What the Insurance Industry Thinks About Climate Change

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.'"

Comments

Re:You would trust insurance companies on this?

[Anonymous Coward]

Well, I work for an insurance company and I can tell you, the difference between the actuaries correctly predicting future claims and incorrectly is the difference between a product making money and costing money. We try and produce new marketable products every few years and the failure rate is high, with millions in up front investment down the drain. Actuaries have a vested interested in getting it right, so they're not priced out of the market whilst still being profitable. Just ignoring that traditionally insurance companies don't make money on premiums but on investing the money before the insurance is claimed against... of course, that tradition is not very alive any more... but that is how it once was.

Re:You would trust insurance companies on this?

[IAmR007]

Weather models and climate models look at an entirely different scales. Both involve complex fluid dynamics and such, but look at a different scale. Weather forecasting tries to predict the chaos. Climate modeling, on the other hand, concerns the patterns. A model of the Earth in current conditions can then be modified to have increasing greenhouse gases, geological cycles, etc. Some of those, like geological cycles, occur at a rate several orders of magnitude slower than what we are currently seeing. Just because computer models are virtual doesn't mean they can't be used to experiment. Computer models are vital for our understanding of things at extreme scales. Source: Masters in High Performance Computing

Some industry experience

[Ol Olsoc]

I sat in on a presentation given by an insurance industry executive a couple years ago, and he said in general, there are a couple things going on.

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.

More people

And yes, there are a lot more catastrophic events happening that are causing a lot more damage

He said that even when the first two events are taken into consideration, there is something quantifiable happening, that makes the industry tend to believe that warming is taking place, and probably man has a hand in it.

I wish I still had the presentation, because it had a lot of facts and figures, without the cherry picking that deniers love to employ. Pretty scary actually.

Re:Some industry experience

[Anonymous Coward]

And why do the cool people aggregate in high-risk areas? Why isn't NYC, SF, LA, or even Houston sitting smack in the middle of Nebraska or something in a low-risk zone? It's because large population centers can only thrive near sea coasts and major rivers. A city doesn't scale without them. In much earlier, smaller, societies, we built by the water because we needed seafood and water. In modern times though, at modern scale, it's all about import/export.

A large urban city can never be self-sufficient, it needs too many things (and in massive quantities) that it can't produce, like grains, vegetables, fuels and oils, etc. A multi-million-citizen metropolitan area consumes resources in volumes that are difficult for the human mind to imagine. If you moved Chicago or Houston or LA into the middle of Nebraska and they tried to meet their needs via trucks and trains, they'd actually fail. There wouldn't be enough trucks or trains. They'd use every available truck or train in the country, completely clog all surrounding roads and railways, and still their population would basically starve and run out of fuel. The only way to import necessities at the raw rate a large metro area needs is a shipping port on an ocean or very large river (like the Mississippi, or the Great Lakes, which connect to the ocean fairly directly). When you're that close to an ocean or a giant river/lake system, well, there's your hurricane/flood risk...

So it's not even that people have an "irresistible pull to build in dangerous places", it's that a large mtro area *cannot be built in a safe place*.

You missed a term

[Weaselmancer]

You're forgetting market pressure. Predict too high - nobody buys the insurance because it is too expensive and your competition is cheaper. If insurance were a monopoly you would be correct, however.

And you seem to have missed the point this gentleman in the article was trying to make. The rainfall in Boulder is a good example, not a bad one. These people mine data for a living. If they're seeing catastrophic weather events trending upwards, that means something. He even said the old traditional averages around 05 have broken down.

That's vitally, fantastically important information.

Re:You missed a term

[laoseth]

Actually, insurance companies don't want the model to go up. I work at a company that writes Earthquake and Hurricane insurance, and we use RMS extensively to model and price our risk(in fact, part of my job is writing the code that pushes our policies into RMS). There are 2 things at work that you aren't taking into account.

