“Don’t worry we have a great pool of ‘names’ to be born that will help pay Harvey’s insurance claims” Will they?

Sir, John Dizard writes: “NFIP, the federal flood insurance programme, has been risked and priced so unrealistically that it … encouraged construction in flood-prone locations…[and] already has incurred a cumulative debt to the Treasury of more than $26bn, despite its failure to cover many homes and businesses.” And now it will be facing Harvey’s claims. “Flood Harvey inundates the insurance market” September 4.

If those approving NFIP writing insurances were Lloyd’s of London “names”, they would be liable until their very last cent. But no US congressman that approved NFIP in 1968 faced even remotely the same consequences. In fact it would seem they, without any consultation, designated their children and grandchildren as responsible “names”. Will these names be able to pay?

Also, how many homes have been built and destroyed by the fact these had access to NFIP?

Should this be allowed to happen without any sort of consequence? As a minimum minimorum I believe there should be a site for the greatest failed legislations that spells out the names of those responsible for it. The threat of ending up there might help stop a lot of irresponsible acts of legislation.

We do society a favour when our fallen in wars are honored in cemeteries like Arlington. We might do society an even larger favour by duly shaming those who help push our nations earlier into cemeteries; like those responsible for the risk weighted capital requirements for banks… that which has introduced a regulatory risk aversion that will condemn our economies to weaken and our banks to afixtiate in overpopulated safe havens.

@PerKurowski

It might be time for the Financial Times, FT, to change its name to the Regulatory Times, RT.

Sir, you write that “BoE encourages insurers to be weather resistant” October 29. And it all almost reads like a sophisticated April Fools’ Day joke.

You argue: “While markets are meant to incorporate a variety of opinions, high regulatory standards are needed to stop a casual attitude to climate change becoming a competitive advantage”… and so it is “encouraging that the Bank of England is determined to be on the front foot”

“Encouraging”? After what regulators, not being able to contain their hubris, thinking themselves capable of being the risk managers for all banks, recently, with their credit risk weighted equity requirements, did to the financial system?

Should we understand this means that the Financial Times believes regulators can come up with not only better insurance standards than the market, but also that such regulatory meddling would not risk produce some extremely risky unexpected consequences?

FT who are you? Why do you not change your name, to the Regulatory Times?

Those with medical preconditions should fret, as Lord Turner and other bank regulators want to regulate insurers.

Sir, Brooke Masters and Alistair Gray report that “FSB committee turns its attention from banks to insurers” September 27, and they write that “the industry representatives present came away hopeful that their worst fears about the plans would be averted”. 

Yes, but perhaps those who really need to fret are the “risky” insurance risks, like those with medical pre-conditions, because if regulators, like Lord Turner, would apply the same principles when regulating insurers as they do when regulating banks, the insurance company would be required to hold more capital when insuring the “unhealthy-risky” than what they would need to hold when insuring the “healthy-not-risky”. 

And that would of course mean that those qualified as “healthy-not-risky” would see their premiums lowered and those perceived as “unhealthy-risky” would see their premiums go up, precisely like what happened with the interest rates charged by banks to those officially perceived as “not-risky” and “risky”.

Are we to allow Solvency II do to our insurance companies what Basel II did to our banks?

Sir, Paul J Davies in “Capital rules raise fears over insurers’ risk appetite” April 20, though correct in so many aspects sadly makes precisely the same mistake that the Basel Committee did when they established their capital requirements for banks based on officially perceived risk. He says “The higher returns on risky assets ought to be diluted by a higher capital charge in perfect proportion. That ignores that the “higher return on risky assets” he sees is the result of the market already having looked at the same risk information available and adjusted their risk-premiums and interest rates correspondingly.

Is it not bad enough that Basel II drove our banks excessively into what was officially perceived as not risky assets, carrying no capital at all, to now have Solvency II doing the same of our insurance companies?

Even governments represent counter-party risks

Sir in “The legacy of Lehman Brothers” you write “Policymakers must own up to the fact that there are some institutions they can never credibly claim they will let fail. They must identify who they are implicitly backstopping so that they can charge a fee for that insurance” September 14.

This is indeed truly dangerous talk when what we need is for our regulators to be much more trigger happy, allowing bad institutions to fail; and when we know that the fees for such eternal life insurance would never be set objectively nor would it be set apart in a reserve, and so that, sooner or later, the final failure of any of these supreme institution, could bring the State down with it.

The economy does not need more government insurances than the ones currently awarded to individual depositors up to limited amounts, and to give more is counterproductive to the well-being of all of us, since an insurance is only worth as much as the insurance company is worth; and we do face a counter-party risk even when dealing with governments.

We all need an insurance against what they are going to think they have discovered in our DNA

Sir in “The fallacy of the ‛choice agenda’”, July 18, Sir Samuel Brittan enters briefly into asking what will happen to health insurance when DNA records come to provide detailed health prognosis. I would answer, just what happens when credit records provide detailed information to lenders, that the borrowers often get bunched together into small groups of misfortunate outcasts that have to take care of each other. For instance, among the subprime we find those who are not able to serve a loan at very high interests, and therefore lose out, and those who by being able to serve their loan de-facto evidence they deserved a lower rate, and therefore also lost, making it truly hard to distinguish a winner.

