Has the World Become Uninsurable?

0:00 For a long time, insurance has been one

0:01 of the least visible and most stable parts of the economy.

0:04 It wasn't exciting.

0:05 It didn't grow fast, and that was the point.

0:08 Insurance worked because risks were local, infrequent, and mostly independent.

0:12 Storms happened, but not everywhere at once.

0:14 Wars were regional.

0:15 Supply chains failed occasionally, not constantly.

0:18 In that world, risk was predictable enough to price,

0:21 and insurers could spread losses across millions of people in many years.

0:24 But over the past few years,

0:26 the conditions that made that system work have begun to break down.

0:29 In 2023 alone, the US was hit with 28 weather and climate disasters,

0:33 causing over $1 billion in damage.

0:36 For most of the past four decades, the average was fewer than nine per year.

0:39 Climate risk, geopolitical conflict, financial volatility,

0:42 and demographic pressure are stacking on top of each other,

0:45 making risk harder to predict and price.

0:47 As a result, insurers are losing confidence

0:49 in the numbers and starting to pull back on coverage.

0:51 You can see it in disasterprone areas

0:53 where homeowners are being dropped or priced

0:55 out entirely even though their home is often the most valuable asset they own.

0:59 In the US alone, around 6 million homeowners are now uninsured,

1:03 representing roughly $1.6 trillion in unprotected property value.

1:07 That may seem reckless at first, but in reality,

1:09 it reflects how expensive coverage has become.

1:12 Home insurance costs have jumped by around 10 to 12% in a single year.

1:16 In Canada, rebuilding costs surged more

1:18 than 50% after the pandemic, while reinsurance,

1:21 the insurance insurers rely on, has become

1:23 dramatically more expensive after years of heavy losses.

1:26 And that pressure doesn't stay inside the insurance industry.

1:29 Because as costs rise and insurance becomes unobtainable, you feel it fast.

1:33 Loans dry up, everyday costs rise,

1:35 and risks that used to be shared across society fall back on you instead.

1:39 And that's only part of the story,

1:41 because insurance isn't just about paying claims.

1:44 It also determines what can be built, financed, shipped, or grown at scale.

1:48 If something can't be insured, banks won't lend against it.

1:51 Investors won't fund it, and regulators often won't allow it to operate.

1:54 In that sense, insurance isn't just protection, it's economic permission.

1:59 So, as always, we've got some important questions to answer.

2:02 What does insurance actually do for the economy?

2:05 Why is it breaking down now?

2:06 And what does the economy look like in a world where insurance no longer works?

2:11 Have you ever been in the process of getting

2:13 insured and been asked for your credit score?

2:15 What's happening here is that insurance companies are

2:17 adjusting your rates based on your credit score.

2:19 In some cases, people with lower credit

2:21 scores end up paying nearly twice as much.

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3:04 At its core, insurance runs on the same mathematics as a casino.

3:07 When someone walks into a casino,

3:09 the casino doesn't care whether that person wins or loses.

3:12 What matters is that the rules of the games are set so that on average,

3:15 players lose a little bit each time they play.

3:17 Run that process often enough with enough players,

3:19 and those small losses add up.

3:21 Over time, the casino doesn't need to predict outcomes.

3:24 Volume and time do all the work.

3:26 In the same way, an insurer doesn't need to know whether

3:28 a particular house will burn down or a specific shipment will sink.

3:32 Some will, most won't.

3:34 As long as losses across millions

3:35 of policies arrive slowly and predictably enough,

3:38 the premiums collected from everyone can cover

3:40 the claims paid out to the unlucky few.

3:42 In many lines of insurance, claims and premiums roughly balance out over time.

3:46 And that isn't a failure of the business model.

3:48 It actually is the business model.

3:51 Premiums are collected upfront long before most claims are paid out.

3:54 That creates enormous pools of capital sitting on insurers

3:56 balance sheets for months or years at a time.

3:58 From there, the business starts to look

4:00 less like insurance and more like asset management.

4:03 Instead of just stagnating in a bank account,

4:04 that money gets invested in assets that are deliberately unglamorous.

4:08 Government bonds, high-grade debt, short-term instruments.

4:10 The returns are modest,

4:11 but when you're holding tens or hundreds of billions of dollars,

4:14 even a few percentage points matter.

4:16 In the US alone, property casualty insurers have

4:18 more than $1.4 trillion sitting in the economy.

4:21 That money is financing government projects, new housing, infrastructure,

4:24 and corporate debt, things most people never connect to insurance.

