse, so does society.

It could be argued that this doesn't matter: in a free country, what people choose to do in their own personal lives is nobody's business; that's one of the views we've discussed earlier.  Yet it is rare indeed that a couple goes into a marriage with the clear expectation that it will only last for a certain time and that it will surely end in divorce.

When divorce comes - as, indeed, it usually does - it is exceedingly rare that both parties mutually shake hands in an atmosphere of friendly recognition that "it was fun while it lasted, but it's over."  On the contrary, divorces are famous for bringing on the kind of scorched-earth, slime-throwing tactics more commonly featured in Clinton campaigns and Spitzer investigations, but none of the couples would ever dream of such a thing when they are standing before an altar saying "I do".

It follows logically that people are making unwise decisions when deciding whom to marry, and the circumstances under which they do it.  The market offers a possible solution, or at least an indicator: divorce insurance.

How easy it is, when seeing the fancy red sports car in the showroom, or the wooden home in the tinder-dry but beautiful California mountains, for our hearts to holler, "That's the one!"  This feeling of instant love is very much the same as when finding a mate.

Because of the nature of the home or car buying procedure, however, we have a good chance to come down out of our cloud: when we see the total bill, including the expensive insurance.  Some choose to take on the cost; others wisely turn away.  When finding a mate, the price indicator isn't there.

Prenuptial agreements have become increasingly common as a means of providing some protection against the worst effects of divorce or unfaithfulness; this demonstrates that at least some people are aware of the problem and are attempting to address it in a rational way.  Prenuptial agreements, however, are limited: the agreement may help in the event of disaster, but obtaining one sends no signal because there is no price - and pricing signals are what is most needed.

A valid prenup may put a price on a later divorce when it happens, but there is no cost at the time other than the lawyer's fees, which have no real connection to the risk of the divorce actually taking place.

The Nitty Gritty

If we wished to insure ourselves against the possibility of divorce and to receive useful intelligence concerning the risk, however, and there were a market for such insurance, a powerful message would become visible.

The insurance companies have done an excellent job determining the risk factors for home disasters and car wrecks: wooden houses are more likely to burn than brick ones; homes in Florida are more likely to get smashed by hurricanes than homes in upper New York; men are more likely to crash cars than women.  Risk factors are not hard to compute given enough data.

Might there not be risk factors for divorce as well?  Perhaps coming from a broken home; or being irreligious (as most major religions teach that divorce is a sin); or, obviously, having been divorced three times already.  Whatever those risk factors might be, the insurance industry is well equipped to ferret them out.

As with any insurance, there are actions you can take to render the policy null and void.  If you set fire to your own house on purpose or commit suicide, the insurance won't pay, and if you commit adultery, the insurance shouldn't have to pay you if your wife leaves.  She, on the other hand, as the injured party, ought to be able to collect.

Upon considering marriage to a particular person, you could submit an application for divorce insurance.  After answering a (no doubt extensive) questionnaire, the agent would present you with the bill - and, by the bottom-line price, you'd be able to have some general indicator of the risk factors for this particular marriage.  Whether you'd choose to go through with the marriage and/or buy the insurance quote is, of course, nobody's business but your own; however, to be better informed can only help to make wiser decisions.

A quick glance at Google uncovers marriage markets galore, ranging from Christian singles, to Islamic dating services, to interracial dating, and on and on.  The problem with these services is that they have no skin in the game.  It makes no difference to them whether your marriage succeeds or fails, so they have no economic interest in checking things out.

If anything, it's to their advantage if your marriage fails - you'll be right back in the market for a new relationship.  Would there be a market for a more expensive service that came with some sort of guarantee?

It certainly seems unromantic to consider the costs of divorce insurance when planning to propose.  But nothing is less romantic than a divorce.

Everybody knows that their car insurance rates will go up if they get in a wreck or are arrested for drunk driving; does anyone doubt that this causes at least some people to drive more carefully?  If it became commonplace for people to ask prospective spouses to purchase divorce insurance on themselves, it's reasonable to suppose that they would at least try to avoid certain things that would raise their rates.

Consider Jack and Jill who are thinking of getting married.  Jill was raised in a religious home, has not previously been married, has not lived with anyone, and has no children.  Jack is an atheist who has four children from three previous women, two of whom he divorced and the third whom he never married in the first place.

They call Geico and ask for quotes for divorce insurance on each other.  Jack is offered a very low price - because Jill has many of the indicators of a stable marriage.  He's buying a Honda, risk-wise.  Jill, on the other hand, is presented with a tremendous charge, just like someone with six DWIs buying a supercharged red Corvette would be, because Jack has a past history of unsuccessful marriages and several indicators of more bad news on the way.

Might this cause Jill to have second thoughts?  Or consider whether, perhaps, it might not be wiser to go back to George, her boyfriend from college who is still unmarried and working as an accountant?

But suppose Jack and Jill suck it up and pay the bill, buy the insurance, and get married.  Then, sure enough, a few years later Jack runs off with a girl he met in a bar, and Jill gets a divorce - and custody of their two infants.  Normally, this would be a straight trip to the poorhouse for Jill; but because she purchased divorce insurance, Geico would pay off on the policy, reducing the blow to her, her family, and to society - which is, after all, the purpose of insurance in the first place.

We speak of the marriage "vows."  A vow is supposed to be a solemn promise, a pledge, a commitment - in short, a contract.

People buy insurance to cover breaches of contract all the time.  That's what PMI insurance on your home mortgage is: insurance that you pay for which benefits the bank if you violate the terms of your mortgage and stop paying.  There's title insurance, which pays out if the title of the home you thought you had is no good; there's any number of hedges in the financial world, which cover when things go wrong.

Legally, marriage insurance need be no different.  There is a quantifiable risk, with identifiable risk indicators, and specific listed actions you can take to void the insurance.  Nothing new here, except the market, and the benefit to society.

Many religious leaders and, more sporadically, the government have tried for a long time to stem the tide of divorce, without any success.  Maybe it's time to let private industry, and the Invisible Hand, have a go at it.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
Reader Comments
An interesting proposal. One quibble: do the data actually bear out a negative correlation between religiosity and divorce rate? I was under the impression that they did not, but I could be mistaken.

Even if it turns out that you were in error, I applaud your for once again producing the kind of out-of-the-box, market-oriented solutions for societal problems that keep me coming back to your blog.
April 27, 2008 9:29 AM
There have been studies showing that CURRENT religiosity does not appear to affect the divorce rate. I am not aware of any studies concerning how children raised in a strongly religious way wound up handling their own marriages; this would necessarily be a very long-term, in-depth study. My assumption on this point is simply logical: if you believe in God, and God says don't divorce, it would logically follow that that must have **some** effect. But really, that's another argument for getting the insurers involved: their data-mining techniques are very, very good at ferreting out various predictive influences when it's their money at stake. We might all be surprised...
April 27, 2008 2:07 PM
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