The Insider - August 2023

Hi everyone,

Welcome to the August edition of the Insider. Do you know someone who would enjoy the Insider? Forward this email to them and they can subscribe here.

On the new paradigm of insurance

Earlier this year, the CFO of Florida blamed “wokeness” as the reason for Farmers Insurance leaving the state after the company determined it was too risky to insure policyholders in a state that is increasingly disaster-prone. If only it were so simple as a culture war. From economics to geography to risk models, the tectonic plates underneath the insurance industry are shifting due to converging factors like climate change, population growth, asset appreciation, and a lack of affordable housing.

• Since 2020, the US has experienced an average of 20 disasters per year of at least one billion dollars, up from 13 billion-dollar disasters per year in the 2010s, and 7 billion-dollar disasters per year in the 2000s.
• Traditionally, “secondary perils” like thunderstorms have been less costly to insurance companies than the primary perils of hurricanes and earthquakes. But climate change is reversing that: thunderstorms alone have accounted for almost 70% of insured catastrophic losses in 2023. While the big storms make the news, it’s the regional ones that will compound losses and drive rate hikes.

This analysis by Moody’s shows how insurance and reinsurance companies are transforming how and where they do business. We’re moving into a new paradigm where state-run insurance companies are stepping in, private companies are stepping out, homeowners are going without insurance, and the fundamentals of underwriting risk and forecasting everything from fires to floods are being revisited. While “firetech” startups try to tackle the growing incidence of destructive forest fires, the XPrize launched “XPrize Wildfire” this year, and some communities are using everything from drones to goats to prevent fires, it will require far more ambitious and coordinated efforts to protect private property at scale in the age of climate change.

On original thinking

Between podcasts and Twitter, it’s easy to find myself lost in the industrial complex of advice. There are just endless articles to read, podcast conversations to listen to, Twitter threads to unfurl. Sometimes I find myself not really seeking targeted advice as much as I am seeking entertainment through advice. What am I looking for? I don’t really know, but I do know that advice is enormously entertaining: frameworks, insights, mental models, statistics, trends, hot takes, lessons, first principles. The problem is that the more we consume advice as entertainment, the harder it is to hear our own voice. It crowds out original thinking and atrophies our ability to practice the elusive skills of listening to our own intuitive, reflective intelligence. It’s far easier to be a product of the last conversation we listened in on than it is to slowly consider our own, very personal answer to a question like: “What important truth do very few people agree with you on?” What’s your answer?

On main street businesses

In the next 20 years, baby boomers will transfer $53 trillion to younger generations. To put that in perspective, that’s enough wealth to give each of the remaining 260 million non-boomer Americans over $200,000 in cash. While it won’t be evenly distributed, it is the largest transfer of wealth in human history. One in every two businesses in the US is owned by people older than 55 years old, which means millions of small businesses—the backbone of the US economy—will trade hands in the next two decades. This presents a big opportunity to buy private companies, especially with tools like an SBA 7(a) loan, which allows buyers to leverage up to 90%. The transition of assets and companies will allow new entrants to begin building generational wealth, employees to buy companies from their retiring owners, and entrepreneurs to choose the slow-and-steady entrepreneurship-through-acquisition models over the high-risk/high-reward venture-backed models of Silicon Valley. For those willing to look beneath the flashiness of generative AI and the newest technologies, there is a trillion dollar opportunity composed of small mainstreet businesses quietly cash flowing.

On unplanned obsolescence

The experts will tell you that to tackle climate change, we need to electrify everything: from cars to home energy to manufacturing. We need to rapidly replace internal combustion engines with EVs, and fossil-fuel HVAC systems with electric-powered heat-pumps. But electrifying everything calls for technologizing everything, and technologizing everything has the tendency to reduce the lifespans of everything. EVs depreciate faster than internal-combustion cars, and historically sturdy appliances like washing machines and refrigerators are starting to require iPhone-like replacement cycles. Before we blindly accept that electrification is net-positive, it’s worth asking: is the sacrifice of longevity and resilience in the name of decarbonization a worthwhile trade-off?

In most cases, I believe it is, but I worry that many in the climate tech space do not recognize the trade-off taking place: we blindly choose what’s electric over what’s resilient, what’s technologically advanced over what’s antifragile. And when we do, we might miss the deeper work of being in relationship with the physical world instead of constantly upgrading, replacing, and technologizing it. We might miss the bigger invitation to apprentice in the art of repairing and maintaining and tending to.

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What I am reading

• An AI-voiced virtual lover called users every morning, until its shutdown left them heartbroken. The foreshadowing of a world where humans fall in love with AI chatbots. Rest of the World.
• Here is what Canada will look like in 2060. How the country will be transformed by climate change. Macleans.
• What is time for? Everyone is busy, but how would we spend our time if we had nothing to do? The interior discipline of leisure. Plough.
• The internal drama inside the Audubon Society about what bird conservation has to do with social justice, and the conflict and complexity of becoming an anti-racist organization. The New York Times.
• Modern day human trafficking, powered by TikTok. How one town in Albania has been emptied. Coda.
• So many people in Taiwan are nearsighted that they have already glimpsed what could be coming for the rest of us. How the world is going blind. WIRED.

Reading on the Inflation Reduction Act

I am dedicating a special reading section to the Inflation Reduction Act (IRA), since it just turned one year old.

• Since the launch of the IRA a year ago, eight years’ worth of clean energy investment has taken place in the country, equivalent to more than $270 billion. American Clean Power.
• The five areas where the IRA has made the biggest progress. Rocky Mountain Institute.
• The clean energy future is arriving even faster than you think. How renewables like wind and solar are now expected to overtake coal by 2025 as the world’s largest source of electricity. The New York Times.
• The impact of the IRA on startups. There are 65% more startups focused on EV charging and 72% more startups focused on hydrogen energy than one year ago. TechCrunch.

Something personal

Every quarter, Lisa and I take a couple’s retreat to reflect on our relationship and dream about the future. They are some of the best weekends of the entire year—spacious and uninterrupted space to deepen our relationship and set intentions about the chapter ahead. I’m learning that one protected weekend is worth a thousand small conversations, and that it’s far more important to carve out the space than to set the agenda—without fail, the most important conversations surface when we create the space for them.

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Signed,

Banks