[OPE-L:6078] RE: FWD: Profiting from WTC demolition and Anthrax scares: Who?

From: mongiovg (mongiovg@stjohns.edu)
Date: Tue Oct 16 2001 - 19:52:05 EDT


thanks for the response, which helps me put the thing in perspective. Your 
argument meshes with what I am now inclined to think is a bogus insurance 
crisis. I just did a little web-surfing: virtually all of the reporting on 
this issue describes the massive payouts that will have to be made (on the 
order of $30-50 billion); but there is suspiciously little reporting on the 
industry's ability to accommodate that kind of a hit. I managed to find one 
site which reported that while some insurers are undercapitalized and will be 
in some trouble, the industry as a whole probably has enough reserves to take 
the hit and survive.

Premiums might indeed have to rise; but an orthodox economist could argue 
(with some justification) that higher premiums merely reflect the true cost of 
providing insurance in the light of new (post-Sept. 11th) information about 
the risk of terrorism. THere's no reason why insurance companies in London, 
Paris, Frankfurt and Milan wouldn't have to take account of this same 
information and modify their rates accordingly. If US insurers raise their 
premiums I'd be surprised if non-US companies didn't follow suit.  As it is, 
it looks like Lloyds is one of those undercapitalized insurers (is anyone 

So I think this IS about socializing losses: there seems to be no good reason 
to bail out the insurers (except possibly by offering loan guarantees for 
undercapitalized companies) other than to shift the cost of the tragedy off of 
capital and onto workers.

Interesting how this ties in with the question I raised for discussion about 
how the financial sector serves to concentrate income and wealth: your remarks 
showed one (for me) unexpected way this could play out.

All the best,


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