Who Should Bear the Cost? Socialized versus Market-Based Risk Management
Natural disasters are becoming more severe and costly—who should bear the financial burden? We explore the tension between socialized risk and market-based insurance.
Topics covered include:
---The surprisingly large percentage of natural disaster losses that are uninsured
---Why natural disaster severity is increasing
---A deep dive into the complexity of the home insurance market, including state-based home insurance plans
---How California has tried to update its home insurance regulations, leading to potentially greater coverage but higher premiums
---How socialized insurance relieves the cost burden to consumers but can also lead to riskier behavior and adverse risk selection
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Show Notes
[California wildfires: What we know about L.A.-area fires, what caused them, who is affected and more by Tim Stelloh,Marlene Lenthang,Rebecca CohenandPhil Helsel—NBC News] (https://www.nbcnews.com/news/us-news/california-wildfires-what-we-know-palisades-eaton-los-angeles-rcna188239)
[Climate change is showing its claws: The world is getting hotter, resulting in severe hurricanes, thunderstorms and floods—Munich RE] (https://www.munichre.com/en/company/media-relations/media-information-and-corporate-news/media-information/2025/natural-disaster-figures-2024.html)
[Shaping the Future of Wildfire Insurance in California: New Insights from the Most Comprehensive Wildfire Risk Model in the Market by Firas Saleh—Moody's] (https://www.rms.com/blog/2024/05/31/shaping-the-future-of-wildfire-insurance-in-california-new-insights-from-the-most-comprehensive-wildfire-risk-model-in-the-market)
[Insurers’ Rule Change Puts California Homeowners on the Hook for L.A. Fire by Jean Eaglesham andSara Randazzo—The Wall Street Journal] (https://www.wsj.com/finance/insurers-rule-change-puts-california-homeowners-on-the-hook-for-l-a-fire-88336040)
[Commissioner Lara issues landmark regulation to expand insurance access for Californians amid growing climate risks—California Department of Insurance] (https://www.insurance.ca.gov/0400-news/0100-press-releases/2024/release065-2024.cfm)
[California Was Already in Home-Insurance Crisis Before Los Angeles Infernos by Jean Eaglesham andJoe Flint—The Wall Street Journal] (https://www.wsj.com/finance/california-home-insurance-los-angeles-palisades-fire-3cce96a9)
[The World Is Getting Riskier. Americans Don’t Want to Pay for It. by Greg Ip—The Wall Street Journal] (https://www.wsj.com/economy/consumers/the-world-is-getting-riskier-americans-dont-want-to-pay-for-it-51901067)
[Reinsurers little exposed to LA fires after retreat from disaster risks by Lee Harris—The Financial Times] (https://www.ft.com/content/51e2f893-6822-4962-9469-112c6b72a3fe)
[A Survey of Residual Market Plan Assessment and Recoupment Mechanisms by Nancy Watkins, Robert Lee, and Rehan Siddique—Milliman] (https://edge.sitecorecloud.io/millimaninc5660-milliman6442-prod27d5-0001/media/Milliman/PDFs/2023-Articles/12-5-23-Milliman-Residual-Market-survey-for-PIFC.pdf)
Related Episodes
[481: How to Navigate the Crippling Home Insurance Crisis] (https://moneyfortherestofus.com/481-home-insurance-crisis/)
[444: Natural Disasters: Are They Truly Increasing?] (https://moneyfortherestofus.com/444-natural-disasters/)
Investments Mentioned
Stone Ridge High Yield Reinsurance Risk Premium fund (SHRMX)
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22 Jan 2025
23 MINS
23:02
22 Jan 2025