Video Homework Assignment

Click on the link below to view the third episode of the Ascent of Money.

http://video.pbs.org/video/1173188365

This episode is really in three parts. The first part is about risk and insurance, the second about the evolution of the welfare state in Europe and Japan, and the third about hedging risks with option securities. In future discussions we will be looking at the Financial crisis and hedging, so this question will be focused on insurance.

One of the main issues with insurance is what do you do with risks that are likely to take place. The classic example is coastal living risks in the Gulf States and the Eastern coast of Florida that was discussed in the video. Insurance companies won’t insure homes and businesses anymore because the weather risks (hurricanes) are just too likely to happen making premiums unaffordable . The solution by these Gulf state is that state governments write the insurance and that the Federal government pays losses if the Gulf states run out of money in their insurance funds. Do you think this is fair to the other tax payers of the USA? Do you think that other state’s taxpayers should absorb the risk of people wanting to live in places where there is so much risk of property loss?