One should also beware the insurance industry - it has essentially the same incentive structure.
Sell cheap insurance while times are good - take profit/options/stocks and leave.
When a catastrophe happens - go bankrupt and allow the government/people to socialize the losses for improper risk management. They also take advantage of socialized protection such as national defence, fire-fighters, police officers and ambulance drivers. They don't have to pay for them in proportion to the reward they receive for their services (society pays for them). Hence their risk is mitigated by society whilst privately profiting from our shared risk.
Insurance is a great thing (no doubt about it!) - but these moral hazards exist in many systems around the world and they must be addressed.
This is also why insurance is so highly regulated - the ability for financial impropriety and abuse is just too damn high!
Sell cheap insurance while times are good - take profit/options/stocks and leave.
When a catastrophe happens - go bankrupt and allow the government/people to socialize the losses for improper risk management. They also take advantage of socialized protection such as national defence, fire-fighters, police officers and ambulance drivers. They don't have to pay for them in proportion to the reward they receive for their services (society pays for them). Hence their risk is mitigated by society whilst privately profiting from our shared risk.
Insurance is a great thing (no doubt about it!) - but these moral hazards exist in many systems around the world and they must be addressed.
This is also why insurance is so highly regulated - the ability for financial impropriety and abuse is just too damn high!