4:28 Which means insurance isn't just about paying claims.

4:30 It's actually underwriting a huge share of everyday economic activity.

4:34 That changes what's at stake.

4:35 On top of that, if something can't be insured,

4:38 it typically can't be built, planted, shipped, or financed at commercial scale.

4:42 And that also quietly affects the economy

4:44 by shaping which economic activities are viable.

4:46 For example, mortgage lending depends on insurance because

4:49 banks are not allowed to lend against uninsured collateral.

4:52 If insurers pull back, lenders pull back with them.

4:55 And once credit tightens, demand weakens.

4:57 Over time, property values decline,

4:59 even for homes that never burn down or flood.

5:02 The same mechanism shows up in food production as well.

5:04 Crop insurance allows farmers to borrow, plant,

5:07 and take seasonal risks at commercial scale.

5:09 Remove it and farming becomes more

5:11 conservative or simply unviable for smaller producers.

5:14 Insurance even shapes global trade.

5:16 Ships reroute because insurers decide a stretch

5:18 of ocean can no longer be priced cheaply enough.

5:21 In the Red Sea, war risk premiums surged after attacks on cargo vessels.

5:24 In some cases, from around 0.3% of a ship's value to as high as 1% per voyage,

5:29 adding hundreds of thousands of dollars to a single transit.

5:32 For many rats, coverage became

5:34 prohibitively expensive or unavailable altogether.

5:37 So, ships diverted thousands of miles around Africa,

5:39 slowing trade and raising costs across global supply chains.

5:42 Economists have a name for this.

5:44 They call insurance a complimentary good,

5:46 which means its value doesn't sit on its own.

5:49 It's tied to the things it enables.

5:51 If you want the simplest way to think about it, imagine this.

5:54 If petrol suddenly cost $100 a liter,

5:56 cars would lose much of their value altogether.

5:59 The vehicles would still exist,

6:00 but the system that makes them useful would break down.

6:03 Insurance works the same way.

6:05 Remove it and houses, farms, factories, and ships don't disappear overnight,

6:09 but their economic usefulness slowly erodess.

6:12 You can already see it happening.

6:13 Look at California and Florida.

6:15 Both became economic powerhouses by doing something that sounds a bit insane.

6:18 Building in places they probably shouldn't have.

6:21 California sprawled into fireprone hills and earthquake zones

6:24 while Florida put entire cities on hurricane exposed coastlines.

6:27 None of it should have worked, but insurance made it possible.

6:30 It turned risks that felt unmanageable into something

6:32 you could actually price and plan around.

6:34 So developers started building.

6:36 Banks back then with loans and families bought homes

6:38 trusting that a wildfire or hurricane wouldn't ruin them financially.

6:41 For decades, that system held together and fueled enormous economic growth.

6:46 But now, as insurers pull back, the engine starts running in reverse.

6:49 Credit dries up first as banks won't lend against uninsured property.

6:53 Then building slows down and home values drop,

6:55 even in places that haven't burned or flooded yet.

6:58 Which makes the next question unavoidable.

7:00 If insurance is so fundamental,

7:02 why is it suddenly becoming more expensive and harder

7:04 to get in so many parts of the economy?

7:07 To answer that, we need to understand how

7:08 insurance assesses and prices risk in the first place.

7:12 Insurance is built on history.

7:13 Insurers look at flood maps, fire cycles, mortality tables,

7:16 and then assign a price to the risk.

7:18 Their underlying assumption is simple.

7:20 The future will look enough like the past

7:22 that those prices will still make sense.

7:24 For most of the 20th century, that assumption largely held,

7:27 but it no longer describes the world insurers are dealing with today.

7:31 Over the past few decades, climate related disasters have more than doubled.

7:35 At the same time, so-called man-made natural disasters,

7:38 events like floods and droughts intensified

7:39 by human activity have nearly tripled.

7:42 Losses aren't just rising,

7:43 they're also arriving more often in new places and with less warning.

7:47 In parts of Northern California, the wildfire season now starts more than 10

7:50 weeks earlier than it did in the 1990s,

7:52 breaking the seasonal patterns insurers used to rely on.

7:55 Similarly, the total area burned by bushfires across Australia,

7:58 has risen significantly over the past three decades.

8:00 And in Europe, repeated storms turned 2024 into one

8:03 of the wetest years since records began in the 1950s,

8:06 pushing rivers across large parts

8:07 of the continent beyond levels seen in decades.

8:10 That alone would be enough to strain the system.

8:12 But climate isn't the only shock hitting insurers.

