We’re Better Together
How we can pool risk so no one is financially alone
Five thousand years ago, Chinese merchants were transporting their goods by boat on the rushing river — a faster, yet riskier method than by land. Some boats survived, some were lost to the rapids. Did they decide that it was too risky to take the water? Nope, simply that it was too great a risk to bear alone. They pooled their risk by distributing their goods among each others’ boats, so each boat carried a bit of everyone’s load — and put the boats in the water with the security that when one sank no one would have to absorb the entire loss on their own.1
Just this past February, when the cargo ship Felicity Ace caught fire and sank2 taking $400M worth of luxury vehicles to the bottom of the ocean with it, I’d bet more than a few merchants were grateful for that 5,000 year old invention of maritime insurance.
Our most common experience of insurance — copays, premiums, labyrinthian claims processes — is certainly less than inspiring. Yet, the underlying mechanism of insurance is elegant and powerful: the group is a better safeguard against loss than an individual standing alone.
When no one else will insure them, people self-insure.
Historically, when society's mainstream functions exclude particular communities, time and again, those communities have gotten together and created their own. It happened in the United States in the late 1700s, when mutual benefit societies formed to support the black community. Among the first was the Free African Society, in which members paid into a group fund that could be tapped by those in need. A few decades later, the New York African Society for Mutual Relief formed, providing health and life insurance to its members. By the 1800s, one hundred black mutual aid societies spanned the country from New Orleans to Boston.
And in the 1900s, the rise of anti-immigrant actions throughout the United States was matched by a rise of mutual aid organizations like the Chinese Consolidated Benevolent Association, the Sociedades Mutualistas, and the landsmanshaftn, which offered benefits from dances and banquets to health insurance and interest-free loans. When no one else will insure them, people self-insure.
At our core, Sawa is self-insurance for the uninsurable. Today, half the people in the United States own just 2 percent of the wealth and many of them are unable to bear a $400 shock.3 While it’s too risky for the market to insure any one of them against financial loss as an individual, we believe that, when you look at them as a group, the risk is grossly miscalculated. When a financial shock hits someone, they might not have enough to cover it in the moment, but there’s always enough in the community. As a group, we all have a cushion.
No one should face financial shocks alone.
Like the merchants who knew that not all the boats would be lost at once, we pool the risk among the community, lowering the chances that any one person will default on their revolving debts. Safer bets are cheaper bets, so the cost of capital goes down, access to credit increases — and the entire community’s financial health improves. Ultimately, we know capital will come to them; in the interim they'll insure each other in a Sawa community.
I resonate with what Emily Higgins, director of homeownership at the Champlain Housing Trust in Burlington, Vermont, told Shelterforce about their lower-than-average delinquency and default rates, “Our homeowners have been hit by the economy just like everyone else. They succeed, in part, because we stand behind them.”
In a Sawa community, people will still face the same economic realities. Jobs will be landed and lost. Bills will be due, groceries needed. Emergencies will happen. The economy will go the way it will go. The difference in a Sawa community is no one will bear those shocks alone — replacing feelings of individual financial fragility with the security of community prosperity.
Vaughan, Emmett J., and Therese M. Vaughan. Fundamentals of Risk and Insurance. 10th ed. New Jersey: J. Wiley, 2008, 74.
Andrew Lawrence, “20,000 Vehicles Under the Sea,” Popular Mechanics October/November 2022, 8.
On wealth: “That is, of total wealth of land, buildings, business assets, and industrial and financial wealth of all kinds, net of debt.” Thomas Piketty, A Brief History of Equality, trans. Steven Rendall (Cambridge: Harvard University Press, 2022), 32. On $400 shock: According to the Federal Reserve Board’s “Economic Well-Being of U.S. Households in 2021” report, 32% of adults in the U.S. could not pay for a $400 emergency in cash or its equivalent.