[OPE-L:6076] RE: Profiting from WTC demolition and Anthrax scares: Who?

From: mongiovg (mongiovg@stjohns.edu)
Date: Tue Oct 16 2001 - 13:19:16 EDT

On a related note:

>===== Original Message From mongiovg <mongiovg@stjohns.edu> =====
>I see in today's NY Times that President Shrub and Congress are contemplating
>legislation that will protect insurance companies from losses due to the 
>11 attacks, and possibly due to further terrorist attacks for some open-ended
>period of time.
>Hmmm.  The picture is kind of murky.  The discussion of this issue hasn't 
>clear how much of a financial hit the insurance companies are likely to take.
>An insurance company fixes its premiums on the basis of actuarial estimates 
>payouts.  It's clear that miscalculations were made regarding the likelihood
>of a disaster of the magnitude that occurred.  But surely the WTC was not
>ensured up to its full replacement value; nor I would imagine were any of the
>buildings that were destroyed or damaged.  Five or six thousand life 
>payouts shouldn't bust a large insurance company with any sizable share of a
>market of 270 million people.  I imagine that litigation insurance payouts
>might be problematic.  I'm not denying that the companies will take huge
>losses.  What is not clear to me is that these losses will inevitably 
>the industry.  If the problem is that insurance shares will take a hit on
>their income statements and on Wall Street, I don't see why Washington should
>care as long as the indsustry remains solvent enough to provide enough
>insurance coverage to keep the economy functioning.
>I don't buy this business about insurance companies not being prepared to
>offer insurance against terrorist attacks unless they get a bailout.  They
>insure against loss of property or life.  The conditions under which
>beneficiaries can be denied benefits are usually specified by law and
>contract.  Beneficiaries are not denied benefits if their spouse is murdered
>or if the building they own is destroyed by an act of arson.   SO I don't see
>why insurers cannot be legislatively barred from denying benefits on damage
>caused by acts of terrorism.  It don't see that the likelihood of buildings
>being totally destroyed is greater today than it was five weeks ago.  I've
>seen no reason to think that a recalibration of premiums won't be enough to
>deal with the current situation.  If that means low profits for a few years,
>hey, that's capitalism....  If insurers try to charge extortionary premiums,
>there is always the option of regulating their rates, as we sometimes do with
>automobile insurance.
>I guess what I'm asking is whether there is an economic rationale for
>preferring a bailout over regulation in this case?
>It's now clear that the airlines sold legislators a bill of goods to obtain a
>sweetheart deal that won't benefit consumers or airline employees.  Now
>Washington appears to be ready to do the same thing for insurance companies.
>Insurance execs like to say that their profits are a reward for taking risks.
>Well, OK, sometimes when you take a risk you get burned.  It's precisely the
>possibility of getting burned that is supposed to justify the profits.  Is
>this another instance of "privatized profits, socialized risks"?  Or am I
>missing something?
>I might add that this story appeared directly above another one which
>described how HMOs are jacking up their premiums by 15-20%, after promising 
>keep health care costs down.
>I'd be interested to hear from anyone who understands this situation better
>than I do.

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