No, the Governor’s Mansion was NOT uninsured

Earlier today, somebody in an Austin-related blog was huffing and puffing about “THE GOVERNOR’S MANSION BURNED DOWN AND IT DIDN’T HAVE ANY INSURANCE!!  OMGWTFBBQ??!?!!”  I straightened him out, and straightened out a number of equally uninformed commenters, but it began to look enough like a post that I brought it here as well.

No, the Governor’ Mansion was not “uninsured.”  The State of Texas INSURES ITSELF instead of using third-party insurance carriers.  Most large city or county governments do the same (I know for certain the City of Austin has done so for years), and for the same economic reasons.

What happens is the Legislative Budget Board estimates losses for all state agencies over the next year, or over the next biennium (not hard, any second-year actuary student can do the math).  The Treasurer takes that amount of state revenues and puts it into a dedicated investment fund, which is then used to pay for losses, in the way a mainline insurance carrier would do for a private property-owner.

ADVANTAGE NUMBER ONE:  Putting money to cover future casualty losses into an investment fund means it’s earning interest for the State while it’s sitting around waiting to be used.  This wouldn’t happen if the state paid that same money in premiums to conventional insurance carriers.  (And if you want to complicate the math a bit, the LBB can even allow for the expected interest growth in the fund, and reduce the annual contribution accordingly.)

ADVANTAGE NUMBER TWO:  You can get coverage on otherwise uninsurable items.  For discussion, let’s say the Capitol had burned to the ground in 1983, which it came scarily close to doing.  How do you put a dollar value on the Capitol?  Aside from the inherent value of the structure, what is the monetary value of its historical worth, never mind computing the value of all the irreplaceable things in it?

And presuming it was even possible to arrive at a monetary value of all those things, no underwriter in his right mind would get onto such a risk; there would be no reasonable way to charge a premium high enough to cover the potential liability.  I doubt it’d be possible even to assemble a syndicate at Lloyd’s of London (a consortium of insurers known for underwriting high-risk policies) to take that one on.

Umbrella liability insurance does not cover purple umbrellas.  Fnord.