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By Latisha Nixon-Jones, Jacksonville University 

Imagine saving for years to buy your dream house, only to have surging property insurance costs keep homeownership forever out of reach.

This is a common problem in Florida, where average insurance premiums cost homeowners an eye-watering US$6,000 a year. That’s more than triple the national average and about three times what Floridians paid on average for insurance premiums in 2018.

What’s more, several major insurance carriers have left the state over the past year, leaving residents with limited alternatives.

As a law professor who specializes in disaster preparedness and resilience, I think it’s important to understand what’s driving costs higher – not least because other states could soon face a similar predicament.

Three primary factors are driving the insurance challenge. First, natural disasters are becoming more common and costly. Second, the price of reinsurance is skyrocketing. And finally, Florida’s litigation-friendly environment compounds the issue by making it easy for customers to sue their insurers.

Disasters, like sea levels, are on the rise

With its location on the beautiful-yet-hurricane-prone Gulf of Mexico, Florida has long been vulnerable to the elements. Natural disasters cost the state $5 billion to $10 billion every year, the federal government estimated in 2018, the last year for which data was available.

Yet that likely understates the case today, since disasters have only become bigger, more common and more expensive since then. For example, climate change has made oceans warmer, which research suggests fuels stronger, more intense hurricanes.

As a result, Florida has experienced billion-dollar disasters an average of four times annually over the past five years – up from about one each year in the 1980s.

This surge in disasters doesn’t just put lives at risk; it also wreaks havoc with the insurance market, as carriers are inundated with claims from one catastrophe after another. This makes it harder for them to turn a profit or obtain reinsurance to protect their stakeholders.

Why reinsurance matters

Insurance companies, in essence, make money two ways. First, they pool risk among policyholders. Risk-pooling is the practice of taking similarly situated individuals or properties, grouping them together, and charging similar prices for insurance since they face the same risk.

Second, they reduce risk by acquiring reinsurance. Reinsurance acts as a safeguard for insurance companies – it’s essentially insurance for the insurers. Reinsurers pledge to cover a specified portion or type of insurance claim – for instance, catastrophic hurricanes – which provides a layer of financial protection.

The new era of climate disasters has thrown a wrench into the process. Reinsurance companies, grappling with a surge in claims due to more frequent and severe disasters, have found themselves forced to raise their premiums for insurance carriers. Carriers, in turn, have passed the burden to policyholders.

To try to navigate these challenges, some companies have chosen to limit coverage for specific types of damage. For example, some insurance companies in Florida will no longer offer hurricane or flood coverage. And in extreme cases, insurance companies have withdrawn entirely from the state.

Understanding this complex relationship between insurers, reinsurers and policyholders is key to understanding the broader implications of the Florida insurance crisis. It underscores the urgent need for comprehensive solutions and collaborative efforts to address evolving challenges in the insurance ecosystem.

Learning from Florida … one way or another

Florida isn’t taking all this sitting down. In December 2022, state lawmakers responded to growing property market instability by passing Senate Bill 2A, a package of insurance reforms.

One major part was a rule change designed to discourage policyholders from suing their insurers. Previously, Florida law let insured individuals recover attorney fees if they secured any amount through litigation against their insurer.

The idea is that making this change will discourage needless lawsuits. However, my research as an environmental justice professor shows that attempts to exclude attorneys from the negotiation process often lead to more expensive litigation and less access to justice.

The bill also restricts assignment of benefits, a mechanism that permits third-party entities like roofing companies to negotiate with insurance companies on behalf of Florida residents. While assignment of benefits increased advocacy, it was also linked to skyrocketing claims costs.

The balancing act between providing ample opportunities and containing costs has sparked debate among justice advocates. Florida’s legislative response reflects an ongoing effort to strike an equilibrium, ensuring fairness and accessibility while addressing the challenges faced by both insurers and policyholders.

