I ran across a piece in Bloomberg Businessweek that is very interesting. The God Clause and the Reinsurance Industry It is a fairly long story but the gist of it is that reinsurer’s, companies that essentially insure insurance companies, have some very sophisticated models for assessing risk but even they are not omniscient when it comes to natural events. The way these companies caegorize risk is interesting in the extreme. Lloyds of London has an entire section of their website devoted to analyzing risk and they annually put out a list of Realistic Disaster Scenarios. What I found most interesting were the examples in the story of the way in which reinsurance companies have affected the way people and even governments do business. The best example was this story from Sweden.
In 1888 the city of Sundsvall in Sweden, built of wood, burned to the ground. A group of reinsurers, Swiss Re among them, let Sweden’s insurers know there was going to be a limit in the future on losses from wooden houses, and it was going to be low. Sweden began building with stone. Reinsurance is a product, but also a carrot in the negotiation between culture and reality; it lets societies know what habits are unsustainable.
The story is well worth reading, it provides some intriguing food for thought.
Goes to show how much socio-economics has in the shaping of history. It’s no wonder why “social history” has become an important consideration in history studies.
I found it extremely interesting to find out how much the reinsurers are doing to quantify risks. I also thought the examples of how saying they would not cover certain things changed peoples behavior. Made me think about why Federal Flood Insurance is a bad idea.