Ultimately, someone will have to pay to rebuild the bridge. In the event of really big claims, it almost always end up being whoever has the deepest pockets. The process of discovery will list out who all the owners are and how much their policies cover this claim (whether intentionally or not!).
As counterintuitive as this may sound, the insurance and reinsurance companies are actually pretty well equipped to handle this type of event. The underwriter(s) on the other side of policy will have to report the claim to their boss and the report will show they followed company guidelines. The boss can only shrug her shoulders and say "welp, can't be too mad because this is the business we are in." No one is particularly thrilled about paying the claim, but these situations are exactly why insurance was created. (For context, the "small" claims of $1M -> $10M hurt the most because they are the ones that throw off underwriter's models the most and cause the most unprofitability)
* - Yes, that's really his name: https://en.wikipedia.org/wiki/Chris_Moneymaker
It seemed like bookies really did adjust their expectations or their risk appetite for long-tail events in this market. And they were probably correct to do so.
I'm not much into betting, but will not the odds change also based on how people are betting. So if many people started to bet on the unexpected result, due to for example that the unexpected Leicester team won last time, wouldn't odds tighten up automatically?
Yes IMO. It might be more rigorous to say: before 2016 there were always a handful of teams priced at 5000-1, after 2016 there were not. The league didn't objectively get more competitive.
> So if many people started to bet on the unexpected result, due to for example that the unexpected Leicester team won last time, wouldn't odds tighten up automatically
Definitely possible, and would explain the effect regardless of whether the punters were smart money Nicholas Taleb types who spotted that black swans were systematically underpriced, or gamblers dreaming of another Leicester payday.
A bookie isn't trying to gamble on the outcome; they're trying to get the bets to all balance out so that no matter what the outcome they take in enough money from the losers to pay the winners with some profit leftover.
As more people bet on a specific outcome, they will lower the odds to make sure that the pool of money taken in is still big enough to pay out if that outcome happens.
Concentrated downside, distributed upside. I doubt the individual bookie is happy.
It seems, like in other industries, being large helps to weather out such rare events.
It’s not mentioned in the movie. I have to guess that they only do that if there is a large bet pending, rather doing it to all the long shot horses.
Some gambler dropping a 10k bet, and have her put $1k on the horse is enough to really rock the odds. Perhaps, mob accounting is not my specialty. And, of course, it’s just a movie.
I assume ships are required by law to have insurance before being allowed to go in certain places, to make sure damage they cause is covered. But that would make it hard to sell "better" insurance than the legal minimum when it comes to catastrophic claims.
If I remember correctly they made the ship steer of course quite sharply. If the pilot dropped anchor and made the ship do that they might be in error.
As for the anchor, you seem to misunderstand the basics of ship handling.
To me it seems like the boat steers of course after regaining power. Am I imagining things? I guess it could happen by chance too, as drift takes on?
Quite possible the captain has their own liability insurance. Dunno how the professionalization works at sea.
Automakers might get a payout for the shipping delays, but people waiting longer for their new car won’t see any of it.
The people’s commutes that will be X minutes longer for the next while will have to just suck it up.
Same for anyone paying a few percent more for goods that have to be imported through other ports.
Another poster linked to a USC section protecting the ship owner on the basis of them not knowing anything that caused the loss. So that is what it is.
Ok, but why would a ship manager also be able to benefit from such a limitation ? The USC section doesn't say anything about the manager, and unlike the owner, the manager was by definition an active participant in the casualty.
Nah, the re-insurances actually are used to big hits. Munich Re, one of the biggest in the world if not the biggest, pays out billions of dollars a year from nature disasters [1].
[1] https://de.statista.com/statistik/daten/studie/200297/umfrag...
Business is about managing loss. Nothing more. No further emotional support required.
With that being said, Westchester may elect to purchase reinsurance to further reduce their risk. If they know the volatility of a policy is high or want to limit their potential losses, Westchester can buy a reinsurance policy to cover the long tail of their written policy. So if Westchester gets unlucky and has to pay into that long tail (ie an unforeseen mega catastrophe occurs and they are on the hook), they will then submit a claim to their reinsurance carrier who reimburses them on the backend. As a recipient of that policy payout, you will only ever see Westchester's names on the checks. Also, Westchester's parent company, Chubb, has a reinsurance treaty which basically helps protect them from any crazy one time loss. The reinsurance/retrocession market is fascinating! It truly is insurance policies all the way down.
The way it has always played out in my lifetime, it is just a few levels of insurance, and then future taxpayers. See Katrina, Sandy, 2008 financial crisis, 2020 pandemic, etc.
If the insurance is too high, businesses shut, market price goes up and economy slows down, leading the govt to print more money for stimulus which in turn devalues the previous losses, with justified inflation.
Who is the ultimate insurer without any insurance backing? I’m guessing every topic of loss has a different insurance company. Massive fire damages (electric company wild fire) is by one firm. Massive equipment destruction (crane collapse) is by another firm. But there has to be an ultimate uninsured bag holder. (I remember Warren Buffet once saying he will be allocating $10 billion for insurance, I guess in a savings account just in case anyone needs it while he is offering insurance plans on it .)
