WEBVTT - Wildfires, Insurance, and Planning for Disaster 0:00:15.564 --> 0:00:34.004 Pushkin. Welcome back to Risky Business, a show about making 0:00:34.044 --> 0:00:36.604 better decisions. I'm Maria Kannakoma. 0:00:36.524 --> 0:00:37.644 And I'm Nate Silver. 0:00:39.804 --> 0:00:42.684 Today on the show, we'll talk about the ongoing wildfires 0:00:42.684 --> 0:00:45.604 in Los Angeles and we'll take a listener question about 0:00:45.644 --> 0:00:47.764 Elon Musk, the river and the village. 0:00:48.444 --> 0:01:00.644 All right, let's get into it. Before we get into 0:01:00.684 --> 0:01:05.644 the wildfires. You know, really serious, weighty topic, incredibly important, 0:01:05.884 --> 0:01:08.364 Let's talk about something a little bit lighter. Nate, you 0:01:08.644 --> 0:01:11.764 just got back from a trip to Tokyo and a soul, 0:01:11.884 --> 0:01:14.324 so you were halfway around the world. 0:01:14.764 --> 0:01:16.364 Yeah, I know, if I'm fifteen. 0:01:16.364 --> 0:01:18.484 We had this debate my partner like, can you really 0:01:18.524 --> 0:01:22.164 be like fifteen hours ahead? Doesn't that mean like eleven 0:01:22.164 --> 0:01:25.084 hours behind or nine? Can't be the fucking math. But yeah, 0:01:25.324 --> 0:01:27.444 I'm a little little guy, a little be the lag. 0:01:27.924 --> 0:01:32.644 As we say, welcome back to New York, and we 0:01:32.684 --> 0:01:37.564 hope that your your jet lag well evaporate soon enough. 0:01:37.684 --> 0:01:40.884 But tell us a little bit about about that trip, 0:01:41.004 --> 0:01:44.724 just because I think it's absolutely fascinating. Two great cities, 0:01:45.364 --> 0:01:48.324 such a fascinating part of the world, but also one 0:01:48.364 --> 0:01:50.404 where you had to make a lot of travel decisions. Right, 0:01:50.444 --> 0:01:51.844 A lot of risky decisions. 0:01:53.364 --> 0:01:55.524 Yeah, I mean, so one thing is so, first of all, 0:01:56.124 --> 0:01:58.444 I love both cities. We were lucky enough to have 0:01:59.684 --> 0:02:01.924 a good Korean American friend that we traveled with and 0:02:01.964 --> 0:02:05.004 caught up with another friend in Tokyo, so we had. 0:02:06.684 --> 0:02:08.804 The other friend helped to help got up. 0:02:09.604 --> 0:02:13.204 You wouldn't know the other Fay, not our mutual poker 0:02:13.244 --> 0:02:14.524 friend who listen in Tokyo. 0:02:15.284 --> 0:02:19.644 No, no degenerate poker playing this start degenerously was merely 0:02:19.684 --> 0:02:20.924 no pachinko parlors. 0:02:22.444 --> 0:02:23.284 We just ate a lot. 0:02:23.364 --> 0:02:23.484 You know. 0:02:23.524 --> 0:02:25.724 Everyone's like, oh, I went to Asia and or Europe 0:02:25.724 --> 0:02:27.404 and actually I lost weight because I walked. 0:02:27.444 --> 0:02:31.684 So it's like, nah, I always find that that's bullshit. 0:02:31.724 --> 0:02:33.004 I'm like, God, just give me food. 0:02:34.404 --> 0:02:36.924 I mean, they are like they are in some ways, 0:02:36.924 --> 0:02:40.764 like Japan is kind of a more risk of society 0:02:40.964 --> 0:02:43.764 than other countries. You know, I'm not sure if I 0:02:43.764 --> 0:02:46.084 want to, you know, as Korea as in certain ways too. 0:02:46.124 --> 0:02:50.244 But like so, apart from the food, which was wonderful 0:02:50.684 --> 0:02:52.004 seeing these two countries. 0:02:51.604 --> 0:02:54.924 Back to back, where on the one hand, if you look. 0:02:54.804 --> 0:02:57.724 At the per capita GDP of Japan's may not be 0:02:57.884 --> 0:03:01.684 exactly precisely right, but like it's like basically the same 0:03:02.524 --> 0:03:04.484 as it was in the nineties, So the country has 0:03:04.524 --> 0:03:07.524 not really grown for for forty years now. 0:03:08.244 --> 0:03:10.364 Crazy where Korea. 