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Is the world becoming uninsurable?

(charleshughsmith.substack.com)
478 points spking | 2 comments | 17 Jan 25 00:32 UTC | HN request time: 0.001s | source
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atleastoptimal ◴[17 Jan 25 02:16 UTC] No.42733359[source]▶
Every year, humanity grows richer, more resilient to natural disasters, and more capable of predicting natural disasters and their negative outcomes. The point of insurance is to spread the expected burden of calamities that will affect a minority of a population to the entire population, so that those affected will have a financial safety net. This principle works regardless of how disastrous or prone to calamity a population is. If there will be more fires, more hurricanes, etc, the market will favor homes built in different locations, different architectural styles, etc in response to changing premiums and probabilities of disaster. We don't live in a world like in 1905 where an earthquake would lead to a fire that burns down an entire city. Prosperity simply requires changing to circumstances where valid.
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1. layman51 ◴[17 Jan 25 02:28 UTC] No.42733442[source]▶
I agree with your analysis of how insurance works. But, wouldn’t the burden of calamities only spread amongst the insurance holders? I am not sure what the factors are, but if a lot more people go without insurance (because they are independently wealthy or live in an uninsurable location), doesn’t change the calculation?
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2. atleastoptimal ◴[17 Jan 25 07:11 UTC] No.42734896[source]▶
People who go without insurance because they live in an uninsurable location would leave those who remain insured better off, because the insurance company would be less likely to need to make an exorbitant payout to the victims in the disaster-prone area. This is of course true as long as insurers don't manipulate the market to keep premiums high despite their total expected claim outlay lowering.

As an insurance buyer, in a hypothetically ideal market situation, you would want all those who also purchase from the same insurer to have the lowest risk of needing an expensive claim paid. The lower the expected payout * risk of disaster means lower premiums for the insurer to still make an expected profit.

I think what will happen is simply: Houses are built in places which are more insurable, existing danger-prone houses will exist until they are destroyed, until then they will increasingly be status objects for the elite who can afford the loss and have inaccurate risk appraisal. The fact that so many valuable objects are kept in Malibu/Palisades homes despite fires happening there a lot (as recent as 2018) indicates homeowners in disaster-prone areas aren't acting perfectly rationally.