Who would be an insurer?

Insurance is the second greatest invention of the financial world. (For those wondering about the greatest? Commodity backed money.)

With the invention of insurance and its refinement into like prices for like risks, the risk of calamity could be fairly traded away by everyone. Those rare but catastrophic events would no longer destitute the victims.

But then politics changed.

Here is a report from yesterday’s Australian newspaper website in which the PM sends a warning to insurers.

No longer are natural disasters such as as fires, cyclones, floods or commercial risks like product liability the greatest source of risk for insurers. Now, it is politics.

What our PM is saying is that even if an insurance policy was sold on the basis that it did not cover flood damage, the power of the State wants the insurer to pay up anyway. This trend has been obvious for years. People having suffered flood damage ‘find out’ they did not buy flood insurance, they stamp their feet, make a lot of noise about unfair greedy insurers and attempt to use political power to extract the cash anyway. It is legalised theft. It is why I don’t invest in insurance businesses. Coincidentally, it is also part of the reason why politicians are, with few exceptions, contemptible.

We’ve seen this movie before and we know where it ends. Insurers will stop selling insurance where exclusion clauses are likely to be politically contentious. The reason the flood exclusion was made available was for those people who wanted to live in a flood prone area and, accepting they weren’t covered for flood risks, still wanted insurance for non flood risks. Political intervention will result in the removal of all insurance cover. Well done, Albo and friends.

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