Systemic risk in the modern era

In the wake of an event like the California wildfires, insurance companies are often demonized. They get portrayed as insensitive or even evil, while in reality they are no more cold-hearted than Las Vegas casinos.

If they are successful at their business, they assess the risk of insuring a property and adjust the premium and payout accordingly. Properties are pooled so that the insurer faces systemic risk rather than specific risk from any individual property in its portfolio. However, this does not mean that the insurer will ignore specific risk when determining the premium of a policy. If, say, a property is in a zone where underbrush could fuel a wildfire, the insurance underwriter might require that an added risk premium be attached or that the property owner take certain measures to reduce the risk.

Specific risk exposure can be further reduced through diversification of the insurer's portfolio. If an insurer is inadequately diversified, its holdings can be wiped out by one or a few catastrophic events. Hurricane Andrew, a devastating Category 5 hurricane that hit southern Florida in 1992, caused insured losses of over $72 billion and drove eight insurers to insolvency. They were mostly state insurers that only operated in Florida and as a result were overly exposed to a storm like Andrew.

Adherents to the cult of climate catastrophism say climate change poses a systemic risk to insurers. They attribute severe fires, floods, and plagues to anthropogenic global warming. Unfortunately for them, there is one small problem with their reasoning, the Intergovernmental Panel on Climate Change's attribution methodology is fundamentally flawed. (The IPCC is an "authoritative" voice on "climate change.")

If climate cultists can push aside math to make their point, then I feel free to promote my own methodology through which insurers can measure novel systemic risk. My method utilizes the patented DIE (Diversity, Incompetence, Equity) scale, a 1–10 rating where a 10 signifies "Houston, we have a problem." It is effective at quantifying systemic incompetence at a local, state, and even national level.

For example, my assessment of this video of LA Mayor Bass gives all of Los Angeles a risk rating of 10 on the DIE scale. My assessment of this video of California Governor Newsom also gives a risk rating of 10 on the DIE scale for all of California. My assessment of this video of President Biden gives a risk rating to the Federal government of … well I don't know what to say. I will say this though. We have put in power the most incompetent bunch of people who have ever walked the face of the earth. Is it because of fealty to DEI and climate catastrophism? I don't know for sure, but I do know that those with skin in the game, like insurers, will exit the scene quickly if adults don't reenter the room.

Image: Free image, Pixabay license.