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Comment by bilekas | Hacker News Reader

This is actually a really interesting case.

Hear me out, a little bit of devil's advocate maybe..

If insurance company is forced to repay the whole cost of the rebuild, estimated it will cost lets say $600M. Tax payer is happy they're not paying via Federal taxes. But, shipping and logistics insurance companies start to ramp up their premiums and those fees are passed on to, eventually, the consumer over the long term, this could end up costing the tax payer more ?

If the insurance company pays 40~M and the federal pay the rest.. The tax rates will not go up based on this 600M rebuild, and if they do, no goverment will want to keep those higher rates. I cannot say the same for a private insurance company not wanting to keep their fees high if they're being paid anyway.

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I’ll play with you:

It might not be such a bad thing to increase cost of trans-oceanic transportation. Right now we’re shipping stuff that makes little sense no to produce locally simply because (cost of overseas labor + cost of transportation) < (cost of domestic labor). I would suggest this is absurd both from an ecological and from a humane standpoint. Increasing the cost of transoceanic shipping might help flip the scales a little bit

Alternatively, I’d suggest that the premiums might not increase that much. Cost of insurance would be (cost of a claimable event)*(probability of such event). I’d hope the latter tends towards zero, significantly reducing the product of the 2.

We can also look at the potential impact of such a “new” policy on total insurance costs. Apparently, the Dali is able to transport 10k containers. And current shipping prices of $4,000 per container, that means that the cost of the trip alone is in the $40M range. If we take the lowest possible value of the goods, that’d be $40M and the arrival location. I’d argue that the probability of losing the vessel and its cargo is higher than that of hitting a bridge, especially if ports start deploying tugboats around their facilities

Great comment. Made me pause to think

I think this can be applied more generally as: Everything should be priced in. Lots of big problems seem to occure because externalities are passed down to future tax payers. Pollution, climate change, garbage etc.

Some form of this "but what about the consumer" argument is rolled out every time a corporation screws up. It's an incredibly effective way of deflecting responsibility by claiming to be acting in someone else's interest.

My rebuttal is "moral hazard." Why should Boeing bother making planes that stay in the air if they can always count on a slap on the wrist and, in the worst case, a bailout.

Also the market will only bear rate increases to an extent and so some of this cost will actually be eaten by the shipping industry and the insurance industry and result in lower profits.

This is a great question with a lot of interesting nuance! I don't have deep expertise in maritime insurance but I do know enough to be dangerous.

Let's just look at the boat insurance, because the bridge and the cargo all probably have different policies covering them with vastly different terms. Marine insurance is odd because it actually just sucks as a business to be in. Boats aren't cheap and they sink too often for normal companies to realistically make any profit. But we still need insurance on our boats, so the industry basically has created a big mutual insurance pool. There are like 8 or 9 insurance companies that are owned by the businesses that purchase their policies (this is the definition of a mutual insurance company). So when a big claim is paid out like this, the entire shipping industry bears the cost because these same companies essentially share the risk on all shipowner's policy. Shipowners can't complain too much - there is literally no one else who will sell them insurance so they have to do it this way (Not having insurance is a bad idea 99.9% of the time). The deal is not all bad though, if there is a good year with fewer claims, the shipping companies get some money back. And because the risk is pooled via mutual insurance companies, they keep appropriate stashes of money in case there is a bad year. Actuaries are tasked with figuring out how much money to hold on to at any given time so hopefully there is never a capital crunch.

Will this cost be passed on to consumers? Tough to tell. I'm stepping a bit out of my expertise here, but my inclination is that there won't be outsize costs put on consumers. Roughly speaking, since the entire industry bears its fair share of marine insurance costs on a company by company basis, if one goes up, they all go up. So if that means shipping a crate from China to USA is more expensive because the space on that boat becomes more expensive, then consumers pay more. What's that saying again? A rising insurance premium lifts all shipping costs? However, I don't think that consumers will unfairly be paying additional costs to get their goods because of the mutual nature of boat insurance. Furthermore, the company you transact with (say Wal-mart) may just eat the additional cost of shipping in their margins or force shipping companies to eat the cost instead. This is all assuming the federal government doesn't pay for the rebuild. I don't think the government will pay any substantial amount on this claim given how well insured all parties seem to be.

No, we've already pre-paid for this insurance claim by paying higher prices for goods so that the shipper could be insured. The insurance company doesn't get to claim that they were unprepared for this. What have they been doing with the insurance premiums for the last however many years?

And on top of that the insurance company is probably also insured

> If insurance company is forced to repay the whole cost of the rebuild, estimated it will cost lets say $600M. Tax payer is happy they're not paying via Federal taxes. But, shipping and logistics insurance companies start to ramp up their premiums and those fees are passed on to, eventually, the consumer over the long term, this could end up costing the tax payer more ?

Isn't this the point of insurance and specifically underwriters - that they aggregate the possible outcomes over a huge set of assets, with the expectation that sometimes they will have to pay out if an accident or whatever happens?

There should be no increase in anyone's premium. Though, from a marketing perspective, given the level of publicity that this event has gotten, perhaps people are primed for a raise - and this is a good time to do it!

Honestly, "insurance" sounds like an ideal area for a headless company. Its really only providing an aggregation of certain risks, so no individual company person is wiped out. The more assets it manages, the less risk they have, and the more the price of the insurance should drop.

eventually, the consumer over the long term, this could end up costing the tax payer more?

Hedging against loss is a cost of doing business. Theft is built into the pricing at grocery stores and other retailers. Why should shipping be different? Yes, the sums are MUCH larger, but the general point is the business should account for its costs as part of its budget.

This sounds like a variation of "too big to fail" - the answer may very well be require smaller/safer ships. That would cost more, but long term, might do a better job accounting for the costs of loss.

But you also want to count where the $600M go to. Yes, US taxpayers pay for it eventually, but they pay it to some other taxpayers (assuming the developers also US-based). So the money get back to US economy in the end.

Granted it's still bad for the economy, but just counting money is not enough. E.g. spending huge money on Hoover dam and Golden Gate bridge was good for the economy at the time.

You just eliminated the whole point of insurance.

If every time the government is going to pay, then the obvious next step would be to get rid of insurance altogether ant everything would be cheaper yet.

They also eliminated the entire point of liability.

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