A Crisis Is Brewing in the Business of Paying for Catastrophes

President Donald Trump’s election owed much to the pervasive sense of a cost-of-living crisis. But there lurks another threat to US prosperity that is much harder to address. Call it a cost-of-crisis crisis.

Insurance is capitalism’s way of shielding us from the gods. It only works if we don’t shield ourselves from insurance itself. Wildfires in Los Angeles have put a spotlight on how regulations to prevent premiums from pricing people out of neighborhoods can tip into pricing them into risks that prove to be financially devastating. This branch of illusory capitalism extends beyond homes to other bedrock economic sectors, such as energy and transportation, as well as a bedrock risk, climate change. The result is a growing set of underpriced and nebulous contingent liabilities ready to open up like a sinkhole under everything from house prices to power supply when disaster strikes.