Boomhauer: Limited liability creates a moral hazard for insurers against buying reinsurance.
Dr. Judson Boomhauer · How climate disasters are shaping insurance markets · Apr 10, 2025 · at 26:36
Dr. Judson Boomhauer, an environmental economist, discusses the structural solvency risks and economic incentives in the property insurance sector with host Shail Khan.
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“One question that you might ask if you're an insurance company is, well, reinsurance is expensive and difficult to buy. Why should I care if I, as a company can't pay my claims in a given year, then I'm going to go bankrupt and that's terrible for my policyholders. But, you know, my losses are basically limited by the value of my company. That sort of cold-hearted economic logic is absolutely something that's been a problem in the insurance company for as long as insurance has existed, and so we do want to make sure that when companies are writing policies that they actually have the ability to pay those claims in almost every possible realization of the loss distribution.”
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