Florida’s actions to address the property insurance crisis raise a critical question: Will the state serve as a blueprint for disaster-prone regions, or act as a cautionary tale? After all, states such as California and Louisiana have also seen insurance companies withdrawing from their markets. Will their legislatures draw inspiration from Florida’s?

For now, it’s too early to tell: The policies have only been in place since the latest round of hurricanes. But in the meantime, the rest of the U.S. will be watching – especially policymakers who care about resilience, and those who want to make sure vulnerable populations don’t get the short end of the stick.

About the Author:

Latisha Nixon-Jones, Associate Professor of Law, Jacksonville University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Jose Caballero, International Institute for Management Development (IMD) 

Venezuela is engulfed in a political and economic crisis, which has forced over 6 million people – some 20% of the population – to flee the country since 2015. The mass exodus began when Venezuela’s economy collapsed, giving rise to rampant inflation, political turmoil and pervasive violence.

Over 80% of those who have left Venezuela have set up a new life in 17 countries across Latin America and the Caribbean. According to a recent report, these displaced migrants are having a positive effect on the economies of their host countries.

Between 2017 and 2030, migrant workers will boost the economies of their host countries by 0.10%–0.25% on average each year. The report, which was published by several leading international financial institutions and the UN Agency for Refugees, focuses on Venezuelan migrants but also covers Cubans and Salvadorans, among others.

The economic impact of migrants in Latin America is significant. But their integration into local job markets and society is poor. The economic benefits derived from migrants across Latin America could be even greater if they are given better access to jobs.

Boosting economic growth

Migration has clear economic benefits for local economies. It leads to an expansion of the workforce, thereby alleviating labour shortages and enhancing economic output.

Migrants bring a diverse range of skills and specialised knowledge to their host countries, which can improve the overall skill level of the local workforce. Their productive capabilities bridge skill gaps in local labour markets and heighten overall productivity.

Most migrant workers will also pay income tax, which increases government revenues. In Colombia, for instance, the income tax contribution of Venezuelan migrants in 2019 was approximately US$38.7 million (£30.1 million), equivalent to 0.01% of Colombia’s GDP.

And when migrants gain employment, they will spend their wages in the host country and create new demand in various other sectors. Greater demand leads to higher growth, which in turn attracts more investment and increases employment opportunities both for local people and migrants.

Underemployed

However, xenophobia and discrimination prevent many migrants from finding jobs in Latin America and integrating into society. According to the report, roughly 30% of the migrants residing in Chile, Colombia and Peru experience discrimination because of their nationality.

Thus, many migrants are forced to take jobs within the informal sector. Over 50% of migrants in Latin America work informally compared to 44.5% of locals.

Migrant workers also often earn lower wages than their local counterparts. In Colombia, the average monthly salary of locals with post-secondary school education is US$1,140. Venezuelan migrants with the same level of education earn just US$644 per month.

Despite this, immigrants still outperform the native-born population in their labour force participation and employment rates. Yet many of the migrants who are in formal employment are overqualified for their roles. In Chile, for instance, 34% of highly educated locals are overqualified for their jobs, compared to over 60% of migrants.

Migrants are often mistakenly assumed to be exclusively low-skilled workers. But the Venezuelan migrant crisis has seen many highly skilled people flee the country too. For example, 65% of the Venezuelans living in Chile and 48% residing in Ecuador have post-secondary school education.

However, most Venezuelans have not officially validated their academic credentials in their host countries. In fact, only 10% of those residing in Chile have completed the certification process.

Many migrants are unaware of the process so lack sufficient documentation about their qualifications. And the complexity of the process also demands investment that many migrants may not have the resources to cover.

To further enhance productivity in Latin America, it is essential to integrate migrant workers into professions that allow them to use their skills.

Access to services

Several other factors hinder the integration of migrants into society across Latin America. The report indicates that migrant workers have significantly lower access to health insurance relative to the native-born population. In Colombia, for example, 96% of local workers have access to health insurance, compared to just 40% of migrants.

