Fascinating look at the small but growing market for catastrophe bonds by Michael Lewis in the NY Times Magazine.
Insurance companies, John Seo says, are charging customers too much — or avoiding their customers altogether — instead of sharing their risk with others, like himself, who would be glad to take it. New Orleans, as a result, is slower than it otherwise would be to rebuild. “The insurance companies are basically running away from society,” he says. “What they need to do is take the risk and kick it up to us.” They need to spread it as widely as possible across the investment world and, in the process, minimize the cost of insuring potential losses from catastrophes.
If this means that insurance will get cheaper in the future or that insurers will be able to cover places and situations that they don't cover currently, I hope this market will grow- it's in the best interests for almost all of us that this market grows.
Wonderful pointer! But really, couldn't one just reference every last darned thing Michael Lewis has ever written, and have a pretty interesting set of posts?
Even more important than the creation of new insurance capabilities will be the greatly improved pricing of insurance, which sounds rather pathetically off the mark in this article, considering how many actuaries they employ.
It's one thing to insure something, but the Lewis article does a great job of explaining the grave dangers of mis-priced insurance.