Who Bears the Cost of Risk?

Risks get a bad rap. We often treat them like problems to avoid rather than as behavior and design challenges. The issue isn’t whether risk exists, but who bears the cost and who reaps the benefits. In our current system, that cost of burden often falls on the shoulders least equipped to carry it.

Consider nuclear power, which is experiencing something of a comeback as a form of renewable energy. When the industry emerged, private insurers walked away. Too risky. So the government stepped in. Through the Price-Anderson Act, liability was capped and public backstops were put in place. Without insurance, no one would build or operate a nuclear power plant. And when touted as environmentally friendly, the risks to uranium miners and the environment are often ignored.

Public systems absorb private risk to enable large-scale growth, while everyday people often pay the price when those risks materialize. (Like the thousands of Navajo men who worked the mines in the Four Corners area, now home to a 1,500-megawatt nuclear power station.) But today, as climate disasters accelerate and agricultural systems strain, we’re watching that model reach its limits.

As climate disasters become more frequent and intense, the insurance industry itself is at risk. If too many climate-related claims—covered under policies insurers have already written—come due at once, the commercial insurance industry collapses. Insurers have nowhere near enough capital to cover the value of that many claims.

Allianz’s Günther Thallinger warned us last year that not only would the insurance industry go belly up, so would the capital markets. Because no commercial company is going to do squat without insurance.

In agriculture, a similar misalignment is playing out. Farmers shifting to regenerative practices—doing the hard work of ecological repair—face great risk as they transition. But traditional financing structures are built for scale rather than resilience. As a recent white paper from Transformational Investing in Food Systems (TIFS) makes clear, the issue isn’t the farmers. It’s the financial infrastructure that hasn’t evolved.

We tend to treat risk like a glitch in the system. But often, it’s the clearest signal of what needs to be redesigned. Without a willingness to take risks that drive change, innovation dies. Because things that people don't understand, they don't want to insure.

If we want to build resilient, equitable systems, we have to start by asking better questions. It can no longer be, “What’s the risk?” Instead what needs to be asked is, “Who’s carrying the costs of risk and who's enjoying the benefits and why?” That’s the balance we need to strive for.

Redesign systems around what’s fair for many, not just what’s profitable for few.