Challenge Issued to Disaster Insurers

From a Canadian insurance industry source, this article titled Insurers Must Cover More Catastrophes Worldwide or Risk Being Replaced by Governments.

Here in the U.S. we have had the National Flood Insurance Program for many decades, yet it remains plagued with problems as presently operated by FEMA/DHS. Major problems occurred after Hurricane Sandy, which was 2 plus years ago. So, is government the answer?

Thanks to Franklin McDonald for calling this source to my attention. He questioned whether there is conflation of micro and meta issues in this article. Your comments are invited.

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One Response to Challenge Issued to Disaster Insurers

  1. The very concept of insurance for natural disasters of the sort that we’re talking about here has always struck me as a fairly ridiculous concept so it’s not at all surprising that the industry is having a difficult time. Take a step back and consider what’s actually happening.

    Insurance is a hedge against a certain kind of tail risk, that is to say, a means for informed holders of a certain amount of capital to protect against the outsized consequences of known but distant possibilities. Catastrophes of the sort a government is required for are definitionally different from that predicate. They are either non-tail risks (here I’d call out the actuarial differences in extreme events from climate change), not hitting the informed (in the case of risk-holders who have a reasonable expectation that they’re structure or systems have been built in a robust and resilient way), hitting those without the the capital to protect (as with much damage in the developing world), happening as a result of unknowns or unlikely but not distant possibilities (as is the case with the built environment in the modern world which was not built to +2C degree standards).

    The result of this would seem to be that governments should be the principal customers for insurance not individual policy holders. Surely, we can administer better systems with insurers executing and governments looking out for the interests of victims. In this way we can distribute risk globally but still look to our native governments for support.

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