0:03:10.044 --> 0:03:13.644 Has now per capital wise, caught up with Japan or 0:03:13.684 --> 0:03:18.844 surpassed it and feels more modern in certain ways. I mean, certainly, 0:03:18.884 --> 0:03:21.164 you know, Tokyo is a very comfortable place to live, 0:03:21.364 --> 0:03:25.204 but you know, solely the English they speak tends to 0:03:25.204 --> 0:03:27.804 be a little bit better. It's a little bit more 0:03:27.844 --> 0:03:30.644 modern in different ways. I think Korean culture, to make 0:03:31.804 --> 0:03:34.724 very broad way gay state has been this is like emerging, right. 0:03:34.724 --> 0:03:37.044 You have like all these oscar Ward winning films and 0:03:37.084 --> 0:03:40.524 the art we saw it was interesting, and you know, 0:03:40.604 --> 0:03:42.804 it's a culture that's gone from being for a long 0:03:42.804 --> 0:03:46.164 time a very poor country to being relatively wealthy in 0:03:46.164 --> 0:03:46.564 a hurry. 0:03:46.564 --> 0:03:47.164 It's interesting now. 0:03:47.164 --> 0:03:49.204 I was at both countries, but especially Korea have these 0:03:50.244 --> 0:03:52.964 very low birth rates, which is that's what we've talked 0:03:53.004 --> 0:03:55.244 about before. I guess neither of us have kids, so 0:03:55.284 --> 0:03:59.284 many were part of the problem, right, But like I know, 0:03:59.404 --> 0:04:02.604 just again dumb wake eye observations to arrive in this 0:04:02.644 --> 0:04:05.924 country that just as all of a sudden found itself 0:04:05.964 --> 0:04:07.604 as being like kind of a big player in the 0:04:07.644 --> 0:04:11.364 region and on the world stage. But now it's like, yeah, 0:04:11.444 --> 0:04:13.484 I think we're comfortable here, and maybe that's not It's 0:04:13.524 --> 0:04:15.844 just it's just interesting. I'm not sure how to how 0:04:15.884 --> 0:04:20.244 to like put without having too many stereotypes. I suppose, yeah, which, 0:04:20.284 --> 0:04:22.524 see the contrast back to back was fascinating to me. 0:04:22.964 --> 0:04:24.524 I'm sure it was. I'm sure it was. So. I've 0:04:24.524 --> 0:04:28.644 actually never been to Seoul, but I did last week 0:04:28.724 --> 0:04:32.604 watch Maybe Happy Ending on Broadway, which is a play 0:04:32.644 --> 0:04:37.204 about two robots uh in South Korea who end up 0:04:37.204 --> 0:04:39.484 falling in love and taking a trip to Jju Islands. 0:04:39.604 --> 0:04:42.404 So bonus shout out to poker players who like to 0:04:42.404 --> 0:04:45.284 play the Jju series. There is a poker scene in 0:04:45.364 --> 0:04:48.804 Korea as well, so so I I, you know, I 0:04:49.004 --> 0:04:50.764 felt like I was missing out on your trip, so 0:04:50.804 --> 0:04:53.884 I had to vicariously make it happen on Broadway. 0:04:54.324 --> 0:04:54.964 Yeah, we did. 0:04:54.844 --> 0:04:57.924 Travel only those two destinations, Seoul in Tokyo. So it's 0:04:57.924 --> 0:05:00.324 a little bit weird after a long year with elections 0:05:00.364 --> 0:05:03.604 and the podcast getting started, whatever else to like relax 0:05:03.684 --> 0:05:07.364 by going to these gigantic cities. But I think it 0:05:07.404 --> 0:05:10.044 was Actually I think we are grouped three of us 0:05:11.084 --> 0:05:13.004 we have planned maybe go to Kyoto or maybe we'll 0:05:13.044 --> 0:05:15.404 go somewhere else in Korea or both. And like I think, 0:05:15.484 --> 0:05:20.804 I think I advocate for having fewer yeah destinations, right. 0:05:20.764 --> 0:05:23.444 Yes, I'm actually with you. I think this is a 0:05:23.484 --> 0:05:26.804 good you know, we did our gto travel episode and 0:05:26.844 --> 0:05:30.124 I think this is actually what I find. I think travel, 0:05:30.244 --> 0:05:32.444 you know, is different for different people, but one of 0:05:32.484 --> 0:05:35.884 my travel tips is don't put too many destinations on there. 