1.) You don't have to have catastrophe insurance. At a certain point, people can't afford/won't pay for insurance, and at that point, you start losing money as your customer base shrinks. And even if you are required to (mortgage), at a certain point, people just can't afford it, and just start hoping no one will notice or take action.
2.) Insurance companies have insurance. Insurance companies pay for a huge insurance policy, known as re-insurance, to cover them, to pay out claims against their policies in huge events. Those re-insurance companies look heavily at the risk in your book of policies, and use RMS to determine their risk accordingly. They, like a normal insurance company, are looking to get as much money as possible, but there is much less competition(how many people can afford to pay out 10-100 billion dollars when an earthquake takes out half of LA). When this costs rise, the cost gets pushed through, or erodes into profits, as the Insurance companies try to avoid problem 1.

Re:Maybe

[Fjandr]

Except insurance premiums won't cover the actual losses. Insurers only make money when the premium averages exceed loss payouts. That's why they typically absolutely refuse to cover certain circumstances. When the actual average risk of loss outweighs the area's premiums, it's a fundamentally stupid idea to cover those areas.

Re:You would trust insurance companies on this?

[plover]

I actually personally think global warming is happening just I doubt the insurance companies care one way or another other than the direction and magnitude of expected adverse events.

And that's basically the short term direction. According to TFA, they don't really care if there's long term global warming or not, because they usually sell policies one year at a time. They just want to know how variable the next year might be so they can set the rates to offset the risk.

Re:You would trust insurance companies on this?

[msauve]

"For the first time in recorded history there existed an open-water path between the Atlantic and the Pacific."

Are you 13 years behind, or 69 years behind the times?

There are also reports of pre-western history passages from the orient.

Re:Nothing New

[Anonymous Coward]

Facts:

  - CO2 is opaque to infra-red radiation and transparent to visible light radiation, therefore it is a greenhouse gas
- burning fossil fuels releases previously sequestered CO2 into the atmosphere
- humans have been burning a large amount of fossil fuels and releasing a known amount of additional CO2 into the atmosphere

Hypothesis:

- humans releasing additional greenhouse gas could lead to an increase of trapped energy on the earth's surface, leading to an increased temperature and extreme weather

Theory:

- computer modelling predicts adding estimated amounts of greenhouse gas into the atmosphere could see a rise in mean temperature and energetic

Observation:

- weather observations show an upward trend in temperature, along with an increase in the frequency of extreme weather events

Conclusion:

- human activity is affecting the climate

Science motherfucker, DO YOU USE IT?!

Re:You would trust insurance companies on this?

[Alef]

The term "climate change" pre-dates "global warming". The former has been used at least since the 1950's. See for example The Carbon Dioxide Theory of Climate Change, Plass, Gilbert N., 1955 (link).

Also note that the UN panel (established in 1988) is named the "Intergovernmental Panel on Climate Change", not Global Warming.

They never really "changed it".

Structure beneath the randomness

[golodh]

You claim two things here, namely that we can't produce a preponderance of evidence that:

(1) that more widespread and severe weather extremes aren't related to an global change in weather patterns (i.e. climate change), and

(2) and that this global change is related to human activity

Well, that's an improvement on earlier positions taken in this debate in that you implicitly acknowledge that there are measurable and impactful weather changes. That used to be denied too (and still is by people who don't follow the news and by people who's thinking is faith-based rather than fact-based).

As to whether climate change is happening, the successive IPCC reports are remarkably consistent. It is.

As to the linkage between human activity and climate change, it's just the paragraphs aimed at the public and policy makers have been rephrased. Not the underlying observations and thought.

New Scientist has a readable and accessible discourse on how people deal with the message.

http://www.newscientist.com/article/mg21929360.200-climate-science-why-the-world-wont-listen.html

Re:We have this thing called "competition"

[FatLittleMonkey]

or unusually high solar activity.

Low.

Lowest numbers of solar storms and sunspots in over a century. Low to the point where an entire sunspot cycle seems to have been skipped.