The Social Contract Is Broken: When Insurers Avoid Risk And Regulators Suppress Premiums
KeywordsThe $200 Billion Gap: Climate, Catastrophe, and the Broken Insurance Market Climate risk, market failure, insurance regulation, reinsurance, Department of Insurance (DOI), catastrophic risk, fair plan, Community Development Reinsurance Institution (CDRI), resiliency, parametric insurance. Summary There is a $200 billion gap between climate disaster losses and what is actually covered, signaling a market failure in the insurance system. The insurance market is broken because it relies on historical data for pricing, but climate change has made the future fundamentally unpredictable. The three key groups dictating how insurance goes are the insurance company, the consumer, and the Department of Insurance (DOI), with reinsurance sitting on top for catastrophic risks. When insurance companies are substantially underpriced due to changing trends, they must ask the slow-moving DOI for rate changes, which can lead to public hearings. When large rate increases are suppressed or costs (like reinsurance) cannot be priced in, companies like State Farm exit the marketplace, leaving a void (e.g., in California and Florida)
Article
The Social Contract Is Broken: When Insurers Avoid Risk And Regulators Suppress Premiums
KeywordsThe $200 Billion Gap: Climate, Catastrophe, and the Broken Insurance Market
Climate risk, market failure, insurance regulation, reinsurance, Department of Insurance (DOI), catastrophic risk, fair plan, Community Development Reinsurance Institution (CDRI), resiliency, parametric insurance.
Summary There is a $200 billion gap between climate disaster losses and what is actually covered, signaling a market failure in the insurance system.
The insurance market is broken because it relies on historical data for pricing, but climate change has made the future fundamentally unpredictable.
The three key groups dictating how insurance goes are the insurance company, the consumer, and the Department of Insurance (DOI), with reinsurance sitting on top for catastrophic risks.
When insurance companies are substantially underpriced due to changing trends, they must ask the slow-moving DOI for rate changes, which can lead to public hearings.
When large rate increases are suppressed or costs (like reinsurance) cannot be priced in, companies like State Farm exit the marketplace, leaving a void (e.g., in California and Florida)
Transcript
Read the full conversation.
The complete transcript has not been published yet.
Show notes
Key context from the episode.
Detailed show notes have not been published yet.
Evergreen ideas
Ideas worth carrying forward.
Reusable ideas from this conversation have not been published yet.
Sources