What the Insurance Industry Thinks About Climate Change 385
Hugh Pickens DOT Com writes "Joseph Stromberg reports at the Smithsonian that if there's one group has an obvious and immediate financial stake in climate change, it's the insurance industry and in recent years, insurance industry researchers who attempt to determine the annual odds of catastrophic weather-related disasters say they're seeing something new. 'Our business depends on us being neutral. We simply try to make the best possible assessment of risk today, with no vested interest,' says Robert Muir-Wood, the chief scientist of Risk Management Solutions (RMS), a company that creates software models to allow insurance companies to calculate risk. Most insurers, including the reinsurance companies that bear much of the ultimate risk in the industry, have little time for the arguments heard in some right-wing circles that climate change isn't happening, and are quite comfortable with the scientific consensus that burning fossil fuels is the main culprit of global warming. 'Insurance is heavily dependent on scientific thought,' says Frank Nutter, president of the Reinsurance Association of America. 'It is not as amenable to politicized scientific thought.' A pronounced shift can be seen in extreme rainfall events, heat waves and wind storms and the underlying reason is climate change, says Muir-Wood, driven by rising greenhouse gas emissions. 'The first model in which we changed our perspective is on U.S. Atlantic hurricanes. Basically, after the 2004 and 2005 seasons, we determined that it was unsafe to simply assume that historical averages still applied,' he says. 'We've since seen that today's activity has changed in other particular areas as well—with extreme rainfall events, such as the recent flooding in Boulder, Colorado, and with heat waves in certain parts of the world.' Muir-Wood puts his money where his mouth is. 'I personally wouldn't invest in beachfront property anymore,' he says, noting the steady increase in sea level we're expecting to see worldwide in the coming century, on top of more extreme storms. 'And if you're thinking about it, I'd calculate quite carefully how far back you'd have to be in the event of a hurricane.'"
You would trust insurance companies on this? (Score:5, Insightful)
Insurance companies are always looking for an excuse to raise rates. They are not going to look for evidence against global warming when they can pretend that it has all been totally proven and tell clients that the risks are now sky high and, oh, by the way, your rates are now 60% higher to account for that.
Re:You would trust insurance companies on this? (Score:4, Insightful)
At best the types of data that insurance companies would collect would be measurements of effects not proof of a cause. All you can say about more storms hitting areas that you insure is that for some reason there is more storms lately. You can't say whether or not it is due to man made reasons, geological cycles, purple space gods that are angry that 30 Rock went off the air etc.
Re:The insurance message is ... (Score:5, Insightful)
The downside is that their less-pessimistic competitors undercut them on rates and win big.
Until, of course, the pessimistic view proves right, and those competitors go under. Or, if you're really pessimistic, get a bailout.
Re:You would trust insurance companies on this? (Score:4, Insightful)
If you really believe that, then your path to fortune is clear: start your own insurance company to compete with these bandits. If you think you can estimate risks more honestly and accurately than they do, you should be a billionaire within ten years.
Your knowledge from an insurance co? (Score:5, Insightful)
Seriously, you take their estimate of risk as gospel? Their goal is to collect as much as possible, and pay as little as possible. They are simply trying to hedge their bets on the collection side. Duh.
And for the record, the Atlantic hurricane intensity has not increased one iota. That is a complete outright lie which they should know if they spoke to an actual expert on Atlantic basin hurricanes. The reason for larger payouts from damage in the past is that MORE people and expensive property are near the coast lines. They have been subsidizing bad behavior. Climate change is not the culprit there.
We have this thing called "competition" (Score:5, Insightful)
If another insurance company thinks climate change is a bunch of bunk, they can lower rates and steal business from the company that has reached the opposite conclusion.
No opportunity (Score:4, Insightful)
Insurances are ready to accept global warming as it will help them adjusting their prices, but that does not mean they will do anything to prevent it, nor even to get it accepted by everyone.
Re:You would trust insurance companies on this? (Score:5, Insightful)
"'The first model in which we changed our perspective is on U.S. Atlantic hurricanes. Basically, after the 2004 and 2005 seasons, we determined that it was unsafe to simply assume that historical averages still applied,'"
fwiw, I find this statement to be "controversy neutral".
