My mom often sends me articles to read. Â She just sent me this pieceÂ Â about new disclosure regulation intended to nudge insurers into revealing how they are updating insurance pricing and expected probabilities of nasty future events (i.e severe floods) caused by climate change. Â This is a nice example of the small ball of climate change adaptation but must government be involved here? Â In this cross-post, I discuss why anticipated ex-post moral hazard leads me to say “yes”. Â In a nutshell, Â the optimistic insurers will charge lower premiums and attract more premium buyers than insurers who are more pessimistic about climate risk. Â When Mother Nature strikes, the optimistic insurers will face huge claims bills and will go broke and the Federal Government will bail them out. Â This moral hazard is anticipated and rewards the optimists for being too optimistic.
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