0:05:36.524 --> 0:05:39.844 And I actually prefer to go to just one place 0:05:40.044 --> 0:05:42.884 and uh and stay there. And I know every single 0:05:42.884 --> 0:05:45.124 person is different, but for me, I think that's like 0:05:45.244 --> 0:05:48.204 maxid for for a trip that you'll really get a 0:05:48.244 --> 0:05:51.724 lot out of. On that note, let's talk about the 0:05:51.884 --> 0:05:55.884 LA fires. Obviously, you know, much more serious, much heavier topic, 0:05:56.844 --> 0:05:58.724 but I think it's a really important one for us 0:05:58.764 --> 0:06:02.004 to discuss because obviously there are so many topics of 0:06:02.684 --> 0:06:07.724 risky decision making, risk perception, how we act on risky information, 0:06:08.684 --> 0:06:10.604 and I think we want to talk about it from 0:06:10.804 --> 0:06:13.324 two different perspectives, right one. And this is something we've 0:06:13.324 --> 0:06:15.284 talked about on the show before, but I think it's 0:06:15.284 --> 0:06:19.044 incredibly relevant and kind of relevant for the future and 0:06:19.124 --> 0:06:23.244 for the entire country, not just for California, which is 0:06:23.324 --> 0:06:26.724 the insurance angle, right, and the future of the insurance industry. 0:06:26.924 --> 0:06:30.284 How to think about risk from that perspective, both as 0:06:30.284 --> 0:06:33.684 the insurance company, but also as the individual purchasing property, 0:06:33.724 --> 0:06:36.884 purchasing or electing not to purchase insurance. And then I'd 0:06:36.884 --> 0:06:39.844 also like to talk about kind of the individual psychological 0:06:40.004 --> 0:06:43.404 risk perceptions here, not just the insurance component, but like, 0:06:43.724 --> 0:06:45.964 you know, what happens if you're in one of these zones, 0:06:45.964 --> 0:06:48.484 how do you handle risk? How do you respond? I 0:06:48.524 --> 0:06:54.364 think that those are two related but distinct areas, and 0:06:54.404 --> 0:06:58.204 I think that both are really interesting and core core 0:06:58.324 --> 0:07:03.844 risky decision metrics. So let's start with the insurance angle. 0:07:04.724 --> 0:07:08.564 We've talked a little about this before in California, not 0:07:08.684 --> 0:07:11.004 just in California, all over the country, you know, Florida, 0:07:11.204 --> 0:07:15.964 some other states. Insurance have been pulling out of regions 0:07:16.084 --> 0:07:21.924 where the risk of disasters natural disasters has risen, and 0:07:22.084 --> 0:07:23.924 that is a lot of different parts of the country. 0:07:24.684 --> 0:07:27.324 And in the last few years insurers have started using 0:07:27.364 --> 0:07:32.124 different models, right, because insurance isn't backwards looking business in general, right, 0:07:32.164 --> 0:07:34.604 you look at risks and then you try to kind 0:07:34.604 --> 0:07:37.924 of extrapolate, and that's not working anymore with climate change, 0:07:37.964 --> 0:07:41.164 with all of these things happening, and so especially I 0:07:41.164 --> 0:07:44.804 don't know whether all insurance companies are doing this, but 0:07:45.324 --> 0:07:47.764 I know that a lot of insurance companies and a 0:07:47.764 --> 0:07:50.204 lot of the insurers in California have started using AI 0:07:51.004 --> 0:07:53.524 and other things to try to change their risk models 0:07:53.604 --> 0:07:56.404 to take into account the fact that the world is changing. 0:07:56.844 --> 0:08:02.204 And they even flagged the Palisades as an incredibly dangerous area. 0:08:03.084 --> 0:08:06.604 And so some of those you can't get insurance anymore. So, yeah, 0:08:06.644 --> 0:08:08.804 let's let's talk about it. Let's hear some of your 0:08:08.844 --> 0:08:11.404 thoughts on this process and on what it means. 0:08:12.804 --> 0:08:15.244 Yeah, So, in addition to the challenge with doing any 0:08:15.244 --> 0:08:17.964 type of statistical modeling, which is always more difficult than 0:08:17.964 --> 0:08:23.324 people want to let on, if you have disaster risk 0:08:23.364 --> 0:08:26.764 it's affected by climate change, then you don't really have 0:08:26.804 --> 0:08:31.764 an empirical baseline, right, You're probably doing more elaborate forms 0:08:31.764 --> 0:08:34.084 of modeling or maybe actually trying to do some climatology 0:08:34.164 --> 0:08:36.164 or whatever else. Right, But it's a lot of like 0:08:37.284 --> 0:08:40.924 educated guesswork. I guess, i'd say, right from what little 0:08:40.924 --> 0:08:44.644 research I've done on you know, what's the effect of 0:08:44.684 --> 0:08:46.884 climate change and particular types of disasters. 