Reputation at risk

Jerry Theodorou, director of the finance, insurance and trade policy program at R Street, a Washington, D.C. based free market think tank, calls insurance “the industry everybody loves to hate.” To counter the negative publicity, he identifies three things that “the public and lawmakers should understand about the industry.”

The first, which is almost certainly unappreciated outside financial circles, is the key role played by insurers as investors in their home countries. In the US, insurers’ bond holdings are currently worth around $1.35 trillion. Through corporate bond purchases, insurers give American businesses capital to expand. And through municipal bond purchases, insurers are huge investors in the country’s infrastructure.

The second, better understood but still possibly underappreciated, role of insurers is as what Theodorou calls “first responders” to adverse events, including what would otherwise be catastrophic losses. The US property casualty industry paid out $495 billion in net claims in 2023.

The third is the role of insurance as an essential lubricant for the American economy – and indeed for all developed economies. “Nothing moves without insurance – you can’t do a damn thing without insurance somehow lubricating the wheels…”

When market mechanisms are disrupted, the misallocation of resources can sometimes be extreme. R Street’s Theodorou cites a Mississippi home worth $69,000 that flooded 34 times in 32 years and received, in aggregate, $663,000 from the taxpayer-funded National Flood Insurance Program.