It is a consistent issue that increased re/insurance pricing is cast as an outcome of losses and not also related to investment performance. Both sides of the insurance business matter for broad understanding of costs.
All very wise. The interesting bit is why the alarmists are not investing their own savings into cat bonds to increase insurance and reinsurance capacity. They will earn excellent return if the disastrous scenarios will not materialize but they will share losses if they are right on catastrophic scenarios. Let’s call it alignment of interests or put your money where your mouth is.
The former Denver Post columnist Ed Quillen used to write about building in the “Stupid Zone”, along coastal areas prone to flooding or in forests prone to fires. If the home owner paid an accurate risk premium for protection that would be one thing.
Instead, subsidized federal flood insurance perpetually underpriced the risk, encouraging redevelopment in some of the riskiest coastal places. Is this still happening?
And federal and state firefighting resources rush to protect homes in the path of fire (and firefighters have died), the cost of which is spread nationally.
While spreading risk is the hallmark of modern civilization, some risk spreading encourages risky behavior society might want to diminish instead. Humans living in forests not only start a lot of forest fires, but their very presence has a negative effect on wildlife habitat.
Planning commissions have a difficult time denying development in risk prone areas. They impose conditions on structures, roads, stormwater systems, etc, but the federal and state cost of coming to their rescue and relief are not added to the direct insurance premiums paid.
I know this raises a host of questions, such as which risks to discourage and how to price them. But we do it all the time, such as with taxes on tobacco.
I guess the part that strikes me as the most alarming is that humans continue build society in places where the probability of destruction is the highest. And this flies in the face of the many who see mitigation as one of the key pillars in this on going saga. In my humble opinion, I believe that the “mitigation” advocates need to begin screaming from the roof tops. Much like those who favor decarbonizing.
C'mon, man! People are assessing the short term (their lifetimes) benefits of living in places that are attractive but maybe risky. They make decisions - risk and cost - whether knowingly or naively all the time. Same with driving over the speed limit on the highway, going shipping in urban areas, etc. Where you live and drive factors into your insurance premiums. Over time, the market for insurance adjusts to price it properly, on average. Then you decide whether to build or to drive, etc. We do not need "advocates" to scream anything at all. People really aren't stupid. And please do not encourage more "decarbonization" hectoring. Just this morning I read a summary of a college prof's work on how smart thermostats are generating excess demand (they all kick on the heat) when "sustainable" power systems (read solar panels) least can provide it. It assumes we will "electrify" the "heating grid". Sure, we are all gonna have solar panels on our roofs and yards. Yikes. God save us from the elites who know better than us how to live.
Perhaps if insurance for people who live in Baton Rouge went up to reflect the more direct costs, people would pick a different place to build after they get hammered next time. I don’t like contributing to the average for other peoples’ stupidity.
Please. You pay taxes (I assume) to cover a host of "other people's stupidity". And unless you live in Baton Rouge you don't get adjusted rates based on that place and its risks.
It is a consistent issue that increased re/insurance pricing is cast as an outcome of losses and not also related to investment performance. Both sides of the insurance business matter for broad understanding of costs.
All very wise. The interesting bit is why the alarmists are not investing their own savings into cat bonds to increase insurance and reinsurance capacity. They will earn excellent return if the disastrous scenarios will not materialize but they will share losses if they are right on catastrophic scenarios. Let’s call it alignment of interests or put your money where your mouth is.
The former Denver Post columnist Ed Quillen used to write about building in the “Stupid Zone”, along coastal areas prone to flooding or in forests prone to fires. If the home owner paid an accurate risk premium for protection that would be one thing.
Instead, subsidized federal flood insurance perpetually underpriced the risk, encouraging redevelopment in some of the riskiest coastal places. Is this still happening?
And federal and state firefighting resources rush to protect homes in the path of fire (and firefighters have died), the cost of which is spread nationally.
While spreading risk is the hallmark of modern civilization, some risk spreading encourages risky behavior society might want to diminish instead. Humans living in forests not only start a lot of forest fires, but their very presence has a negative effect on wildlife habitat.
Planning commissions have a difficult time denying development in risk prone areas. They impose conditions on structures, roads, stormwater systems, etc, but the federal and state cost of coming to their rescue and relief are not added to the direct insurance premiums paid.
I know this raises a host of questions, such as which risks to discourage and how to price them. But we do it all the time, such as with taxes on tobacco.
Very interesting Roger, thank you.
I guess the part that strikes me as the most alarming is that humans continue build society in places where the probability of destruction is the highest. And this flies in the face of the many who see mitigation as one of the key pillars in this on going saga. In my humble opinion, I believe that the “mitigation” advocates need to begin screaming from the roof tops. Much like those who favor decarbonizing.
C'mon, man! People are assessing the short term (their lifetimes) benefits of living in places that are attractive but maybe risky. They make decisions - risk and cost - whether knowingly or naively all the time. Same with driving over the speed limit on the highway, going shipping in urban areas, etc. Where you live and drive factors into your insurance premiums. Over time, the market for insurance adjusts to price it properly, on average. Then you decide whether to build or to drive, etc. We do not need "advocates" to scream anything at all. People really aren't stupid. And please do not encourage more "decarbonization" hectoring. Just this morning I read a summary of a college prof's work on how smart thermostats are generating excess demand (they all kick on the heat) when "sustainable" power systems (read solar panels) least can provide it. It assumes we will "electrify" the "heating grid". Sure, we are all gonna have solar panels on our roofs and yards. Yikes. God save us from the elites who know better than us how to live.
Perhaps if insurance for people who live in Baton Rouge went up to reflect the more direct costs, people would pick a different place to build after they get hammered next time. I don’t like contributing to the average for other peoples’ stupidity.
Please. You pay taxes (I assume) to cover a host of "other people's stupidity". And unless you live in Baton Rouge you don't get adjusted rates based on that place and its risks.