Similarly, there are often barriers limiting access to education for migrants. Foreign-born residents and their family members have the right to access public primary and secondary education in the majority of South American countries. But school attendance rates are lower among displaced children than among native children, while the propensity for dropping out of school early appears to be significantly higher among migrant children.

Some people argue that immigration comes with costs, such as the perceived notion that migrants deprive locals of jobs. Nevertheless, the contribution of migrants to Latin American economies underscores the potential benefits. Improving their access to labour markets is thus a crucial tool for fostering long-term growth in Latin American economies.

About the Author:

Jose Caballero, Senior Economist, IMD World Competitiveness Center, International Institute for Management Development (IMD)

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Chisom Ubabukoh, O.P. Jindal Global University and Kunal Sen, United Nations University 

Nigeria, Africa’s largest economy, is facing an economic crisis. From a botched currency redesign to the removal of fuel subsidies and a currency float, the nation has been plunged into spiralling inflation and a currency crisis with far-reaching consequences. The question now is: how long before the inferno consumes everything?

On October 26, 2022, the Central Bank of Nigeria announced a bold move – that it had redesigned the country’s highest denomination notes (₦200, ₦500 and ₦1000) and would be removing all old notes from circulation. People were given a deadline of January 31, 2023 (a couple of weeks before a national election) to make this exchange, or all of the old notes would cease to be valid legal tender.

This initiative ostensibly aimed to curb counterfeiting, encourage cashless transactions, and limit the buying of votes during the elections. But, while the intention may have been sound, the execution proved disastrous.

Short deadlines, limited availability of new notes, and inadequate communication created widespread panic. It led to long queues at banks, frustration among citizens, and a thriving black market for the new notes.

The confusion surrounding the currency redesign had an unintended consequence: the beginnings of a loss of confidence in the naira. People began to look to other mediums as a store of value and as a medium of exchange. The obvious choices were foreign currency like the US dollar and the British pound, as well as more stable cryptocurrencies like Tether’s USDT.

The currency redesign was criticised at the time by the then-presidential candidate of the ruling party, Bola Ahmed Tinubu, who saw it as a move to derail his presidential campaign. However, Tinubu won the contested election and, once in power, set out to reshape the economy immediately.

In his inaugural address in May 2023, Tinubu announced that the “fuel subsidy is gone”, referring to the government’s longstanding subsidised petrol policy that ensured Nigerians enjoyed some of the lowest petrol prices in the world. Over the coming days, he would also announce the reversal of the currency redesign policy and the floating of the Nigerian naira on the foreign exchange market.

Fuelling the flames

Other underlying economic conditions around the time of Tinubu’s inauguration included a large amount of foreign debt, dwindling foreign reserves and global economic headwinds. When the removal of the fuel subsidy was announced, it was met with a mix of surprise and elation by many Nigerians, and in particular by international donor agencies like the International Monetary Fund and the World Bank, who had long been advocating for the removal.

But this was all before the effects began to bite. And bite hard they did. The price of Premium Motor Spirit (also known as gasoline or petrol), which used to retail for ₦189 (US$0.12) per litre, increased by 196% practically overnight and began to retail for ₦557 per litre.

One challenge with developing economies like Nigeria is that a rise in fuel price tends to cause the price of everything else to rise. Many industries, particularly those in manufacturing and agriculture, tend to rely heavily on fuel for powering machinery and equipment due to the poor supply of grid electricity nationwide.

Many Nigerian households were significantly affected by the increased prices. But they saw an opportunity in that the savings from the fuel subsidy regime would be redistributed to improve education, healthcare provision and the general welfare of the people, as was promised during the electioneering. The regime cost the country an estimated ₦400 billion a month at its height, after all.

