Insurance: In Riskier World, No One Wants to Pay

"Insurance is one of finance's great gifts to mankind. Through the statistical magic of risk pooling, an individual can obtain peace of mind and protection against devastating loss.

This remarkable invention shows signs of breaking down. As risks from illness and old age to natural and financial disaster grow, so does Americans' resistance to paying to insure against them.

The latest example is California. Earlier this month, JPMorgan estimated the fires around Los Angeles had inflicted $50 billion in losses, of which only $20 billion were insured.

One reason for the gap: State regulators have prevented insurers from charging premiums commensurate with rising property values, construction costs and wildfire risk exacerbated by a warming climate. Many thus stopped renewing policies.

Hundreds of thousands of homeowners shifted to California's state-run backstop, the Fair Plan, whose exposure has tripled since 2020 to $458 billion. It has only $2.5 billion in reinsurance and $200 million in cash.

If the Fair Plan runs out of money, it can impose an assessment on private insurers to be partly passed on to all policyholders. In other words, the costs of the disaster will be socialized.

California is a microcosm of what happens when insurance breaks down: Either households face potential ruin or the public is handed a financial time bomb.

"What we are seeing is a real disconnect," said Carolyn Kousky, an economist specializing in risk and founder of the nonprofit Insurance For Good. "There are opposing views on insurance: Is it a private market good, or is it social protection, to make sure everyone has the resources to recover from disaster?"

A central feature of insurance is risk pooling: The combined contributions of the community cover the losses incurred by members of the community in a given year.

Another feature of private insurance is actuarial rate-making, that is, calibrating premiums to the customer's risk. That's to prevent "adverse selection," in which only the riskiest people buy insurance, and moral hazard -- the tendency to encourage risk by undercharging for it.

But some activities or individuals are so risky they could never obtain, or afford, private insurance. That's when risk gets socialized. The federal government's expansion since the 1930s has largely been through the provision of insurance: Social Security, unemployment insurance, health insurance for the elderly and poor, deposit, mortgage, and flood insurance and, after Sept. 11, 2001, terrorism insurance.

Nowhere are feelings about insurance more conflicted than in health. Americans want neither the rationing that comes with government-run insurance, nor the risk-management that comes with private insurance. This became painfully apparent when the fatal shooting of Brian Thompson, chief executive of UnitedHealthcare, triggered an outpouring of fury not at the suspected killer, Luigi Mangione, but at insurers for limiting benefits.

In fact, long before that shooting, the Affordable Care Act had constrained insurers' ability to base premiums on risk, by prohibiting them from charging more to people with pre-existing conditions or denying coverage altogether.

The ACA also stipulated that insurers spend at least 80% to 85% (depending on the plan) of premiums on benefits. So while denials, deductibles and copays may, at the margin, affect profits, ultimately they serve to control premiums.

In finance, where risk supposedly goes hand in hand with reward, losses have been repeatedly socialized, most notably when major financial institutions were bailed out in 2008.

Deposit insurance, on paper, is capped at $250,000. But in 2023, the Federal Deposit Insurance Corp. bailed out all the uninsured depositors of Silicon Valley Bank and Signature Bank. The costs are being socialized via a special assessment on other banks' uninsured deposits.

What financial disaster was to the last era, natural disaster may be to the next. In a World Economic Forum survey, business, government and other leaders ranked extreme weather the most severe of 33 risks facing the world in the next 10 years. Major disasters pose a particular problem for insurers because claims occur all at once instead of randomly.

And as with financial disasters, the cost of natural disasters is being socialized. Numerous states have backstops for homeowners unable to get private insurance, and all struggle to charge premiums that reflect actual risk.

In a 2023 study for California insurers, Nancy Watkins, an actuary with Milliman, an insurance consulting firm, found that plans in California, Washington, Louisiana and Florida, which had doubled in size between 2017 and 2022, all incurred more in losses and expense than they took in through premiums.

In Florida, frequent storms, flood-plain development, inflation, fraud and litigation have pushed home-insurance premiums to the highest in the country. Yet insurers were "discouraged from large rate hikes by public hearings, documentation requirements, and their own customers and agents," Kousky and a co-author wrote last year. In years past, some insurers pulled back, or became insolvent.

As in California, Florida homeowners flocked to the government backstop, Citizens Property Insurance. Like California, Florida has taken steps to make its insurance market financially viable. It has cracked down on litigation and allowed Citizens to raise premiums. Nonetheless, Citizens last year said premiums are 22% below the actuarially sound level.

Taxpayers nationwide are also on the hook. Since 2020, Congress has appropriated an average of $46 billion a year for disaster relief, triple the average of the prior decade (in constant 2023 dollars).

