Marketplace - Who insures the insurers?

Episode Date: November 5, 2024

Back-to-back Hurricanes Helene and Milton caused billions in damage. How are insurers going to pay for it all? Turns out, insurance companies have their own insurance. But as disasters get more severe and more frequent, “reinsurance” isn’t covering what it used to. Also in this episode: Boeing has major catch-up to do, an abandoned oil field could become a lithium extraction hotspot, and small businesses seem hesitant to cut health benefits.

Hey, if you're listening to this, I will assume you're at least interested in money, understanding the economy and finances as well. Some of us now want to get the next generation interested as well. Check out Million Bazillion, Marketplace's award-winning kids podcast that breaks down money to help dollars make more sense. Tune into Million Bazillion wherever you find your favorite podcasts. A whole new season is out now. Million Bazillion is presented in partnership with Greenlight,

the debit card and money app for kids and teens. Greenlight helps kids and teens learn to earn safe, spend wisely, and invest. When you sign up for a Greenlight account at greenlight.com slash million. Ladies and gentlemen, it's now safe to move about the cabin of your domestically made mid-sized commercial aircraft. From American public media, this is Market Flats. In Los Angeles, I'm Kyle Rizdall. It is Tuesday today, November the 5th.

Good as always to have you along, everybody. 59% was the winning margin. Speaking here, of course, of the vote by the International Association of Machinists and Aerospace Workers, accepting Boeing's most recent contract offer, which means they can get back to work as soon as this week, which the company will be more than happy to have happen because there is no shortage of work to do. The plane maker reported a backlog of more than 6,000 planes earlier this fall. And that is not just a Boeing problem. Airbus, the other big commercial aircraft maker

on this planet, has a similarly ginormous backlog. Marketplace's Henry Epp gets us going with the aviation industry's backups. Boeing's turbulent year started with that door plug blowout back in January, after which the federal government limited the company's capacity to build new planes. But there are underlying factors that have made everything a lot harder, going back to, surprise, the pandemic.

After the pandemic, actually, we observed a huge demand increase in both air freight and passenger site. Fakri Karanke is an assistant professor at Purdue University. As airlines saw more demand to carry people and things post-pandemic, they ordered more planes. The problem was… COVID really did incredible damage to the highly technical aerospace and defense manufacturing supply chain. Peter Arment is a managing director at RW Baird, which is a marketplace underwriter.

Hundreds of small companies around the globe supply crucial components to the two big aircraft manufacturers. And Arment says when pandemic lockdowns hit, a lot of older skilled workers at those suppliers left and didn't come back. It has affected the productivity side, and it's just going to take time for that to heal. But even before the pandemic, a lot of those suppliers were already struggling

after Boeing shut down production of its popular 737 MAX model following two deadly crashes. Robert Mann is an independent aviation consultant. When you shut down your ubiquitous airplane, you force your suppliers to either eat their inventories or in some cases go out of business because they can't sell them. Then COVID disruptions led to a lot of the remaining suppliers dealing with supply chain issues of their own. So you're just jerking the supply chain over and over again and expecting somehow magically for it to recover. But it hasn't, Mann says, which has contributed to large backlogs. And they are holding back the airlines, says Henry Hardewelt at Atmosphere

Research Group. Either they're operating older, more costly, less fuel efficient planes longer, or they're not even operating all of those planes. Maybe they have to be retired and they shrink. If they don't get more new planes soon, Hardewelt says, passengers could start to feel it. I'm Henry Epp for Marketplace. We cannot, of course, know when we're going to have definitive election results, tonight or later.

What we can tell you is that the policies of whoever does eventually win are going to affect this economy for years to come, which gets me to this. The Fed, which is going to have to react to those policies, meets tomorrow and Thursday on interest rates. Wall Street today, again, look not for political signals in market movements. Details, estimated, once all said and done, to be somewhere in the neighborhood of $100 billion. And a lot of that, yes, is going to be covered by insurance, but $100 billion is real money, even to the biggest of the big insurance conglomerates. Nevertheless, they are likely to be able to absorb it without too much of a problem,

thanks to something called reinsurance. Marketplace's Sabri Benishuar has that one. Last week, we profiled a small business owner, Hannah Bernisky, working to rebuild her art business in North Carolina. Sarah Wells-Roland is going through something very similar. She started the Village Potters Art Collective in Asheville, North Carolina in 2011. We probably teach approximately 80 to 100 students a week, and people come from all over the country. Well, they did, until Hurricane Helene sent 26 feet of water through the building. And flooded all the way up to the second floor.

