The profit motive of disastrous loss
A LOT of international stories slip by without being covered in these pages. That is as it should be – our job is to cover local business, not the world.
However, as I wrote last week, we are intrinsically linked to the world and its never-ending money flows.
One story I was planning to run this week, but which we did not have space for, was on how global bankers are stockpiling aluminium in the Netherlands, pushing up the price of the metal, mostly imperceptibly but at a definite cost to consumers of all manner of goods from the humble drink can to the passenger airliner.
Such manipulation of commodity prices has been happening forever. We’ve seen similar manipulations of oil and gas and grain prices.
Of more concern are the signs that our bankers can’t help heading off in odd directions in search of super profits, especially super profits that come at all our expense.
Just as some business people will endlessly talk up the value of competition, but work incessantly to create a monopoly for their products, so some talk up the value of markets while trying endlessly to corner them.
Whether banks should join in such shenanigans is a different matter.
In this issue we have a look at suggestions that others are reaping super profits off the back of New Zealand’s recent earthquake disasters.
There can be little doubt our major insurers are profiting from what has happened in Christchurch, but deciding whether those profits are excessive is more difficult. A large shake would easily change the equation.
Insurance premiums are set
Our insurers seem to be singing from the same songsheet.
according to perceptions of risk. But that risk is not only being recalibrated into higher premiums, it is also being shifted back to the customer through the introduction of sum insured policies (see page 4).
Consumers see the premiums and feel the pain. They don’t necessarily appreciate the impact of the shift to sum insured. It is far less palpable, but no less real and stands to cut the insurance companies’ risks considerably. We still have a moderately competitive insurance market in New Zealand, but our insurers seem to be singing from the same songsheet and talking up the increased cost of reinsurance to customers while crowing about their increased profits to shareholders.
That will probably change as the ground beneath us calms down – if it ever does.
We can help that process along, though, by questioning our insurers strongly on their price increases and by shifting to a new provider if we feel we are being taken for a ride.