Socializing risk weakens one of the main benefits of insurance: Encouraging the insured to mitigate their risk so as to reduce premiums. Without that price signal, it usually takes direct intervention to modify behavior. After being bailed out in 2008-09, banks have had to submit to far more stringent safety and soundness rules.

The same may be true of natural disasters. If the risk is to be socialized, society has a right to demand the insured mitigate their risk, such as making homes more flood-proof, windproof and fireproof or staying out of disaster-prone areas entirely.

"It involves alignment of ordinances, building codes, enforcement, inspection, and finding resources for. . .communities and homeowners who really can't afford" such measures, Watkins said. "All that is politically difficult. But it's becoming increasingly obvious the old strategy, of denying the risk, has failed."" [1]

1. U.S. News -- Capital Account: In Riskier World, No One Wants to Pay. Ip, Greg.  Wall Street Journal, Eastern edition; New York, N.Y.. 22 Jan 2025: A2.

D. Trump and E. Musk will switch the American economy to production inside America, and management by robots, killing undocumented immigrants, cheap Vietnamese, Indian other places' workers, and white collar managers

 

"Zurich -- As the world braces for the second coming of Donald Trump, many fear and some hope that his return to power means the end of American exceptionalism. I think Mr. Trump's return means exactly the opposite.

His remarkable political recovery demonstrates the enduring strength of American cultural forces that have, for more than two centuries, made America uniquely hospitable to the disruption and chaos that dynamic capitalism inevitably brings.

Mr. Trump's MAGA coalition has at least temporarily brought together two groups who are at daggers drawn in much of the world: angry populists seeking to defend the identities and, as they see it, the traditional values of their societies, and entrepreneurial tech lords pushing for deregulation and the rapid deployment of cutting-edge technologies that will likely displace many blue-collar and white-collar workers.

It will take some fancy footwork by Mr. Trump to keep these rival wings of his coalition together, but the job isn't impossible. American populists are typically more pro-capitalist than populists in Europe and elsewhere, and America's tech lords have less reason to object to the populist elements of the MAGA agenda than do the leaders of more traditional industries and firms. There is a large set of issues on which Mr. Trump's base and his tech allies agree, and even their differences offer more room for compromise than many observers expect.

MAGA's hatred of entrenched bureaucracies and the smug professional classes who run key American institutions meshes very comfortably with the tech agenda. The economic reform American populists seek is less about restraining the power of large corporations than about restraining the power of the bureaucracies that hamper businesses large and small. And while many blue-collar Trump constituents may fear and resent the effect of artificial intelligence and other revolutionary technologies on employment, much of the president's base will cheer if tech displaces large numbers of bureaucrats, bankers and lawyers. That base won't support technology regulations or demand antitrust suits aimed at preventing the automation of upper middle class professional jobs.

Meanwhile, the elements of the MAGA agenda that raise eyebrows in C-suites and economics departments, such as industrial protectionism and immigration restriction, are less worrisome for the tech lords than for many other businessmen. Tech firms are less vulnerable to the consequences of tariff and trade barriers than companies like Walmart. And while the tech industry's staunch defense of the H-1B visa program enrages some populists, the tech industry is far less dependent on low-wage immigrant labor than many other economic sectors. Overall, a compromise in which Mr. Trump's tech allies support caps on unskilled immigration and tight border controls while keeping the door open for migrants with the skills tech needs seems within reach.

The combination of reshoring production and restricting the growth of the labor force may be a net positive for tech. Faced with paying U.S. wages to production employees, manufacturers will invest much greater resources in technology that allows them to keep their head counts low. That is good for the national economy and productivity overall. It is even better for the tech sector.

Meanwhile, protectionism, immigration and deregulation will support blue-collar labor demand even as the technology revolution disrupts one industry after another. That looks important.

Robo-taxis are already beginning to roll across the streets of American cities. How long will the members of the Teamsters Union be needed to drive trucks?

This is how American exceptionalism works. While much of the West remains gridlocked among antigrowth greens, sullen socialists clinging to unsustainable welfare states and technophobic regulators more interested in blocking potentially dangerous technologies than in developing world-beating companies, American populists have aligned with tech moguls around a program of deregulation that will accelerate the transformation of the American economy.

The pro-enterprise streak in American populism runs deep. The colonists who revolted against Britain wanted, among other things, the freedom to conduct their business without the restrictions that British policy sought to impose.

Andrew Jackson's populists weren't capitalism-hating socialists who wanted to introduce central planning or stifle the animal spirits of American entrepreneurs. They hated the Eastern coastal elite and its domination of finance, but they wanted to decentralize and democratize capitalist opportunity, not crush it.