Enter currency devaluation

Then, on June 14, 2023, the Tinubu government ended the policy of pegging the naira to the US dollar, allowing it to float and find its true market value based on supply and demand. The idea was to stop corruption and reduce arbitrage opportunities due to the difference between official and black-market foreign exchange prices.

Currency arbitrage happens when people buy a currency at the lower official exchange rate and immediately sell it at the higher black market rate for a profit. This practice often occurs where there are strict currency controls and black markets offer a truer reflection of a currency’s value based on supply and demand.

However, this was one policy change too many. The naira lost a staggering 25% of its value in one day, and the cascading effects now push the country to the brink.

Nigeria depends heavily on imported commodities, including essential goods like food, fuel and medicine. So the policy escalated the inflationary crisis, pushing inflation to almost 30% (the major driver being food inflation, which reached 35.4%).

Imports in general have become significantly more expensive, and Nigerians are finding their purchasing power being eroded. Wages in Nigeria are pretty fixed. The current minimum wage in the country is ₦30,000 per month and the average monthly income is ₦71,185.

Businesses are also feeling the pinch, facing difficulties accessing the foreign exchange critical for importing raw materials and equipment.

Pheonix or ash?

The Central Bank of Nigeria has implemented measures to counter the crisis. It recently raised interest rates from 18.75% to 22.75% and is selling US dollars through auctions.

Recovery is a possibility and there are already signs of appreciation in the currency. The naira appreciated by 6.89% a day after interest rates were raised. But it will be a long, hard road.

These strategies often come with trade-offs. Higher interest rates can stifle already struggling economic growth, while currency interventions might deplete already strained reserves of foreign currency.

The bottom line is that if the current cost of living crisis continues, civil unrest is likely. Should this happen, who knows what – if anything – will be left behind when the flames are done.

About the Author:

Chisom Ubabukoh, Assistant Professor of Economics, O.P. Jindal Global University and Kunal Sen, Professor and Director, World Institute for Development Economics Research (UNU-WIDER), United Nations University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Dan Murphy, Harvard Kennedy School 

Which country is the greatest threat to the United States? The answer, according to a large proportion of Americans, is clear: China.

Half of all Americans responding to a mid-2023 survey from the Pew Research Center cited China as the biggest risk to the U.S., with Russia trailing in second with 17%. Other surveys, such as from the Chicago Council on Global Affairs, show similar findings.

Senior figures in recent U.S. administrations appear to agree with this assessment. In 2020, John Ratcliffe, director of national intelligence under President Donald Trump, wrote that Beijing “intends to dominate the U.S. and the rest of the planet economically, militarily and technologically.”

The White House’s current National Defense Strategy is not so alarmist, referring to China as the U.S.’s “pacing challenge” – a reference that, in the words of Secretary of Defense Lloyd Austin, apparently means China has “the intent to reshape the international order and, increasingly, the power to do so.”

As someone who has followed China for over a quarter century, I believe that many observers have overestimated the country’s apparent power. Recent challenges to China’s economy have led some people to reevaluate just how powerful China is. But hurdles to the growth of Chinese power extend far beyond the economic sector – and failing to acknowledge this reality may distort how policymakers and the public view the shift of geopolitical gravity in what was once called “the Chinese century.”

In overestimating China’s comprehensive power, the U.S. risks misallocating resources and attention, directing them toward a threat that is not as imminent as one might otherwise assume.

Let me be clear: I’m not suggesting that China is weak or about to collapse. Nor am I making an argument about China’s intentions. But rather, it is time to right-size the American understanding of the country’s comprehensive power. This process includes acknowledging both China’s tremendous accomplishments and its significant challenges. Doing so is, I believe, mission critical as the United States and China seek to put a floor underneath a badly damaged bilateral relationship.

Headline numbers

Why have so many people misjudged China’s power?

