> However, we live in a competitive society, and insurance is priced at
> the lowest level that will produce a profit. There are plenty of
> people out there willing to sell cheaper insurance provided they can
> make a profit.
>
> The problem for them is that if there is a big disaster they may not
> have the funds to pay out. So they need to know the real risks. It is
> a matter of life and death for their companies.
They need to know the real risks, but they also have a strong interest
in competitors and customers believing that the risks are higher than
they really are.
Munich Re can cope with few or many hurricanes by charging appropriate
premiums. What they want is that customers pay them high rates, and
that competitors don't swoop in and undercut them. And the way to do
that is to overstate the likelihood and magnitude of damage.
And indeed it is vital for them to know the real risks. An insurance
company is alway best off insuring against a minimal risk (say 0.001%
per year of 100 Dollar damage) while charging a lot (say 1000 Dollars
per year).
Now I am not suggesting deceit, but Munich Re is clearly alarmist in
their presentation of natural disaster impact trends (suggesting they
are on a rising course), and they have a strong profit incentive to be
alarmist in the literal sense, ie knowingly exaggerating a threat.
In fact, a much stronger profit incentive than oil companies have in
opposing carbon taxes or cap and trade. Oil company profits depend on
how carbon taxes or cap and trade are implemented, not on whether they
are. A simple 50 Euro tax per tonne of carbon say applied equally
across all sectors on top of existing taxes and subsidies would in my
opinion raise the profits of oil companies. From the analysis of
energyoutlook I understand that the presently discussed cap and trade
bill in the US is quite kind to coal burning utilities and rather
unkind to refiners, but that's all got to do with who gets free
allowances, and not with the overall cap and trade approach.
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