Five industry professionals tell the FT it is commonplace for risk modellers to be asked to change analysis in order to artificially lower prices
I also note that this includes stuff like states suing independent risk estimators
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- 7 days
A naive person (like me) might think that an insurance company would be setting itself up for a fall by doing this, one day finding that it had to pay claims it had not collected enough fees to cover.
But that’s because I’m not thinking like a capitalist. Who bears the risk that results from this kind of fraud? Not the insurers who commit the fraud and profit from the insurance, but the insured, the ones who paid for insurance:
…clients could suddenly see their coverage withdrawn because risks that had been building over years were suddenly deemed too high.
“The industry knows these policies are going to become quite vulnerable and might not keep us profitable and we will have to cut chunks off the policies, making streets or whole areas uninsurable,” said one senior risk professional from the reinsurance industry, who said she faced “pressure to fudge the numbers”.
- 7 days
This is making the opposite point. Capitalism should stop this, banks and homeowners should be the ones suing over this instead of the states.
These fraudulent risk assessments should theoretically be putting massive investments at huge risk, but no one cares because in the end they know they’ll get bailed out by the insurer of last resort (the state).
7 daysThey… they know that its the job of insurance companies to actually price risks, put a $ figure on those externalities, right?
What, did they just… not listen to like 30 years of science and scientists?
Nah, that couldn’t be, because then, capital markets would not actually be efficient or rational!
And that would mean capitalism is defintionally systemtically unworkable!
Pff, next somebody is gonna tell me regulatory capture is real, what a dumb idea!