Re:Your knowledge from an insurance co? (Score:4, Insightful)
This is wrong. Not that they want to collect as much as possible while paying as little as possible, that's true, but the idea that they do so by "hedging their bets on the collection side." This would put them at a disadvantage. The more accurate their estimates, the more they can fine-tune prices to maximize profit.
When they do spew fear-based rhetoric, like the IIHS does 24/7, it's not so they can jack up rates, it's so they can make the world safer. Jacking up their rates makes them less competitive, making the world safer is good for their whole industry because the price decrease can lag behind it, and there's more profit margin to be had on safer risks.
Re:Some industry experience (Score:2, Insightful)
People are building in places where they probably shouldn't build. Many of the good places to build are used up, and people have an almost irresistable pull to build in dangerous places.
What exactly defines a "good place to build"? If you define it as somewhere with low flooding risk, low earthquake risk, low hurricane risk, etc., there are lots of places in the middle of the U.S. that fit that standard. There are even places with all of that and low risk of wildfires and low risk of tornadoes as well, though one has to be a bit choosy to avoid those things in the middle of the U.S. And of course freak weather is always a possibility.
Nevertheless, there are thousands upon thousands of square miles of land in the middle of nowhere that would be perfectly "good" for building with low risks to insure.
People aren't building there, though. It's not because they have an "irresistable pull to build in dangerous places." It's because we've transitioned to an urban culture and away from a rural one. Most people don't want to stake out a claim on the frontier somewhere anymore and live on all those thousands and thousands of square miles of unoccupied (and often low-risk) land.
This has nothing to do with a danger fetish. It has to do with the fact that people want to live "where the cool people live." And rural life just isn't marketed as desirable anymore.
That's why we have people piling on top of each other to live in risky places. Not because there is any lack of room for people to build and live in non-risky places.
(Now, admittedly, my comment applies specifically to the U.S., but it is applicable to many other developed countries as well, whose culture has shifted away from rural life. There are only a few countries, mostly in Europe, and perhaps increasingly in southeast Asia, where "the good places to build" have actually been "used up.")
Re:We have this thing called "competition" (Score:2, Insightful)
This is a much smaller group of much larger companies. I would have no difficulty believing they were colluding to raise prices.
Re:We have this thing called "competition" (Score:3, Insightful)
"If another insurance company thinks climate change is a bunch of bunk, they can lower rates and steal business..."
Which works until it's time pay for the damages.
Insurance is about smart risk management not buying market share.
Loading your book with cheap junk is surest way to lose money.
Re:You would trust insurance companies on this? (Score:5, Insightful)
They changed it from "global warming" to "climate change" not because of an inaccuracy with the former term, but because dullards couldn't comprehend that global warming means global average and that certain areas will actually cool during this process. In other words, it was dumbed-down for people like you.
Re:We have this thing called "competition" (Score:5, Insightful)
The end result is still measurable in terms of profit. If there is no climate change, or it really isn't impacting severe weather, and insurance companies raise rates, then their profits will soar. If, instead, we have more severe weather and the insurance companies accurately predict it, their profits will remain about the same.
I'm actually betting that they're going to have some severe financial troubles in aggregate, because I think the impact of global warming will be significantly worse than anybody's predicting. But we'll see.
Re:Climate Change? meh... (Score:1, Insightful)
Well, let me be the first to say that you are a complete fucking selfish asshole. I imagine the millions of people that are going to die so you can a slightly more pleasant September will go to their graves knowing they died for a good cause. The hot spots on this planet are going to get hotter and the warm places are going to get hot. That means agriculture across the planet is going to be disrupted on the very large scale. Which possibly means millions of people of dying, but that's okay, you can wear a short sleeve shirt in September!
As for those nobodies that live on the coast, which is probably a good chunk of the human population, they'll just have to suck it up. Their cities will disappear and they'll just up and move, like it's nothing. It's just their lives and livelihood, I mean, it's really nothing. The trillions of dollars in infrastructure across the world will need to be replaced or augmented will come out of our pocket change, but that's okay, you're warm in September!
