This is pretty much dead-center on our wheelhouse.
From Aeon Magazine, March 27:
Catastrophe markets
Americans love to gamble. But placing bets on wildfires, floods and storms comes with serious moral and social costs
Will a Category 5 hurricane make landfall in the US before 2027? Will there be a megaquake by 30 June? Will 2026 be the hottest year ever? You can bet on these and dozens of other disasters in the online prediction markets Kalshi and Polymarket, where users trade ‘yes’ and ‘no’ shares in the outcome of future events in politics, sports, popular culture, business, and weather. Interspersed with trending categories like ‘Ukraine’, ‘Trump’ and ‘Crypto’ are event markets in ‘Hurricanes’, ‘Natural disasters’ and ‘Climate change’.
In January 2025, emergency management officials and insurance companies began estimating losses in the Los Angeles wildfires that ultimately included 440 deaths, of which 31 were direct deaths, and between $76 billion and $131 billion in property and capital losses. Online bettors had been wagering on this event and tallied their winnings or losses in catastrophe markets. By mid-January, Polymarket bets on the wildfires’ spread, duration and political fallout totalled more than $1.2 million. A Polymarket user posted a comment: ‘Volume so high in this market it cause another fire.’
After the 1906 San Francisco earthquake and fire, The New York Times published an article entitled ‘Catastrophe Markets’ that discussed the short-lived impact of the disaster on stock prices. Today’s online catastrophe markets are markets literally in disaster. People bet on whether disasters will happen and how bad they will be. These catastrophe markets raise some questions, including what, besides money, is at stake? What kind of thinking about risk in society do they promote and preclude?
One aspect of the history of catastrophe markets is very old. Weather gambling was described by one newspaper in 1931 as ‘one of the oldest, most fascinating and uncertain gambles in the world’. In 1886, betting on how long it would rain was ‘in vogue’, and, by the 1930s, office weather pools were commonplace. Weather gambling has taken on different and increasingly organised forms from the 19th to the 21st centuries, from informal wagers to gambling rings and lotteries to gamified forecasting apps like Weather Champs.
Rain betting, the oldest and most common form of weather gambling, was often tied to local community traditions. It flourished in Calcutta and Bombay in the 1880s and ’90s. Crowds gathered to gamble on whether a rain gauge would overflow, confident that cheating was impossible because there was no ambiguity in a downpour. As one newspaper remarked: ‘When it rains in India it rains; there is no half-way business about it.’ This assumption that the natural world defied market manipulation was echoed by accounts imagining rain betting as a model for speculation in the US because of its distance from volatility in railroad stocks and market swings in general.Capitalism turned the uncertainty of the weather into a calculable risk and source of profit
So-called ‘pools on the weather’ in the early to mid-20th century signalled the growth and bureaucratisation of weather gambling, made possible in the US by government weather data. With the rise of government forecasting in Europe and the US, meteorological data became a steady stream in what the philosopher of science Ian Hacking called the 19th-century ‘avalanche of printed numbers’ produced by European state bureaucracies, and it led to the systemisation and scaling up of weather gambling in the 20th century. As a Texas newspaper observed in 1915: ‘Gambling on the weather has become an institution throughout a great part of the United States.’ Large syndicates in cities in the US and Canada were well organised, lucrative, and illegal. In 1950, St Louis police raided what newspapers called a ‘weather-betting racket’ that pulled in a reported $2.6 million annually. Some lotteries were pure chance, while others involved forecasting skill and judgment. Some cities had pools on the temperature at a specific hour the next day or on other combinations of weather data.
Gamblers attempted to bribe US weather officials to falsify temperature figures and tampered with government weather reports en route to newspaper offices. In St Louis, extra security measures were implemented to prevent this manipulation, and the national weather service stressed its commitment to keeping weather data, a public good in the US, accessible to the public.
Weather data also enabled the financialisation of catastrophe, another precursor of catastrophe markets. In his speech on ‘New England Weather’ (1919), Mark Twain catalogued weather varieties, including ‘weather to sell; to deposit; weather to invest.’ Twain’s satirical assetisation of the weather was prescient. Speculative financial instruments designed to manage weather-related risk – rain insurance, flood insurance, weather derivatives, and catastrophe bonds – emerged during the 20th century. Through insurance and reinsurance, capitalism turned the uncertainty of the weather into a calculable risk and source of profit. This process of taming weather-related risk hinged on the assumption that the stochastic nature of rain, hurricanes and other natural hazards could be rationally managed, like an asset, with market logic. But insurance agents, energy traders and hedge fund managers were only ever partially successful. The uncertainties of bad weather and natural hazards always persisted....
....MUCH MORE
I will note that, at least as far as fires go, the concept of insurable interest, i.e. who can bet on the event, should be structured to prevent the arsonist from participating in the payoff, perhaps by public execution.
If interested see:
"Early abuses in life insurance markets"
On moral hazard:
Pro forma, I'm Miss America
Warren Buffett: Avoid States With Large Unfunded Pension Liabilities
And the conceptually related:
Perversity and Credit Default Swaps
And many, many more.