37 wheels, 17 kilns, tables, slab rollers. I mean, it's astronomical. One of the very few silver linings here is that Wells Rowland had insurance through FEMA, which is covering some of the damage. We lost about $500,000 worth of equipment and it's $166,000, but it's sure gonna help. Well, as Roland and her husband have set up a GoFundMe and are applying for grants and meanwhile trying to repair mud caked motors in a borrowed barn, we don't actually yet know exactly how much insurance companies are gonna be on the

hook for from the recent hurricanes, but there are estimates. So for Hurricane Helene, we have put a range of $6 billion to $11 billion. And for Hurricane Milton, we've put a range of $30 billion to $50 billion. Rob Neubold is president of the Extreme Events Solutions Team at Verisk, which provides analytics to the insurance industry.

And as huge as these numbers are, the biggest insurers will probably have no problem covering it. There are different types of loss events for the insurance industry. One is a so-called earnings event. An earnings event is the sterile term in insurance world for a disaster or situation that might reduce an insurance company's profits, might eat up a lot of the premiums they take in, but it's manageable. Hurricanes Helene and Milton were that for big insurers.

They're that big. It's possible for smaller insurers, though, they were another kind of disaster. The so-called solvency event? That is when the damage is so bad, it affects the insurance company's actual viability as a business. And it is in these situations that insurance companies need insurance themselves. Insurance for insurance companies. James Eck is a

senior credit officer at Moody's ratings. The word for this is reinsurance. Even FEMA buys reinsurance. It works because reinsurance only kicks in at a certain level of desperation. Reinsurers are not constantly paying out to insurance companies. And reinsurance firms can spread out their risk by selling policies all over the world. So a reinsurer might have property exposure in Florida, but it could also have exposure in Japan for earthquakes or typhoons. The size of the global reinsurance market was $585 billion in 2023, according to Spherical Insights, and it's predicted to grow to $1.3 trillion by 2033.

Like for a lot of regular insurance, the premiums for reinsurance have been rising the past few years, in part because of the cost of the damage done by storms and wildfires. Tim Zouaki is a principal research analyst at S&P Global Market Intelligence. After 2022 when Hurricane Ian hit Florida, the 2023 reinsurance renewals were particularly challenging for the industry. The 2023 reinsurance renewals were particularly challenging for the industry. Reinsurance rates that insurance companies have to pay can go up as much as reinsurers say they need to. But insurance rates that we pay are often limited by state regulators, which puts some insurance companies in a bind.

North Carolina insurance companies recently asked for permission to raise home insurance rates by more than 50%. They probably won't get all of it, but they'll get some. Whatever the outcome of that filing happens to be, I think will have a meaningful impact on homeowners in the state. Meanwhile, reinsurance companies have been less and less inclined to cover regular weather, leaving insurance companies to deal with it themselves. So sometimes insurers will then cover less and less or they can't make the math work and then they just stop operating in certain places.

At least one insurer in North Carolina said it was closing down shop even before the recent day. Open enrollment is upon us here at Marketplace World Headquarters and for a lot of other companies and health plans too, including the Exchanges for the Affordable Care Act, which means a lot of us are going to be crunching the numbers, trying to figure out how much more our premiums are going to set us back next year. Employers for sure calculate carefully as they decide what kinds of plans they will offer, how much they'll pay for, what's covered, what's not.

As of September, companies were paying about 3.5% more for healthcare than they'd been paying a year earlier. We learned that from the Employment Cost Index that the Bureau of Labor Statistics released last week. Marketplace's Kimberly Adams takes it from there. Higher costs for labor, new expensive drugs and services being added to plans, these are just some of the factors

driving up health care costs. And as much as patients hate the higher premiums, they are tough for businesses as well. Especially, says Richard Trent, executive director of advocacy group Main Street Alliance, small businesses. When small business owners have to contend with these elevated prices, it means that that's money that they're spending that they could be spending elsewhere. New employees, additional equipment.

It eats into profit margins. It also impacts things like recruiting and retaining top-tier talent. Because, in a tight labor market, the health plan you offer can be a big factor in convincing someone to come work for you. But if the labor market softens, employers will have more leeway to cut their health care spending. Employer costs may go down if employers decide, I can really offer less generous coverage. Kosalee Simon is a health economist at Indiana University Bloomington.

But when I'm using health insurance as a way to recruit and retain my workers, I have to be careful in how much I use those kind of tools. A lot of small businesses seem hesitant to cut benefits. 49% told the National Federation of Independent Business that they just took a hit to company profits and eight rising healthcare costs. 46% raised prices on their goods or services, but 18% say they've shifted more of the cost to employees.

