That has created new social risks and costs. The building boom over the last few decades coincided with a period of relatively low incidence of natural disasters. Following the recent string of calamities, however, the cost of building with poor construction or in risky locations is just now being realized. Second, the current solution for handling the fallout from natural disasters does not create incentives to reduce costs. For example, the government's compassionate policy allows uninsured homeowners to receive low-cost loans or grants to rebuild.
Insured homeowners get nothing.
In insurance risk management, a large pool of similar homes are typically covered for fire. A large portfolio of premiums covers losses. By contrast, the stock market model uses good information, such as accounting statements, to manage diverse, idiosyncratic risks through a varied portfolio. Murdock's hybrid model creates reinsurance contracts financial instruments that can be traded in open markets, much like contracts for oil and grain futures. The government would kick-start the market by initially underwriting a quarter of all contracts and then slowly phasing out its participation.