0:08:47.764 --> 0:08:50.804 I think it's not quite so linear as you might assume. 0:08:50.844 --> 0:08:53.644 It's probably bad, but. 0:08:53.564 --> 0:08:55.524 You know, some of the models say, for example, that 0:08:55.604 --> 0:08:59.164 the hurricanes are fewer hurricanes, but they're more severe, probably worse. 0:08:59.284 --> 0:09:03.084 Net from like a climate modeling perspective, right to a 0:09:03.084 --> 0:09:06.124 fewer but more devastating storms, and we had some this year, 0:09:07.244 --> 0:09:09.884 it's probably worse. But you know, if you're seeing you 0:09:09.924 --> 0:09:12.164 get into different problems, you also get an issue that 0:09:12.284 --> 0:09:15.684 like it's not like a thing where like, I know, 0:09:15.804 --> 0:09:17.844 if you have like some home insurance, we're like, oh, 0:09:17.884 --> 0:09:21.044 my home gets broken into whatever. Like that's more stochastic 0:09:21.924 --> 0:09:24.684 and random, not perfectly. There's probably some correlation, whether there's 0:09:24.724 --> 0:09:27.444 some gang of I don't know, bandits or thieves or whatever. 0:09:27.484 --> 0:09:31.044 But like, but you know, if this disaster all comes 0:09:31.044 --> 0:09:33.444 at once and all of well not all of Los Angeles, 0:09:33.484 --> 0:09:36.004 should emphasize. By the way, LA is a very it's 0:09:36.044 --> 0:09:39.004 a very large area. I mean I was very briefly 0:09:39.084 --> 0:09:42.124 in LA on the way home, and you know, we 0:09:42.124 --> 0:09:44.924 were in the part of LA which wasn't on fire. 0:09:46.524 --> 0:09:48.684 But it's a very large area and certainly the you know, 0:09:48.804 --> 0:09:51.764 expensive area too, and so so you know, one issue 0:09:51.844 --> 0:09:53.884 is like the modeling issue. 0:09:54.084 --> 0:09:57.684 So yes, so we have we have these issues of modeling. 0:09:57.964 --> 0:10:01.404 But even even with those problems, I think that you 0:10:01.404 --> 0:10:05.044 know something that you just started mentioning is when you 0:10:05.084 --> 0:10:07.764 have risks that are highly correlated, right, it's very very 0:10:07.764 --> 0:10:12.804 difficult to to try to figure out, Okay, how much 0:10:12.844 --> 0:10:15.884 should I charge in premiums. And in some place like California, 0:10:15.924 --> 0:10:19.684 you also have another thing where there's regulation right where 0:10:19.684 --> 0:10:22.804 insurance companies are required to have a certain number of reserves. 0:10:23.044 --> 0:10:26.044 Until very recently, they couldn't raise their premiums as much 0:10:26.044 --> 0:10:28.724 as their models said they needed to raise their premiums. 0:10:28.764 --> 0:10:31.004 So instead they just said, okay, fine, like fuck it, 0:10:31.044 --> 0:10:33.364 we're not going to ensure these places like you can't 0:10:33.364 --> 0:10:36.604 renew your insurance, you can't, you can't do anything. And 0:10:36.684 --> 0:10:39.924 that puts a lot of people in very difficult situations. 0:10:40.204 --> 0:10:42.444 And the areas that are burning in La Sure, you 0:10:42.484 --> 0:10:46.524 have the Palisades with some incredibly expensive housing, some of 0:10:46.564 --> 0:10:49.124 the most expensive real estate in the country, but then 0:10:49.164 --> 0:10:52.284 you also have parts of you know, Altadena and other 0:10:52.364 --> 0:10:55.044 parts of LA where there are lots of people who 0:10:55.564 --> 0:10:59.364 are poor, who have been there forever. And you know 0:10:59.404 --> 0:11:02.324 what in the world happens right when you can no longer, 0:11:02.404 --> 0:11:04.964 when either the insurance says we won't ensure you or 0:11:05.004 --> 0:11:07.404 the premiums are so expensive, then you're like, I can't 0:11:07.444 --> 0:11:11.164 afford this anymore. You do, and there are families that 0:11:11.284 --> 0:11:13.324 chose like last year, right, I'm not going to renew 0:11:13.324 --> 0:11:15.484 my insurance coverage, and then this happens. 