More insurance companies are fleeing the state because of the growing threat from natural disasters.

  • nednobbins@lemmy.world
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    1 year ago

    Insurance can work just fine for things like hurricanes. Insurance companies have several methods to address it. They’re all effectively variations of buying insurance policies themselves.

    Re-insurance pools are a close analog. It’s basically a bunch of insurance companies from around the planet getting together and agreeing to pool risks. Big companies also use a bunch of funky financial instruments to simulate insurance.

    There’s some risk of increased systemic correlation (eg climate change may increase the risk that major hurricanes hit multiple areas around the planet simultaneously). That’s largely mitigated in that we can see it coming. Climate change is pretty prominent in their models and they can adjust premiums or stop offering policies, over time.

    The bigger risk is in synthetic systemic risk. It’s burned us a bunch of times already and it’s gonna do it again. Those giant global re-insurance pools are almost certainly fine, and worth the risk, if we just use them for their intended purpose. But history shows that we’ll end up creating derivatives contracts on them and those contracts will get leveraged. Those leveraged pools end up merging and turning into giant financial time bombs.