[OPE-L:6078] RE: FWD: Profiting from WTC demolition and Anthrax scares: Who?

[mongiovg <mongiovg@xxxxxxxxxxx>]

Jerry:

thanks for the response, which helps me put the thing in perspective. Your
argument meshes with what I am now inclined to think is a bogus insurance
crisis. I just did a little web-surfing: virtually all of the reporting on
this issue describes the massive payouts that will have to be made (on the
order of $30-50 billion); but there is suspiciously little reporting on the
industry's ability to accommodate that kind of a hit. I managed to find one
site which reported that while some insurers are undercapitalized and will be
in some trouble, the industry as a whole probably has enough reserves to take
the hit and survive.

Premiums might indeed have to rise; but an orthodox economist could argue
(with some justification) that higher premiums merely reflect the true cost of
providing insurance in the light of new (post-Sept. 11th) information about
the risk of terrorism. THere's no reason why insurance companies in London,
Paris, Frankfurt and Milan wouldn't have to take account of this same
information and modify their rates accordingly. If US insurers raise their
premiums I'd be surprised if non-US companies didn't follow suit.  As it is,
it looks like Lloyds is one of those undercapitalized insurers (is anyone
surprised?).

So I think this IS about socializing losses: there seems to be no good reason
to bail out the insurers (except possibly by offering loan guarantees for
undercapitalized companies) other than to shift the cost of the tragedy off of
capital and onto workers.

Interesting how this ties in with the question I raised for discussion about
how the financial sector serves to concentrate income and wealth: your remarks
showed one (for me) unexpected way this could play out.


All the best,

Gary