0:11:16.164 --> 0:11:17.324 Yeah. Look, I mean. 0:11:19.004 --> 0:11:22.004 This has been in the news a lot because of 0:11:22.084 --> 0:11:27.204 like these beautiful, glamorous properties and like outside Malibu when 0:11:27.204 --> 0:11:29.844 the Palisades burning, for example, but like, yeah, it's affected 0:11:29.844 --> 0:11:30.404 all types of. 0:11:30.324 --> 0:11:32.404 Areas of LA and LA is like more of a. 0:11:33.844 --> 0:11:37.724 More of a middle class kind of working class town 0:11:37.804 --> 0:11:41.604 than I think some people realize. Really, right, the average 0:11:41.604 --> 0:11:47.164 per capita income isn't that high, you know. Look, so yeah, 0:11:47.164 --> 0:11:48.924 there are these three issues, like we mentioned with insurance. 0:11:48.924 --> 0:11:51.364 One is that the modeling itself is difficult, involves a 0:11:51.444 --> 0:11:54.964 moving target. A second is that there's some degree maybe 0:11:55.044 --> 0:11:57.724 less so with like home insurance, but some degree of 0:11:57.844 --> 0:12:00.964 adverse selection is a term where if you're someone who 0:12:00.964 --> 0:12:05.004 buys insurance and not everybody does, and maybe you're more 0:12:05.044 --> 0:12:07.084 of a risk than the model would let on, right, 0:12:07.124 --> 0:12:08.844 you're buying insurance. I mean the anauochy I give is 0:12:08.884 --> 0:12:13.804 like if you have like an all you can eat buffet, right, 0:12:14.764 --> 0:12:17.644 there is adverse selection for who comes and eats at 0:12:17.644 --> 0:12:18.324 the all you can. 0:12:18.204 --> 0:12:19.724 Eat the fe right. 0:12:19.804 --> 0:12:21.524 Probably if you don't you don't want to have it 0:12:21.604 --> 0:12:23.404 all you can eat buffet set up outside like a 0:12:23.484 --> 0:12:26.284 sumo wrestling tournament for example. 0:12:27.004 --> 0:12:29.204 That's another that's a business model. 0:12:29.564 --> 0:12:32.084 Yeah, and that if you know, for some people, the 0:12:32.124 --> 0:12:34.604 expected value of insurance, I mean you know this is complicated. 0:12:34.684 --> 0:12:36.004 On the one hand, it has to do with like 0:12:36.924 --> 0:12:41.884 hedging catastrophic risk and diminishing marginal returns. Right, Like if 0:12:41.924 --> 0:12:45.724 your home is worth two million dollars, your net worth 0:12:45.884 --> 0:12:50.204 is four million dollars, so it's half your net worth, right, Well, 0:12:50.244 --> 0:12:53.964 then probably in principle there is negative expected value for 0:12:54.044 --> 0:12:56.084 most forms of insurance in terms of like the pure 0:12:56.204 --> 0:12:59.284 dollar amount. Right, the risk of your house burning is 0:12:59.284 --> 0:13:04.164 supposedly lower than than the premium that you get from it. 0:13:04.284 --> 0:13:06.444 But you know, you much rather pay the small amount 0:13:06.484 --> 0:13:09.604 then than have to have to uh lose half your 0:13:09.604 --> 0:13:13.404 net worth in one inverno basically, But yeah, the third 0:13:13.444 --> 0:13:17.244 issue is at California is a state with lots of 0:13:17.324 --> 0:13:22.524 I wouldn't even say well intended regulations necessarily. I mean 0:13:22.524 --> 0:13:26.324 it's I don't think it's the most economically literate state, frankly, 0:13:27.724 --> 0:13:32.564 or the postumakers are especially smart, uh, frankly, but you know, 0:13:32.604 --> 0:13:34.404 based in a combination including by the way, some of 0:13:34.404 --> 0:13:39.044 these are things that like are ballot measures passed by 0:13:39.204 --> 0:13:40.844 you know, to stay with a bunch of referendum right, 0:13:40.844 --> 0:13:44.564 everything goes to direct democracy. People like me might think 0:13:44.604 --> 0:13:47.844 this is kind of wonderful in the abstract it's ruled 0:13:47.884 --> 0:13:50.404 by true democracy and not ruled by the expert class, 0:13:50.444 --> 0:13:50.884 et cetera. 