Regarding ultimate insurers, you're spot on that the answer is a big ol' "it depends." People buy insurance for three reasons, listed in order of how important I think they are. First is balance sheet protection (I worked hard for my stuff, I can't afford to lose it). Second is for contractual obligations (Nobody will do business with me if I don't promise to make them whole if things go wrong). Last is because the government says you have to. When you think of a claim happening where there is no insurance available, run through that checklist to see what what could potentially happen. Since you listed a few concrete examples, I'll go through them and opine how things may play out (remember we're in imaginary land and without policies I can't really say anything for certain).
Fire damages - I think of the Camp fire. In 2018 California was set on fire because of some transmission lines caused a spark. This is a big claim caused by an individual entity, so the normal rules don't necessarily apply here. But in general, the way it works is if my house caught fire because of this Camp fire, my insurance policy on my house WILL cover the claim. Whoever writes my policy will cut me a check and replace my home (subject to policy terms). What will then happen is my insurance company will the subrogate the claim to the entity that caused it. Meaning that they will knock on the electric utility's door and ask for reimbursement (this is essentially subrogation). When the utility goes bankrupt, they're saying we can't pay, so ultimately your insurance carrier pays out of pocket with no reimbursement. The head property underwriter of Everest insurance spoke to us about the fire claims and said they really hurt his book. If I recall, they paid like a billion in fire claims in 2018, but budgeted nowhere near enough. Those well paid actuaries couldn't predict a fire would raze California! Luckily they budget a rainy day fund, so the company was ok. Fire insurance prices did go up significantly the following year. This is because they didn't realize just how on the hook they could be for fire claims. The whole insurance market systematically underpriced fire insurance in fire prone areas.
Crane collapse is another good example. My old client had a particularly nasty crane collapse that is ongoing, so I will not share any details around any crane collapses, hypothetical or not. However, there is an analogous claim that I did not work on that I can use as an example: the MGM shooting in Vegas (2017) [2]. Basically, the concert venue didn't have enough insurance to foot the bill. In the process of discovery, the lawyers saw that MGM Casinos (where the shooter perched) had an extensive casualty insurance tower. MGM's insurance ended up having to pay out the claim. They used up the full limits of every policy they bought that year (and not a penny more). I think because they weren't negligent, the lawyers didn't seek damages beyond their policy limits. When there is a bad claim, lawyers will always find whoever has the deepest pockets and make them pay. If you don't have enough insurance, courts will force you to pay out of pocket. If you don't have enough money out of pocket, the wronged party will have to eat the loss. This is why point #2 is an important reason for buying insurance.
Also- if your question regarding crane collapses is more geared towards someone losing a lot of value quickly, that is easy. My old boss insured a factory in tornado alley. Couple hundred million dollar factory was insured pretty cheap because tornadoes don't cause much damage and are considered low risk. A few weeks after the plant was finished, a tornado came through and ripped the building clean in half. Insurance company paid the near total loss, no questions asked. Remember, they're in the business of insuring against these freak accidents. They are comfortable with taking a lopsided deal. They earn plenty of premiums each year on factories that aren't violently introduced to tornadoes.
I had a wealthy client who purposely didn't buy insurance on his buildings. He'd buy the first $75M or whatever of insurance and would guarantee the rest out of pocket (did I mention he was wealthy?). This is hard to do because of points #2 and #3, but it can be done. In the biz, we call this "self-insurance" and while it may sound like I'm being tongue-in-cheek, it is a very sophisticated risk management strategy that can accomplish a client's risk transfer needs. Typically companies self insure the small claims (via a deductible), not the top end of claims.
I guess to directly answer the lead question, the ultimate insurer without any insurance backing is you, the owner. It's your stuff after all. If your stuff is important to other people (ie the public, or other companies) other stakeholders are gonna make you have insurance, otherwise you won't be allowed to control those resources. That's why the boat, the bridge, and the port all had good insurance. The system was working as intended.
Thank you for your great questions! I've got a few other responses in the thread that detail other insurance questions that you may find interesting.
[1] https://finance.yahoo.com/quote/AIG/balance-sheet/
[2] It's a little fucked up that I have to put the year so we know which one I'm talking about. At least I didn't need to clarify the month...
https://www.youtube.com/watch?v=2Wim-_Q_59o
From "What is Going on With Shipping?"
Look at the graphic at the bottom of that link. Basically, there are multiple levels of insurance in the P&I space (property and indemnity insurance common in marine insurance). Insurance companies purchase their own insurance, aka reinsurance. The levels of reinsurance can be multiple layers deep. Insurance companies form clubs to spread out the risk to multiple entities.
This stuff will be tied up in claims and courts for years to come.
Marine insurance is one of the oldest types of insurance and antique in some respects, with large vessels covered by several underwriting firms. So potentially this is a massive financial hit for multiple companies if there is not a limit on liability.