Since Brittan also correctly states that “insurance is well suited to covering events that are unpredictable at the individual level” let me say that for over a decade I have held that the most important new insurance coverage we all need is that of the risks derived from what they are going to think they have discovered in our DNA.

What we first need is an insurance that covers the risks of the discoveries.

Sir, Stephen Cechetti argues in “A future of public healthcare for all” July 3 that the advances in genetics and that will be able to provide for better individualized projections of expected health costs will translate into a market failure that will force the private health insurance system into the arms of the public sector. Actually it is not a market failure that will do so since in fact the market could only benefit from knowing more about the risks, it is the market results that will be unacceptable, or at least let us hope so, since if those prognosed as much healthier sneak out from sharing the risks, society could turn much much nastier. For instance, there is nothing to stop a good health prognosis to also influence such variables as the admittance to universities.

Before we put any new safeguard system in place, which will certainly only happen when it is much too late for many, what we most need is an insurance that covers the risks of whatever extra costs we could suffer because of what they discover in our genes, and have everyone subscribe such an insurance, before they are allowed to take any genetic samples

In immigration, more than barriers new riverbeds are needed

Sir Clive Crook in “How to untie the immigration knot” June 14 gives a glimpse of what is needed by arguing that instead of working on how to solve the 12 million stock of illegal immigrants the US would be better served by first working at the flow control valves. Doing that it is important to remember that the best way to control a flow is not always by building a barrier but sometimes by finding new riverbeds where it could run more orderly. It is in this respect that I believe FT’s readers could be interested in hearing about an initiative of trying to have private insurance companies stepping up to the plate and offer to guarantee the payment of a substantial indemnity to the US government for each worker who being favored by a temporary visa program does not return home in a timely fashion.

Immigration policies should not be a Noah’s Ark.

Sir, you are absolutely right when in “Small steps needed on US immigration”, June 12, you insist on the need to build credibility, which is exactly what some of us are trying to do by for instance developing a private insurance programs destined to guarantee that workers with visas issued under temporary programs will return in a timely way, or else paying some very substantial indemnities. What is not that clear though is why you think that creating bureaucratic biases in favour of high skilled workers is a naturally good thing to do instead of allowing the market to signal its own and very dynamic relative worker shortages. One thing is a Noah’s Ark in times of flooding and quite a different thing when it remains in the same spot, on dry land.

We need an insurance for what could be discovered mapping our genes.

Sir, Patti Waldmeir in “The Dangerous new age of the genome”, May 9, writes about some legislative initiatives in the US that look to combat the “genetic discrimination” that might result from mapping the genes. This might be a good start but as I wrote in an article titled “Human genetics made inhuman” that I published in 2000, I submit that a better, or at least a more practical approach, might be to ask the insurance companies to come up with an insurance that covers any increased health insurance costs that can result from such a mapping when compared to an average citizen, and then require evidence that such an insurance has been contracted for before allowing at least any young person to have his or her genes mapped.

Longevity fright 2

Sir, I can almost hear you ordering to publish Gillian Tett’s and Joanna Chung’s “Death and the salesmen” in the FT-Weekend, February 24, not so much because it concerns the somewhat “gruesome topic of death” but so as not to be unnecessarily identified as the messenger of bad news when reminding the pension and insurance markets of some of the more scary implications of the increased longevity of people. It is a great article and we are already waiting eagerly for Death and the salesmen 2, since some of the scariest characters have yet to appear, like for instance those who actuarially are not supposed to live so long, like the smokers and the obese.

Just you wait until these risk groups start arguing that “if they can’t have the cake they don’t want to pay for it too” and require they be excluded from the longevity groups that need to pay for the costs of it, and as this could really increase the average longevity of those expected to live long. In the UK, in annuities, we already find that smokers receive higher annuities than a non-smoker, which in financial terms seems to be right. That said there is a huge social problem in waiting from the increased tendency to tend to the individual need, and that is of course that the number of people left to do the sharing with, gets fewer and fewer, until there is only you.

In a state of continued perplexity

Sir, Christopher Caldwell with his “On parenthood and perplexity”, February 24, leaves us perplexed about the need of the late Anna Nicole Smith to serve as an excuse to discuss some of the most fundamental issues of our time, or perhaps that’s just the way it goes, the more important the issue the sillier the excuse needed.

That said let me compliment and complement the article by slipping by two comments that might help to keep us perplexed and attentive. First since the issue of genetic testing to “determine whether you have a pre-existing medical condition” was briefly touched upon, on passé, and these tests risk to exclude anyone of us from the pool of normal insurable and shared risks, leaving us out in the cold, what now any individual, and indeed the whole society most need, is an insurance against whatever could be discovered in those tests. Second, and as any honest right-to-life conviction cannot go hand in hand with any further-delay-of-life action there are some groups pushing for the adoption of frozen-embryos, which could then lead us into a discussion of primary, secondary, and perhaps even of intellectual fathers.