0:13:50.964 --> 0:13:52.604 But like it creates issues. 0:13:52.644 --> 0:13:55.364 I believe the rules that basically any insurance increase has 0:13:55.404 --> 0:13:59.364 to be appointed by an insurance commissioner in California, which 0:13:59.404 --> 0:14:02.284 is like a regulated industry, instead of kind of letting 0:14:02.284 --> 0:14:06.284 them market take care of it. So, yeah, these insurance 0:14:06.284 --> 0:14:09.684 cups are correct. I think to say that if you 0:14:09.724 --> 0:14:12.764 have limits on what we can charge and we have 0:14:13.244 --> 0:14:15.964 now have negative expected value, then fuck you, We're not 0:14:16.004 --> 0:14:17.524 going to offer insurance in the first place. And that's 0:14:17.524 --> 0:14:20.004 a rational reaction. 0:14:20.404 --> 0:14:20.724 I think. 0:14:20.764 --> 0:14:23.484 On top of the other risks, it is completely rational. 0:14:23.564 --> 0:14:25.364 I mean, you have to remember that insurance companies are 0:14:25.404 --> 0:14:29.044 also businesses, right, They're not pro bono organizations. This is 0:14:29.084 --> 0:14:32.084 not like a federal relief fund that is there to 0:14:33.004 --> 0:14:36.364 catch you it is. It is something that you know, 0:14:36.404 --> 0:14:39.204 even if the returns are low, you need some positive returns. 0:14:39.284 --> 0:14:41.364 It's not a business that's going to be a money 0:14:41.444 --> 0:14:44.964 losing business. And so you understand that, but then you 0:14:45.124 --> 0:14:47.524 end up in this situation where like, what the fuck 0:14:47.564 --> 0:14:48.004 do you do? 0:14:48.404 --> 0:14:48.564 Right? 0:14:48.604 --> 0:14:51.764 If I am a person who you know has always 0:14:51.804 --> 0:14:54.964 lived in California and who lives in California and I, 0:14:55.084 --> 0:14:58.884 you know, my house burned down, what do I do? Right? Like? 0:14:59.044 --> 0:15:02.524 It puts people in these impossible situations, and it's it's horrible, 0:15:02.804 --> 0:15:07.404 Like I you know, I'm just a little bit of editorializing, 0:15:07.484 --> 0:15:10.044 but like we shouldn't be in a situation where people are, 0:15:10.204 --> 0:15:13.604 you know, sharing GoFundMe campaigns for everyone, right like that 0:15:13.604 --> 0:15:16.564 that shouldn't be the case. There should be especially if 0:15:16.604 --> 0:15:19.804 you're somewhere like California where you know this is a 0:15:19.844 --> 0:15:22.204 thing there, they should figure out a way to make 0:15:22.204 --> 0:15:25.604 this work or you know, or not and just not 0:15:25.764 --> 0:15:28.004 let people live there. You know that it's kind of 0:15:28.004 --> 0:15:32.284 one of these one of these very very stark contrasts. 0:15:33.524 --> 0:15:37.124 Yeah, look, I mean there is a backup state program 0:15:37.164 --> 0:15:39.004 called Fair fai R. 0:15:40.604 --> 0:15:42.644 The mechanics are a little bit complicated. 0:15:43.924 --> 0:15:45.404 It looks like if it runs, I mean, you know, 0:15:45.444 --> 0:15:48.364 you can buy a premium, right, it's not particularly cheap. 0:15:49.684 --> 0:15:52.044 If fair overall runs out of money, I think there's 0:15:52.044 --> 0:15:56.244 some pocket they're taking from private insurers who are selling 0:15:56.324 --> 0:15:59.244 insurance in California, which ultimately makes insurance more expensive to 0:15:59.284 --> 0:16:01.684 sell in California. And so you know, it's one of 0:16:01.684 --> 0:16:04.364 these other perverse incentives. But but there is there is 0:16:04.404 --> 0:16:06.764 that option at least available up to some limit, I 0:16:06.764 --> 0:16:09.524 think up to three million dollars worth of coverage. So 0:16:09.924 --> 0:16:13.644 let me be a little bit of the turn in 0:16:13.644 --> 0:16:18.524 the punch bowl for a second. Right, you don't see 0:16:18.524 --> 0:16:22.004 a lot of efforts to like be honest and forthright 0:16:22.044 --> 0:16:25.284 about the about the fire risk here, right with the 0:16:25.284 --> 0:16:28.244 way different properties are built and the amount of distance 0:16:28.284 --> 0:16:30.164 between for example, the amount of distance between this. 0:16:30.364 --> 0:16:34.044 Like shrubbery, what's called chaparral or chaparral. How do you 0:16:34.044 --> 0:16:34.364 say that? 0:16:34.724 --> 0:16:36.564 Yeah, I don't know. That's one of those words that 0:16:36.604 --> 0:16:38.004 I read and never say out loud. 0:16:38.084 --> 0:16:40.244 So I've never said that word out loud, have. 0:16:40.244 --> 0:16:52.084 I know I have good syndrome. There are so many chaparral, chaparral, chaparral, chaparral. 