ISSUE: Insurance Sector Collapse
Insurance is boring ... until a broad disaster strikes.
The entire concept of insurance is a fundamental feature of our financial system. When Lloyds of London formed in 1688, roughly halfway through the Age of Sail, the Industrial Age was still a century away, but the ability to hedge risk when transporting goods accelerated everything. If you’ve been following the posts here about Peter Zeihan you know that overall we’re expecting the U.S. assurance of freedom of the seas, the underpinning of globalization, isn’t going to survive much longer. When that becomes the case, the cost of insuring cargo in an area not patrolled by a local hegemon is going to ZOOM.
You can’t get a mortgage in the U.S. without proof of insurance. The U.S. insurance industry has been under the gun for a while, with no place worse than Florida. There are two types of beach community property owners; those rich enough to come, and those who are too poor to go. Here in California we’re just starting to experience homes in a grove of pine trees at the end of a narrow, winding road becoming throwaways and Colorado is running neck and neck with us.
This is a sober, weighty discussion of what’s coming at us. While not as grim as China’s 100% overbuild of housing, the combination of climate change, income inequality, and our affordable housing crisis make for a complex, multipolar problem that WILL bite us, it’s just a question of when.
I never thought much about insurance until 2007, when I learned what a monoline bond insurer does. We had four of them at the time - Ambac, MBIA, FGIC, and FSA. So much of the financial sector had drunk the derivatives Koolaid and there was a real chance the entire global financial system would go sideways. There was a short period of time where international shipping stalled because bank letters of credit were not trusted(!)
When a bond rating agency marks a bond as anything other than AAA quality that means its no longer “investment grade”. The terms of insurance change but more importantly institutional holders like pension funds immediately exit, as they’re not allowed to hold less than perfect bonds.
Conclusion:
There are a lot of things in the steady state “climate change is a hoax” world where typical climate change disasters are filed as black swan events. Mother Nature spins everything from fundamental particles to galaxies, but our media spin is irrelevant. Things happen where, when, and how they happen. We’ve got hurricanes crossing the equator for the first time ever, wildfire burning across the Sierra divide for the first time ever, Panama Canal transits are down a third due to drought for the first time ever, every major river in Europe functionally ran dry in 2022 for the first time ever, and I could easily triple this list if I did even a little bit of searching.
Are you ready for when something terrible happens in your location for the first time ever? A big part of readiness is simply accepting that things might change so dramatically, and then working out what those changes could be. Here’s a famous scene of some folks doing just that. Once you’ve watched, start figuring out your path to the nearest life boat.