More broadly, for workers. Over a five-year period, health insurance premiums are going roughly on par with inflation and workers' earnings. Matthew Ray is an associate director at KFF, which regularly surveys employers about the total cost of their health care plans to them and their employees. The average family health insurance plan now costs over $25,000, which is just a lot of money no matter which way you cut it. But says Ray, the share that employees have to chip in has been growing relatively slowly compared to the past. In Washington, I'm Kimberly Adams for Marketplace. We're coming into the busiest retail season of the year for all kinds of retailers including Rita Magalve.

She owns Sheer Ambrosia. It's a bakery that specializes in baklava. Since last we heard from her, she's moved her business out of her home and into a commercial kitchen in Salt Lake City. It's great. It's, you know, it's 600 square feet and originally I thought, wow, this is going to be really small. But the truth is, when you compare it to a home kitchen, it's quite large. So it's just enough space for me to work in here comfortably with at least three other people. I hired one gal. Her name is Nina, and she is from Afghanistan. She's amazing. She doesn't

speak a lot of English. And I thought, you know what, it's really not that big of a deal because I learned to make baklava from someone I didn't understand. Remember the little Greek lady that I basically watched her make it. And so that's what Mina did. We just made it together and I would just, whenever she would make a mistake, I would just show her, you know, with my hands and, you know, a lot of eye contact, a lot of giggling, a lot of just pantomime.

This space that my realtor found for me, the rent isn't too crazy, but it was a shell. There was basically no walls. I mean, it was just, there wasn't even a cement floor, just gravel and rebar. So we had to spend, I had to spend $70,000 so I had to take out a loan. I took out an SBA loan so you know there was no money left over for marketing or you know anything else. It's been a lean summer and so that's why it was so important, I felt, for me to start launching some other products besides the baklava. I've always baked other things for my friends and family, but it was just hard for me to kind of launch new products from home. And so now that I'm in this space, I'm launching my granola chocolate chip cookies, Gran Biedes, which is a Greek butter cookie.

It was actually the first Greek pastry that ever learned how to make. I'm doing a gift crate this year, and I'm having a local carpenter make those for me these super cute crates so we're gonna have a really fun holiday season it's gonna be a little bit different because we're not just doing baklava. Ruta Magali baking not just baklava in her new commercial kitchen in Salt Lake City, UT. Coming up. We knew the lithium was high already. Industry has been interested in this topic for many years.

A hot topic indeed, but first let's do the numbers. Dow Industrial is up 427 points, 1% 42,221. The NASDAQ surged 259 points, that's about 1.4% there. 18,439, the S&P 500 added 70 points, 1 and 2 tenths percent, 5782. Sabrina was telling us about the world of reinsurance. So, some of the companies providing that service include Reinsurance Group of America,

clever, headquartered in Missouri, increased two-thirds of 1%. Today, Everest Group, based in Delaware, ascended 2%. Renaissance Re, out of Bermuda, grew 1% on the day. Today is, in addition to that other thing, National Donut Day. So, sweet fried dough, anybody? Krispy Kreme, traded under the ticker symbol. Come on.

Yeah, you're not gonna get it. DNUT. Sweetened 3 and 3 tenths percent. Restaurant Brands International, which owns Tim Hortons, descended 2.6 percent. J.M. Smucker, which owns Hostess Brands, which I would submit aren't really donuts to begin with.

Gave up 2 and 4... Was up, rather, 2 and 4 tenths percent today. You're listening to Marketplace. What do they say? More money, more problems, and way more questions? From your kids, right? But not to worry. Million Basilion, a podcast from Marketplace, has you covered. I'm Bridget Bodner, and with my co-host, Ryan Prez, we take you and your young ones on grand adventures and comedic sing-alongs to answer all the questions your little ones have about money. Join us as we explain how banks work, why name brands are more expensive, and what happened to Black Friday sales.

Listen to Million Bazillion wherever you get your podcasts. This is Marketplace. I'm Kyle Rizdal. We get reminders with surprising regularity of how fragile our global economic ecosystem is. Sometimes it's infrastructure, sometimes it's a pandemic, sometimes it's natural disaster and tragedy. It's been a week since the devastating flooding in and around Valencia in eastern Spain. More than 200 people are known to have died and unknown number are still missing. Along with major damage to homes and businesses and roads, farms were flooded as well, a lot of them. And that could affect the food supply chain and thus food prices over in Europe and the UK. Marketplace of

Samantha Fields has that one. Spain is the biggest producer of oranges and other citrus fruit in Europe and one of the biggest in the world. The famous product is Valencia oranges. Valencia oranges have a storied history. William Masters at the Friedman School of Nutrition at Tufts says in addition to those famous oranges, Spain is an important agricultural producer. Olives and many other crops, tomatoes, for example.