0:16:52.164 --> 0:16:54.284 I don't know if I like how that AI bought 0:16:55.924 --> 0:16:56.364 said that. 0:16:57.764 --> 0:16:59.644 But you have a lot of this kind of shrubbery 0:16:59.724 --> 0:17:04.564 and they're not like forests per se. They're catching on fire, right. 0:17:04.604 --> 0:17:08.404 I mean, if you've been to California maybe get a 0:17:08.444 --> 0:17:10.764 little bit of this and Vegas then not quite right. 0:17:10.804 --> 0:17:15.044 But you have those kind of dry, bushy area, right, 0:17:15.124 --> 0:17:18.284 it's not super dense, but where fires can to spread 0:17:18.884 --> 0:17:21.004 pretty fast. Right, they're not doing a lot of cultivation. 0:17:21.044 --> 0:17:23.684 You can do controlled burns and areas that are fire risks. 0:17:23.724 --> 0:17:26.844 There is reluctance to do that. Whenever you do one 0:17:26.884 --> 0:17:28.644 of those things, you have to go through five years 0:17:28.644 --> 0:17:31.924 of regulation and environmental studies and whatever else. Right, But 0:17:32.284 --> 0:17:35.444 there's not a lot of honesty about like the way 0:17:35.564 --> 0:17:39.284 these properties are designed to mitigate fire risk. And maybe 0:17:39.284 --> 0:17:41.284 that will be there will be more now, right, but 0:17:41.404 --> 0:17:44.884 like you know, and that kind of puts homeowners at risk, 0:17:45.004 --> 0:17:49.644 and so you know, so if your home can be 0:17:49.844 --> 0:17:54.284 covered by insurance, then that can create a moral hazard. 0:17:54.324 --> 0:17:57.484 It's the other famous insurance turn along with ever selection, right, 0:17:57.524 --> 0:18:00.044 where like if I am covering, I mean the classic 0:18:00.044 --> 0:18:04.004 example is like the bank bailouts, right, where if the 0:18:04.044 --> 0:18:08.404 government steps in and prevents whichever companies Morgan Stanley you 0:18:08.484 --> 0:18:10.324 I want to accuse because companies, I'm sure all the 0:18:10.404 --> 0:18:13.364 all the all the big Wall Street firms had like 0:18:13.404 --> 0:18:15.444 something's evolved, right, But if they're going to come and 0:18:15.484 --> 0:18:19.444 bail you out if you fuck up, h then you 0:18:19.484 --> 0:18:22.564 have an incentive to like make risk your bets, right. 0:18:22.604 --> 0:18:26.924 And I don't think homeowners individually are are quite as 0:18:26.964 --> 0:18:29.124 calculating as like the banks might be. But like I 0:18:29.364 --> 0:18:32.324 almost as a rule that like, if you create a 0:18:32.444 --> 0:18:35.044 rule where there is financial upside to basically what we 0:18:35.164 --> 0:18:38.724 what we term like an exploitative strategy in poker, right. 0:18:40.164 --> 0:18:41.404 Then people will exploit that. 0:18:41.444 --> 0:18:44.484 In the capitalist system, people will build right up to 0:18:44.524 --> 0:18:48.444 the edges kind of figured oily or literally, and so 0:18:48.484 --> 0:18:51.044 that can be that can be a problem to potentially, Yeah, I. 0:18:51.044 --> 0:18:53.844 Think this is a good kind of pivot point to 0:18:53.844 --> 0:18:56.604 to looking at this from the individual side as opposed 0:18:56.604 --> 0:19:00.884 to from the from the insurance company side. Because people, 0:19:01.124 --> 0:19:04.364 you know, when we've we talk about this all the time. 0:19:04.404 --> 0:19:08.484 People are not rational when they're evaluating risks, and they're 0:19:08.844 --> 