[Hercuros]

With the way things are going with climate change, I think that assuming “extreme climate events in different geographies are independent statistical events” is an extremely flawed assumption to make. You acknowledge that it is a simplified model, but that is not some minor oversight. Any model that does not account for this is deeply flawed, and I think no insurance company would choose to model extreme event risk like that. There are common factors (e.g. global average temperature) that can cause many of these events to be triggered in a correlated way.

A “2% risk of default” on an individual bond is something a retail investor might be able to understand, but no one should be buying a “diversified” bundle of these things if they cannot form a reasonable understanding of how correlated they are. Why should understanding the correlation risk be left up to individual investors building their own portfolios?

I also think forming an intuition for these more “all-or-nothing” type events is more difficult than e.g. understanding that if GOOG goes down 10% then AAPL might do too at the same time because they are both tech stocks.