Lower Manhattan in New York City on Oct. 30, 2012, after Hurricane Sandy. EDUARDO MUNOZ/REUTERS
As [Mark] Carney laid it out back in 2015, three types of risk could strike the financial system: losses in the insurance system, climate change liability, and the problem of stranded assets.
The insurance system is the economy’s shock absorber. Its role is to spread the impact of losses from those immediately affected to those with the wherewithal to bear the shock. In good times, the insurers earn handsome returns for accepting this risk. They cover their own liabilities by taking out reinsurance, further spreading the losses.
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Also see this response by Tooze to the Bundesbank’s reaction to his piece.
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