Lots of other vegetables, too. And rice is another big one. David Ortega at Michigan State University says we don't yet know the full extent of the damage to crops and fruit trees. But... These floods will likely lead to higher grocery prices for things like

citrus and some vegetables in Spain. But it can also affect European markets that rely on Spanish imports, especially during the winter months. And UK markets, too. Spain supplies 25% of Britain's fruit imports, but also 8% of its vegetable imports. The UK and EU countries that rely on produce from Spain will find ways to adjust, says Tafadzwa Mboudi at the London School of Hygiene

and Tropical Medicine. Most of these countries also import a significant proportion of their citrus and tomatoes from other countries. Such as South Africa and Brazil. They'll likely be able to fill the gap, though there may be shortages for a while. Mboudi says it's a reminder of how interconnected the world and our food chain has become.

The floods in Spain and the ripple effect in Europe and the UK highlight an important thing in terms of how do we respond to climate change. The implications of these disasters transcend borders. So he says how we prepare our food system for climate change should too. I'm Samantha Fields for Marketplace. Lithium. If you want to transition to a green economy, which one supposes you do want to do, you're going to need it.

Think EVs, batteries for them and for offline energy storage as well. The thing is, the United States isn't much of a producer of lithium, which is why we depend on countries like Australia and Chile and China for what we need. But as Marketplace's Elizabeth Troval reports, a Jurassic era rock formation 10,000 feet down might be the key to changing that. It's a field trip day for John Shaw's geology students. This group with the University of Arkansas is piled in a van and driving through El Dorado in southern Arkansas. You know the gas station that's connected to Walmart is called Murphy USA.

It's here, Shaw points out to his students, where oil was once king a hundred years ago. That Murphy oil is an oil company that struck it rich in South Arkansas back in the day. The oil boom was short-lived and today Shaw is an El Dorado because of the energy future because two miles underground, a recent U.S. Geological Survey study found that there are between five and 19 million tons of lithium reserves, enough to power nine times the number of EVs projected to be in demand in the year 2030. Catherine Curum at the USGS did the study. Part of what we did when we went into South Arkansas is, you know, we knew the lithium was high already.

Industry has been interested in this topic for many years. The smackover stretches from East Texas to Florida, but companies have been drawn to this part of the smackover formation for the easily accessible wells left behind from oil drilling that have salty water or brine with high levels of lithium. JP Nico is with UT Austin. The only way to get into the subsurface is to drill a well for oil, otherwise it's too expensive. You have to piggyback on the work done by other people.

Companies have been trying to develop the best extraction technique. There are several ways to get a less amount of the brine. One technique? You can use membranes. So on one side of the membrane membrane you have your original brine. On the other side it's enriched in lithium. Companies like Standard Lithium, ExxonMobil, and Terra Volta are investing in smack over lithium. And earlier this fall, the US government announced nearly half a billion dollars in grants towards companies for direct lithium extraction in southern Arkansas. This investment in the battery economy comes as EVs grow in popularity, says Lukasz Benarski with S&P Global.

In the last years, lithium demand and supply broke through this one million tons mark. He says he thinks global demand will be double that by 2027. And though the US currently mines little lithium, it has plenty of resources. It's just that they're not easy or cheap to extract. And when it comes to direct lithium extraction in the smack over specifically, there are questions about commercial viability and environmental ones, like how much water these projects might end up using. Lithium has never been mined in this way. Of course, it would be great if they succeeded,

right, because then we will have a new source of lithium globally. But there are still a lot of question marks, whether they will succeed in this or not. University of Arkansas' John Shaw is optimistic. You always say this with a little bit of trepidation of something scaling up really large, but I think it can be done in a safe way and a generally beneficial way. The state has gone through several energy booms.

He says, first, there was the 1920s smack over oil drilling. Then in the 2010s, there was a big natural gas being produced from the Fayetteville shale in Northern Arkansas, and that's disappeared. He says he's hopeful. Lithium in the smack over can push Arkansas back into the energy economy. I'm Elizabeth Troval for Marketplace. ["Snooze You Lose"] This final note on the way out today

from the Marketplace desk of you snooze you lose. If you've got $7 million and had been wanting to advertise whatever it is that you make or sell during the Super Bowl. I'm very sorry to have to tell you that that amazing 30-second ad you've been workshopping ain't gonna run. Fox said this week its inventory is all sold out. Kerry Barber, Jordan Mangy, Dylan Myentenin, Janet Nguyen, Olga Oxman, Ellen Rolfus, Virginia K. Smith, and Tony Wagner are the digital and on-demand team around here.

Francesca Levy is their boss, the executive director of digital and on-demand. I'm Kyle Rizdahl. We will see you tomorrow, everybody. This is APM. Because you're listening to this podcast, I'm assuming you're interested in staying This is APM. Because you're listening to this podcast, I'm assuming you're interested in staying on top of the latest trends, news and more. So I want to tell you about another show.

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