Of course, let's not discus the thousand or millions of species that live on this planet are going to heavily impacted or die. The giant and highly complex ecosystems across world with just have to "suck it up", you know, they don't do anything but make the world livable and the air breathable (I don't mean that figuratively either.) The environment will change in 100 years what would usually take 100,000 years, with a huge mystery of how it will turn out, but who cares, you get to drive a super size truck! I mean, if Mother nature was not such a pussy, she would not have this problem because it is all about YOU.
PS> If you don't like the September's where you live, you can fucking move, you ignorant fuck.
Re:You would trust insurance companies on this? (Score:5, Insightful)
Go past the headline, and you'll learn that there's a lot more to insurance companies' reaction to climate change than rate increases.
Insurance companies, energy companies, pharmaceuticals, even military contractors are all planning for climate change. For anthropomorphic climate change. The biggest companies worldwide are baking climate change into their plans for their future.
So I guess you can say that even John Galt believes in climate change. But not publicly, because it's useful for the rubes to think it's all some bogus nonsense that the 95% of scientists who are obviously liberal cooked up to take away your freedoms.
correction: anthropo-something (Score:5, Insightful)
Oh, you know else who is making business decisions based on a future of anthropogenic (sorry, I typed wrong) climate change?
ADM, Monsanto, Dow Chemical. Companies that are involved in worldwide agribusiness. They're all betting heavily on climate change (the anthro-something one).
But not you, because you know better and the AM radio told you so.
Re:We have this thing called "competition" (Score:2, Insightful)
If another insurance company thinks climate change is a bunch of bunk, they can lower rates and steal business from the company that has reached the opposite conclusion.
Yes, because after all, we have wildly varying prices on gas from city to city, with some cities only charging $2 a gallon, while others charge $4, right?
Give me a break. The first thing that insurance companies will do with this kind of bullshit is collude together to ensure that everyone can charge obscene amounts for insurance, thereby guaranteeing a healthy new revenue stream based off little more than speculation.
Don't worry though. The worst is yet to come. Wait until insurance companies start colluding with the stock market and lobby to use HFT to calculate your rates by the second, based on every damn action you do all throughout the day, which of course is provided to them via "worthless" metadata...
Re:You would trust insurance companies on this? (Score:5, Insightful)
Scientists proclaim that climage change is occurring. Scientists are doing this for making money.
American DOD studies it and proclaims that it is occuring and they need to be ready. Obviously, it is about making money.
Insurance companies procmain that it is occuring and show evidence of it. Obviously, it is about making money.
Then the oil companies and the GOP claim that it is not happening, and you claim that it is not about making money.
Really? I guess that explains why we have creationism being pushed into schools.
Re:You would trust insurance companies on this? (Score:3, Insightful)
Re:Don't forgot, public money spends just fine (Score:3, Insightful)
The physics of CO2 infra red absorbsion are well defined
Then why is there a factor of two error bar (which might grow with the latest IPCC report) from lowest to highest estimate for the sensitivity of global temperature to CO2 concentrations? That small niche of well defined properties is embedded in a vastly complicated system which we don't have similar certainty about.
Re:You would trust insurance companies on this? (Score:4, Insightful)
Hurricane Ingrid made landfall and killed dozens of people. But it didn't make landfall in your country, so I guess things are fine.
Re:You would trust insurance companies on this? (Score:5, Insightful)
The irony (Score:5, Insightful)
Is anyone else basking in the irony of all these pro-business AGW denialists suddenly trying to come up with excuses for why the market disagrees with them?
You don't need regulation for anything, market forces keep companies honest and well behaved!! Except now... because insurance companies are somehow able to charge unnecessarily high premiums without being undercut by a competitor, or the government is making them overcharge or something...
The market is right, unless is disagrees with you, and then it's wrong.
Re:Insurance companies are the biggest scam (Score:5, Insightful)
They exist to help it's customers in times of need, yet it's a for profit business. Those 2 do NOT work together.
All businesses exist to help customers with their needs. Profits are a monetary signal that they're running the business correctly, and the incentive to put up the capital for risk in the first place.
Real insurance is just a collective risk sharing pool with a management fee. Granted, regulatory agencies have made that simple reality as painful as possible.
Re:You missed a term (Score:5, Insightful)
I get the point but similarly large rainfalls occurred several times last century. About the same back in 1914.
Part of the devastation is due to building in dry creek beds. So the level of damage is due to more humans and unwise building habits.
