The Wisdom Wall
8 quotable lessons, heuristics and mental models. Every one is playable at the moment it was said. No fortune cookies allowed.
“We've, um, I think, and it's also not so much Any individual exceptional event, it's the rate at which the exceptional events are coming, right? We're having a lot of them, uh, things that used to be complete outliers are happening with greater and greater frequency, and those are adding up, um, to really stress…”
“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, 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…”
“parametrics solve a lot of the contracting problems that, that exist in any insurance market, be it climate or not climate.”
“The challenge is it introduces what's called basis risk. So, uh, what if a hurricane of, with wind speed, you know, X minus epsilon strikes? That's probably still not great for me as a homeowner, but the parametric policy is going to give me no coverage because we didn't actually hit the trigger. So the, the challenge,…”
“Natural disaster events are just fundamentally different because we, you know, thankfully have not had a thick enough historical record of disaster events that we can price these things using the statistical methods that are standard in other lines of insurance, and that means that we're reliant on, on a set of tools…”
“If you have a disaster that occurs with a one quarter of one percent probability in, in a given year, in order to really nail down the expected annual losses from that kind of event in a given place, you need hundreds and hundreds of years of data, and we just don't have that.”
“one of the fundamental differences between disaster insurance and insurance for other risks is that these are risks that are correlated, right? And so imagine being an insurer who's writing insurance policies for everyone who lives in a given city. If you're covering health insurance, let's say every person in that…”
“We think about insurers trying to protect their solvency, and one way that they can do that is that they can hold a bunch of surplus capital within the firm, but that's an expensive thing to do, to, you know, basically put capital in low-risk investments to be sure that they're going to have that money when they need…”