8:14 multiple challenges are landing at once.

8:17 The second pressure point is reinsurance.

8:19 Insurance companies don't carry all their risk themselves.

8:22 They offload the biggest rarest losses to global reinsurance firms.

8:26 Companies like Munich Re, Swiss Re, and Hanover Re,

8:29 which essentially act as insurance for insurers.

8:32 But over the past decade, those firms have been absorbing hit after hit.

8:36 Between 2017 and 2024, global insured losses from natural catastrophes regularly

8:40 exceeded $100 billion in all but one year,

8:43 with several years coming in far higher.

8:45 After years of payouts,

8:46 reinsurers responded the only way they could by sharply raising prices,

8:50 tightening terms, and pulling back from the riskiest regions altogether.

8:54 For primary insurers, that creates an ugly choice.

8:57 Either premiums rise quickly, coverage shrinks, or entire markets get abandoned.

9:01 That's exactly what we're now seeing

9:03 in housing markets from California to Florida,

9:05 where major insurers have either exited or frozen new business altogether.

9:09 But the pressure doesn't stop here.

9:11 For years, insurers were able to survive thin

9:13 underwriting margins because financial markets were unusually calm.

9:17 Low interest rates, low volatility,

9:18 and steadily rising asset prices made investment income reliable.

9:22 But now that cushion has weakened, higher interest rates have lifted yields,

9:25 but they've also increased market volatility

9:27 and exposed losses on existing bond portfolios.

9:30 At the same time, inflation has driven up rebuilding costs dramatically.

9:34 In the US, construction and materials costs are now

9:36 more than 40% higher than they were before the pandemic,

9:39 meaning every insured loss is more expensive to pay out,

9:42 even if the number of claims stays the same.

9:44 Taken together, insurers are now being squeezed from every direction at once.

9:47 And most importantly, they're facing risks that stack,

9:50 overlap, and reinforce each other.

9:52 A severe heat wave can drive wildfires

9:54 that disrupt housing markets and strain insurance coverage.

9:56 As coverage thins, lending tightens and stress spreads into credit markets.

10:00 Inflation then pushes up claim costs across

10:02 every line of business at the same time.

10:04 Together, this turns what used to be manageable risks into systemwide

10:07 stress that insurance was never designed to absorb all at once.

10:11 Now, what's happening to property insurance

10:12 is happening to health insurance, too.

10:14 In the US, healthcare spending now exceeds $5 trillion per year,

10:18 or roughly 18% of GDP,

10:20 with per capita costs more than double the average of other advanced economies.

10:23 For insurers, this creates a growing mismatch between

10:26 what policies collect and what care actually costs.

10:28 Drugs like Ompic, WGOV,

10:30 and Mangaro have transformed treatment for diabetes and obesity,

10:33 but they come with recurring costs that can run

10:35 into the tens of thousands of dollars per patient.

10:38 Even more extreme are new gene therapies and cancer treatments,

10:40 some carrying onetime price tags above $2 million.

10:44 In 2024 alone, Sunlife Financial had to cover

10:46 47 individual claims exceeding $3 million each.

10:49 At the same time, populations are aging,

10:52 pushing claims higher across entire insurance pools.

10:55 All of that feeds directly into what insurers have to charge.

10:58 Between 2000 and 2023,

11:00 average family health insurance premiums in the US more than quadrupled,

11:03 even though overall inflation rose by roughly 80% over the same period.

11:07 And yet, even those increases haven't fully offset rising claims.

11:10 As premiums climb, the system starts to thin.

11:13 Healthier customers are more likely to drop coverage in individual markets,

11:16 leaving insurers with a smaller, sicker pool and even higher average claims.

11:20 Across housing, health, agriculture, and trade, the pattern keeps repeating.

11:24 Which brings us to the most uncomfortable question of all.

11:27 If insurance stops absorbing risk the way it

11:29 used to, who ends up carrying the consequences instead?

11:32 When insurance starts to fail, the risk simply gets pushed down the chain.

11:36 As coverage becomes more expensive,

11:37 large companies can still absorb the cost or negotiate better coverage.

11:41 But smaller firms often can't.

11:43 And that matters because employer sponsored plans are still

11:45 the primary source of health insurance for most Americans.

11:48 So when smaller companies are priced out,

11:50 employees are pushed into individual markets with thinner, more expensive plans,

11:53 or they leave for employers that can still afford to insure them.

11:56 In housing, rising insurance costs shift

11:58 risk away from insurers and onto homeowners.