Climate change has potentially contributed to these type of rainfall events being more likely (and I've seen some charts which support this-- things that used to happen every 20 year are now happening every 10 years- maybe even more often). I've seen the number "12% more likely for extreme weather to occur" for that area of the country. Those articles were less able to prove it was global warming (the old causality thing) but leaned towards believing it was.
But you still shouldn't build below historically observed storm surge levels or historically observed flood zones. You WILL get heavy damage and flooding.
At the least, the government shouldn't pay for disaster relief for a particular area more than once a generation.
Re:We're in a major hurricane "drought" (Score:0, Insightful)
Facts??? Global warming is immune to facts, logic, and common sense. Just because all of their prior predictions are wrong does not mean they will discard them. The true believers would still believe in it if they froze to death on the equator.
Re:We're in a major hurricane "drought" (Score:4, Insightful)
When you have to get that oddly specific, you should be at least a little worried that you are cherry picking data to create "proof" of your already decided upon conclusion. If you instead just look at more general trends in quantity and strength of storms, it's pretty clear that we have had more and stronger hurricanes over time.
Re:You missed a term (Score:2, Insightful)
The one thing is the data they get is based on claims. So lets say a particular undeveloped area had a flood 1 out of every 20 years. The insurance companies wouldn't know about it because nobody makes a claim. Now a developer puts 500 homes there. Sure enough the flood happens and now they have 50 claims. Is it the weather or climate changing or is poor development practices.
His statement on beachfront property is a clue. People never built nice houses,with the exception of the very wealthy, on the actual beach because you knew either a hurricane or North Easter was going to wipe it out. Most people built beach shacks that were just a place to sleep and were pretty cheap. But states started regulating insurers to force them to insure beachfront property. The states liked it because the new houses were much more valuable and paid higher taxes. We are seeing the result.
Re:You missed a term (Score:4, Insightful)
unwise building habits.
Did you build your house on the top of a hill? High winds rip off your roof.
Bottom of the hill? Floods.
On the side of the hill? Mudslides.
Built on a flat featureless plain? Tornadoes.
Did you build a basement to seek shelter in? Heavy rains soak in and ruin everything.
But areas with heavy rains aren't featureless plains, they develop rivers that cut gouges into the earth and make for bluffs. And mudslides only happen when there's extreme soil erosion. If there's going to be flooding at the bottom of the hill there's usually a RIVER there.
All of those are arguments that make sense when the climate isn't schizophrenic. What appears to be "unwise building habits" AFTER the freak weather happens was a perfectly rational thing to do given the local climate. Nobody builds big towers in hurricane country. But what counts as "hurricane country" is changing. They didn't build the sewers of New york to deal with city-wide flooding. They are not prepared for that. They DID build the sewers of New Orleans to deal with city-wide flooding, because it's happening constantly. Changing that sort of infrastructure is expensive and hard. But not having a suitable infrastructure is ludicrously more expensive.
So be careful with how you long about the term "unwise building habits". What was once perfectly wise, now isn't. And buildings last a really long time. Hopefully.
Re:You would trust insurance companies on this? (Score:4, Insightful)
It's not just a statistical trend. We have a well validated body of theory that predicts increased damage as a result of rising seas, as well as rising temperatures feeding more energy into storms. And the statistical trend agrees with those predictions. An insurance company would be foolhardy not to take this seriously.
Re:You would trust insurance companies on this? (Score:4, Insightful)
At best the types of data that insurance companies would collect would be measurements of effects not proof of a cause.
Exactly. That is ALL they ever collect.
Sheesh. They know a bad credit rating doesn't _cause_ traffic accidents, but the population of bad credit risks has a higher accident rate than the other populations.
It's called Statistics. It's the essence of the insurance industry. Reinsurers--the groups that insure the insurance companies you and me buy from--are the ones who first paid for the researchers who discovered that global warming means we get 5 disastrous hurricanes per decade instead of 3. Cause-effect on a storm level scale is too hard to pick out. But measuring the effect of a single volcano's emission of CO2 is easy. Extrapolating that to what humanity puts out which is about the same amount every three days means you take some guesses.
And it you're smart, or have money on the line, you try to take educated guesses. The best guess is called statistics. In fact, a standard regression over almost any set of data points will beat the expert opinion.