The MAGA-populist/tech-lord coalition is a volatile one, and keeping it together will be taxing. It is too early to tell how successful the second Trump administration will be. But as your peripatetic Global View columnist attends this week's World Economic Forum in Davos, Switzerland, he will be cautioning participants against underestimating the potential of America to renew itself in unlikely and even unseemly ways.

In aligning U.S. policy with the needs of the most dynamic, future-facing elements in the economy, the MAGA movement and its newfound technology allies may be more consequential than many critics understand.” [1]

D. Trump and E. Musk will switch the American economy to production and management by robots, killing undocumented immigrants, cheap Vietnamese and Indian workers, and white collar managers. The populist American government will support the professional activity of American blue collar workers. Such workers in the rest of the world will be collateral damage, not able to compete with this new American technology. Such workers are not supported by clueless foreign governments. At least such is the American plan.

1.American Exceptionalism Is Back. Walter Russell Mead.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Jan 2025: A17.

D. Trumpas ir E. Muskas pakeis Amerikos ekonomiką į gamybą ir valdymą, naudojant robotus, sunaikindami dokumentų neturinčius imigrantus, pigius Vietnamo, Indijos ir kitų vietų darbuotojus bei baltųjų apykaklių vadovus

 

„Ciurichas – pasauliui ruošiantis antrajam Donaldo Trumpo atėjimui, daugelis baiminasi ir kai kas tikisi, kad jo sugrįžimas į valdžią reiškia Amerikos išskirtinumo pabaigą. Manau, kad D. Trumpo sugrįžimas reiškia visiškai priešingą.

 

 Jo nepaprastas politinis atsigavimas rodo ilgalaikę Amerikos kultūrinių jėgų potencialą, kuris daugiau, nei du šimtmečius, darė Ameriką išskirtinai svetinga dinamiško kapitalizmo neišvengiamai sukeliamiems sutrikimams ir chaosui.

 

 D. Trumpo vadovaujama MAGA koalicija bent laikinai subūrė dvi grupes, kurios yra ištemptos didžiojoje pasaulio dalyje: pikti populistai, siekiantys apginti tapatybę ir, jų nuomone, tradicines savo visuomenės vertybes, ir verslūs technologijų lordai, besiveržiantys. dėl reguliavimo panaikinimo ir greito pažangiausių technologijų diegimo, kurios, greičiausiai, išstums daugelį mėlynųjų ir baltųjų apykaklių.

 

 Prireiks šiek tiek įmantrios D. Trumpo šokių serijos, kad šie konkuruojantys jo koalicijos sparnai būtų kartu, tačiau darbas nėra neįmanomas. Amerikos populistai paprastai yra labiau prokapitalistai, nei populistai Europoje ir kitur, o Amerikos technologijų lordai turi mažiau priežasčių prieštarauti populistiniams MAGA darbotvarkės elementams, nei tradicinių pramonės šakų ir firmų lyderiai. Yra daug klausimų, dėl kurių D. Trumpo bazė ir jo technologijų sąjungininkai sutaria, ir net jų skirtumai suteikia daugiau erdvės kompromisams, nei daugelis stebėtojų tikisi.

 

 MAGA neapykanta įsišaknijusiai biurokratijai ir pasipūtusioms profesionalų klasėms, kurios vadovauja pagrindinėms Amerikos institucijoms, labai patogiai susilieja su technologijų darbotvarke. Ekonominė reforma, kurios siekia Amerikos populistai, yra ne tik didelių korporacijų galios suvaržymas, o biurokratijos, trukdančios didelėms ir mažoms įmonėms, galios suvaržymas. Ir nors daugelis D. Trumpo rinkėjų gali bijoti ir piktintis dirbtinio intelekto ir kitų revoliucinių technologijų poveikiu užimtumui, didžioji dalis prezidento bazės nudžiugins, jei technologijos išstums daugybę biurokratų, bankininkų ir teisininkų. Ši bazė nepalaikys technologijų taisyklių ir nereikalaus antimonopolinių įstatymų, kuriais siekiama užkirsti kelią aukštesnės vidurinės klasės profesionalių darbų automatizavimui.

