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Who Should Bear the Cost? Socialized versus Market-Based Risk Management

Money For the Rest of Us

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CHAPTER

Intro

This chapter explores the growing frequency and intensity of natural disasters in California and their ramifications on insurance markets. It addresses the challenges homeowners face with uninsured losses and the implications for insurance premiums in the context of increasing climate risks.

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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-run 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 Cohen and Phil Helsel—NBC News

Climate change is showing its claws: The world is getting hotter, resulting in severe hurricanes, thunderstorms and floods—Munich RE

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