This is a great story from over the holidays that I wanted to pass along, which touches on many issues in the current insurance environment. It’s a story of how insurance industry insiders in the Florida homeowners coverage market have been able to get rich by “cherry picking” policies to underwrite, while leaving the riskiest properties to be protected by taxpayers. It’s also a story about moral hazard and the extent to which proactive action in the face of the economic risks posed by climate change in areas vulnerable to sea rise and weather pattern changes is undercut by the assumption that the rest of the country, through the avenue of a federal bailment, will assume the losses from major climate change events in places like Florida.

That is all a lot to pack into one article, but the story is a good one and does a good job with it. Long time readers of this blog know that I am fond – among other writerly quirks – of two things. The first is the comment that someone once said Marx was wrong about a lot of things but he was right that everything is economics. For someone who, like me, writes extensively about insurance, climate change, and retirement assets and their regulation, this old saying (which did not originate with me) has become an everlasting gobstopper of a witticism. Here, we once again see its utility, as it is pure economics – and not a sober evaluation of proper insurance underwriting practices or the risks of climate change – that are driving the events covered by the article.

The other constant in my writing for years has been the idea that insurance is the canary in the coal mine on many fronts, something that is particularly true with regard to climate change. Long before recent high profile decisions by major insurers to reduce their exposure to significant property risks impacted by climate change, insurers, including Lloyds, had begun revising their underwriting approaches and risk appetite to account for climate change, which is a development I have been writing about for years. That development underlies the “cherry picking” and the moral hazard at the heart of the article I have linked to today, as those decisions by long standing carriers is what has created the environment for those events to occur.

Anyway, on those sobering notes, Happy New Year to you.