12:01 In more than 150 zip codes across the US,

12:04 at least one in 10 homeowners lost insurance coverage in 2022 simply

12:07 because they stopped paying their premiums

12:09 even though their homes were still standing.

12:11 Cancellations clustered along the Carolina coastline,

12:14 including places like Hilton Head,

12:15 Charleston, and Myrtle Beach, where hurricane risk has intensified.

12:19 They were also high in parts of California, Arizona, and West Virginia.

12:22 Regions increasingly exposed to wildfires, floods, and extreme heat.

12:26 And even for people willing to pay, coverage is increasingly unavailable.

12:31 State Farm, the largest home insurer in California,

12:33 paused issuing new home insurance policies in 2023, citing wildfire risk.

12:38 Farmers Insurance exited the Florida market entirely,

12:40 saying the risk had become too difficult to manage.

12:43 And in March 2024, State Farm announced it

12:46 would not renew 72,000 home insurance policies in California,

12:49 representing just over 2% of its policies in the state,

12:52 pointing to inflation, catastrophe exposure, and rising reinsurance costs.

12:57 When private insurers pull back like this, governments

12:59 are often forced to fill the gap.

13:01 And not just in housing.

13:02 In the US, employer sponsored health insurance,

13:04 which covers roughly 165 million people, relies heavily on tax subsidies.

13:09 In 2024 alone, the federal government spent around

13:11 $384 billion supporting employer health plans through tax exemptions,

13:15 far more than it spent on Obamacare subsidies.

13:18 In some other places, governments are going further,

13:20 acting as insurers of last resort or forcing markets to keep operating.

13:23 In Italy, a new law that came

13:25 into force in January 2025 now requires all businesses

13:28 to purchase insurance against natural hazards like floods

13:31 and landslides while simultaneously obliging insurers to offer those policies.

13:35 It's the first law of its kind in Europe,

13:37 introduced after climate related losses in the country rose

13:39 by about 2.9% per year between 2009 and 2023.

13:44 But the law doesn't just mandate coverage.

13:46 Italy paired it with a statebacked reinsurance layer,

13:48 allowing insurers to offer policies without carrying

13:50 the full weight of catastrophic losses on their own.

13:53 In practice, that means part of the risk

13:55 is transferred from insurers to the public sector,

13:57 which keeps coverage available,

13:58 but also weakens the price signal that normally discourages risky behavior.

14:02 Over time, that can encourage more building in flood planes and landslide prone

14:06 areas on the assumption that losses will be covered one way or another.

14:09 The result is a cycle where risk rises, costs follow,

14:12 and public back stops are asked to absorb ever larger shocks,

14:15 which exposes the deeper problem.

14:17 As risks rise and insurance becomes harder to sustain,

14:19 the traditional model starts to bend.

14:21 Paying ever higher premiums isn't viable forever.

14:24 Expecting governments to absorb unlimited losses isn't either.

14:27 That's why insurers and policy makers are beginning to explore alternatives.

14:31 One option is parametric insurance.

14:33 Policies that pay out automatically when a predefined trigger is met,

14:36 such as rainfall levels, wind speed, or temperature thresholds.

14:39 Instead of waiting for damage assessments,

14:41 payouts are based on independently verified data.

14:43 It's faster, more predictable, and easier to price,

14:46 but it requires far more sophisticated models and still isn't widely used.

14:50 Another approach focuses on risk reduction, not just risk transfer.

14:54 Insurers can offer lower premiums to households

14:56 and businesses that invest in flood barriers, fireresistant materials,

14:59 or climate proof infrastructure, but only if pricing models can accurately

15:03 reflect how much those measures actually reduce risk.

15:06 Now, none of us can predict exactly how this will end, least of all economists.

15:10 But if disasters keep getting more frequent and risks keep overlapping,

15:13 insurance will thin, retreat, and repric.

15:15 And when it can no longer absorb risk and governments can't carry it all either.

15:19 The risk will concentrate and fall on those least able to absorb it.

15:23 That is the real risk of an uninsurable world.

15:25 An uninsurable world isn't just more dangerous.

15:28 It's more unequal, more brittle,

15:30 and less willing to take the risks that growth depends on.

15:33 If you want to zoom out and see

15:34 how disasters ripple through economies both locally and globally,

15:37 we made an entire video exploring the economics of disasters.

15:40 From pandemics and earthquakes to floods, fires, and political shocks.

15:44 You should be able to click to that on your screen now.

15:46 Thanks for watching, mate.

15:48 Bye.