 

 Tuo tarpu MAGA darbotvarkės elementai, keliantys antakius vadovų rangui ir ekonomikos skyriuose, pavyzdžiui, pramonės protekcionizmas ir imigracijos apribojimai, technologijų valdovams kelia mažiau nerimą, nei daugeliui kitų verslininkų. Technologijų įmonės yra mažiau pažeidžiamos tarifų ir prekybos kliūčių pasekmių, nei tokios įmonės, kaip mažmenininkė „Walmart“. Ir nors technologijų pramonės atkakli H-1B vizų programos gynyba siutina kai kuriuos populistus, technologijų pramonė yra daug mažiau priklausoma nuo mažai apmokamo imigrantų darbo, nei daugelis kitų ekonomikos sektorių. Apskritai atrodo, kad kompromisas, pagal kurį D. Trumpo technologijų sąjungininkai palaiko nekvalifikuotos imigracijos ribą ir griežtą sienų kontrolę, kartu paliekant duris atviras migrantams, turintiems įgūdžių, reikalingų technologijų srityje, atrodo pasiekiamas.

 

 Gamybos perkėlimas iš kitų šalių ir darbo jėgos augimo ribojimas gali turėti teigiamą poveikį technologijoms. Susidūrę su JAV darbo užmokesčio mokėjimu gamybos darbuotojams, gamintojai daug daugiau investuos į technologijas, kurios leis jiems išlaikyti žemą galvų skaičių. Tai naudinga šalies ekonomikai ir bendrai produktyvumui. Tai dar geriau technologijų sektoriui.

 

 Tuo tarpu protekcionizmas, imigracijos ir reguliavimo panaikinimas palaikys darbo jėgos paklausą, net jei technologijų revoliucija žlugdo vieną pramonės šaką po kitos. Tai atrodo svarbu.

 

 Amerikos miestų gatvėmis jau pradeda riedėti robotų taksi. Kiek laiko reikės Teamsters Union profsąjungos narių vairuoti vilkikus?

 

 Taip veikia amerikietiškas išskirtinumas. Nors didžioji Vakarų dalis tebėra užstrigusi tarp augimui prieštaraujančių žaliųjų, paniurusių socialistų, besilaikančių netvarių gerovės valstybių, ir technofobiškų reguliuotojų, labiau suinteresuotų blokuoti potencialiai pavojingas technologijas, o ne kurti pasaulyje visus mušančias įmones, amerikiečių populistai susivienijo su technologijų magnatais dėl reguliavimo panaikinimo programos. paspartinti Amerikos ekonomikos pertvarką.

 

 Įmonei palanki amerikiečių populizmo serija yra gili. Prieš Didžiąją Britaniją sukilę kolonistai, be kita ko, norėjo laisvės vykdyti savo verslą be apribojimų, kuriuos siekė įvesti britų politika.

 

 Andrew Jacksono populistai nebuvo, kapitalizmo nekenčiantys, socialistai, norėję įvesti centrinį planavimą arba užgniaužti Amerikos verslininkų gyvulišką dvasią. Jie nekentė Rytų pakrantės elito ir jo dominavimo finansų srityje, bet norėjo decentralizuoti ir demokratizuoti kapitalistinę galimybę, o ne ją sutraiškyti.

 

 MAGA-populistų/tech-lordų koalicija yra nepastovi, ir išlaikyti ją kartu bus sunku. Dar per anksti pasakyti, kaip sėkminga bus antroji Trumpo administracija. Tačiau kai jūsų smalsus „Global View“ apžvalgininkas dalyvaus šios savaitės Pasaulio ekonomikos forume Davose, Šveicarijoje, jis perspės dalyvius neįvertinti pernelyg mažai Amerikos potencialo atsinaujinti mažai tikėtinais ir net netinkamais būdais.

 

 Derinant JAV politiką su dinamiškiausių, į ateitį nukreiptų, ekonomikos elementų poreikiais, MAGA judėjimas ir jo, naujai atrasti, technologijų sąjungininkai gali turėti daugiau pasekmių, nei supranta daugelis kritikų." [1]

 

D. Trumpas ir E. Muskas pakeis Amerikos ekonomiką į gamybą JAV viduje ir valdymą, naudojant robotus, naikindami, dokumentų neturinčius, imigrantus, pigius Vietnamo, Indijos ir kitų šalių darbuotojus bei, baltas apykakles turinčius, vadybininkus. Populistinė Amerikos vyriausybė rems Amerikos mėlynųjų apykaklių profesinę veiklą. Tokie darbuotojai likusioje pasaulio dalyje bus kolaterali auka ir negalės konkuruoti su šia nauja amerikietiška technologija. Tokių darbuotojų nepalaiko nesupratingos užsienio vyriausybės. 

 

Bent jau toks yra Amerikos planas.

 

1.American Exceptionalism Is Back. Walter Russell Mead.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Jan 2025: A17.1.American Exceptionalism Is Back. Walter Russell Mead.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Jan 2025: A17.