One key reason for this misconception is that from a distance, China does indeed appear to be an unstoppable juggernaut. The high-level numbers bedazzle observers: Beijing commands the world’s largest or second-largest economy depending on the type of measurement; it has a rapidly growing military budget and sky-high numbers of graduates in engineering and math; and oversees huge infrastructure projects – laying down nearly 20,000 miles of high-speed rail tracks in less than a dozen years and building bridges at record pace.

But these eye-catching metrics don’t tell a complete story. Look under the hood and you’ll see that China faces a raft of intractable difficulties.

The Chinese economy, which until recently was thought of as unstoppable, is beginning to falter due to deflation, a growing debt-to-gross domestic product ratio and the impact of a real estate crisis.

China’s other challenges

And it isn’t only China’s economy that has been overestimated.

While Beijing has put in considerable effort building its soft power and sending its leadership around the world, China enjoys fewer friends than one might expect, even with its willing trade partners. North Korea, Pakistan, Cambodia and Russia may count China as an important ally, but these relationships are not, I would argue, nearly as strong as those enjoyed by the United States globally. Even in the Asia-Pacific region there is a strong argument to say Washington enjoys greater sway, considering the especially close ties with allies Japan, South Korea and Australia.

Even though Chinese citizens report broad support for the Communist Party, Beijing’s capricious COVID-19 policies paired with an unwillingness to use foreign-made vaccines have dented perceptions of government effectiveness.

Further, China’s population is aging and unbalanced. In 2016, the country of 1.4 billion saw about 18 million births; in 2023, that number dropped to about 9 million. This alarming fall is not only in line with trends toward a shrinking working-age population, but also perhaps indicative of pessimism among Chinese citizens about the country’s future.

And at times, the actions of the Chinese government read like an implicit admission that the domestic situation is not all that rosy. For example, I take it as a sign of concern over systemic risk that China detained a million or more people, as has happened with the Muslim minority in Xinjiang province. Similarly, China’s policing of its internet suggests concerns over collective action by its citizens.

The sweeping anti-corruption campaign Beijing has embarked on, purges of the country’s military and the disappearance of leading business figures all hint at a government seeking to manage significant risk.

I hear many stories from contacts in China about people with money or influence hedging their bets by establishing a foothold outside the country. This aligns with research that has shown that in recent years, on average as much money leaves China via “irregular means” as for foreign direct investment.

A three-dimensional view

The perception of China’s inexorable rise is cultivated by the governing Communist Party, which obsessively seeks to manufacture and control narratives in state media and beyond that show it as all-knowing, farsighted and strategic. And perhaps this argument finds a receptive audience in segments of the United States concerned about its own decline.

It would help explain why a recent Chicago Council on Global Affairs survey found that about a third of American respondents see the Chinese and American economies as equal and another third see the Chinese economy as stronger. In reality, per capita GDP in the United States is six times that of China.

Of course, there is plenty of danger in predicting China’s collapse. Undoubtedly, the country has seen huge accomplishments since the People’s Republic of China’s founding in 1949: Hundreds of millions of people brought out of poverty, extraordinary economic development and impressive GDP growth over several decades, and growing diplomatic clout. These successes are especially noteworthy given that the People’s Republic of China is less than 75 years old and was in utter turmoil during the disastrous Cultural Revolution from 1966 to 1976, when intellectuals were sent to the countryside, schools stopped functioning and chaos reigned. In many cases, China’s successes merit emulation and include important lessons for developing and developed countries alike.

China may well be the “pacing challenge” that many in the U.S. believe. But it also faces significant internal challenges that often go under-recognized in evaluating the country’s comprehensive power.

And as the United States and China seek to steady a rocky relationship, it is imperative that the American public and Washington policymakers see China as fully three-dimensional – not some flat caricature that fits the needs of the moment. Otherwise, there is a risk of fanning the flames of xenophobia and neglecting opportunities for partnership that would benefit the United States.

About the Author:

Dan Murphy, Executive Director of the Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School

This article is republished from The Conversation under a Creative Commons license. Read the original article.