0:19:11.204 especially not rational when it's like a personal thing like 0:19:11.444 --> 0:19:13.644 you know, I've always lived in this area, right, or 0:19:14.244 --> 0:19:16.404 or you know, I you know, I want to do this. 0:19:16.564 --> 0:19:20.404 And sometimes they're gamblers, right, sometimes they're actually risk seeking 0:19:20.404 --> 0:19:23.524 in this particular case because they kind of take the 0:19:23.564 --> 0:19:26.884 gamble that, oh, sure, like there's a risk of a fire, 0:19:26.924 --> 0:19:30.084 but like my house isn't going to burn down because 0:19:30.084 --> 0:19:33.724 it hasn't burned down for you know, however many years, 0:19:34.124 --> 0:19:36.524 and there are properties. So one of the one of 0:19:36.524 --> 0:19:38.604 the places that burned one of the businesses that burned 0:19:38.604 --> 0:19:42.564 down in La is real In, where I've been. You've 0:19:42.604 --> 0:19:44.724 probably been there too. It's on the way kind of 0:19:44.764 --> 0:19:47.004 on the road to Malibu. There's only one road by 0:19:47.004 --> 0:19:49.884 the way, which is also not great in terms of 0:19:50.764 --> 0:19:53.724 natural disaster and like trying to get away and trying 0:19:53.724 --> 0:19:55.444 to get the fuck out of there when it's burning, 0:19:55.764 --> 0:19:58.284 which is why people have had to abandon cars and 0:19:58.924 --> 0:20:01.124 bad things have happened. But real In burned down and 0:20:01.164 --> 0:20:03.924 it was there for I think over thirty five years, right, 0:20:04.004 --> 0:20:07.244 that specific business. But if you've been there for thirty 0:20:07.244 --> 0:20:09.964 five years. You think, oh, well, yes, they're fire risks 0:20:10.044 --> 0:20:13.604 in Malibu, blah blah blah. But we've always been fine, right, 0:20:13.644 --> 0:20:16.604 so we're going to just continue to be fine. People 0:20:16.684 --> 0:20:20.844 do have this tendency to be ostrich, like right, ostriches 0:20:20.884 --> 0:20:22.604 are the ones that bury their hand in the sand, 0:20:22.724 --> 0:20:26.164 and do I have the right analogy? And you want 0:20:26.244 --> 0:20:28.804 to when it's convenient to ignore these things. You want 0:20:28.804 --> 0:20:30.844 to ignore it because you want to be comfortable, Like 0:20:30.884 --> 0:20:33.164 you don't want to make the tough decision of saying, Okay, 0:20:33.204 --> 0:20:34.564 you know what, we need to sell our house and 0:20:34.604 --> 0:20:36.764 we need to move to a different part of the state. 0:20:36.804 --> 0:20:38.844 We need to move all the way out of California. Like, 0:20:38.964 --> 0:20:41.324 people don't want to make those hard decisions, and so 0:20:41.404 --> 0:20:43.924 instead of doing that, they're just going to fudge the 0:20:44.124 --> 0:20:47.564 risk in their mind and take something which to us 0:20:47.604 --> 0:20:51.164 looks like, you know, an irrational or very gambly decision, 0:20:51.404 --> 0:20:54.444 which might not actually align with their risk preferences. Right. 0:20:54.684 --> 0:20:57.604 I doubt that all the people who had houses that 0:20:57.644 --> 0:20:59.804 burned down were risk seeking. Some of them might not 0:20:59.844 --> 0:21:02.084 have cared, right, like some of the If you're very 0:21:02.084 --> 0:21:05.124 wealthy and you just say, Okay, if my house burns down, fine, 0:21:05.124 --> 0:21:07.404 I'll just rebuild, right, Like, That's that's one way of 0:21:07.444 --> 0:21:10.044 looking at it. But I'm talking about like the lower 0:21:10.084 --> 0:21:13.284 middle class people who aren't thinking that way. They might 0:21:13.324 --> 0:21:16.404 appear risk seeking because of that choice, but in their 0:21:16.444 --> 0:21:22.204 minds they're not right. They just they do they miscalculate willfully, 0:21:23.244 --> 0:21:23.884 if that makes sense. 0:21:23.964 --> 0:21:26.364 Yeah, I mean there's a famous story for my book 0:21:26.404 --> 0:21:30.524 where Elon Musk sells his first company, buys a McLaren 0:21:30.964 --> 0:21:33.084