Writing a newsletter on a morning when the president of the United States threatens that "a whole civilization will die tonight" strikes me as a fool's errand. Whatever I write will quickly pale in comparison with what happens -- or, I hope, doesn't happen -- in Iran in the next 24 hours.
So I'll keep it short this week, just pointing out something I've been tracking for a while: that a "super" El Niño has become increasingly likely. An El Niño increases surface temperatures in the ocean, leading to higher temperatures worldwide and exacerbating just about all the sorts of natural disasters that have been producing record claims for property/casualty insurers (with the notable exception of Atlantic hurricanes). And the El Niño that's now forming looks like it will produce a far greater increase in ocean temperatures than normally occurs -- perhaps the greatest in 140 years.
I'll take a quick look at the likely effects -- and at why U.S. insurers need to be even more careful than usual about their public statements and handling of claims, given that the insurance industry is an easy target for politicians looking for scapegoats in an election year.
Then we can all get back to our doom scrolling.
A Washington Post article does a thorough job of laying out the risks of the El Niño that is forming. It says a "super" El Niño is one in which a key part of the Pacific Ocean sees surface temperatures increase by more than 2 degrees Celsius (3.8 degrees Fahrenheit) above average. The El Niño now taking shape could see the temperature rise 2.8 degrees Celsius (5.04 degrees Fahrenheit) above average, breaking the record set in 2015.
The result, the article says, could be:
- "Reduced hurricane activity in the Atlantic Ocean and possible drought in the Caribbean islands. Increased hurricane and typhoon risk in the Pacific Ocean....
- "Potential drought in central and northern India....
- "Above-average summer temperatures and humidity in the Western United States, possibly coming with unusual downpours, which may reach into the Plains and extend severe thunderstorm season.
- "Developing droughts in portions of Central Africa, Australia, Indonesia, the Philippines, some South Pacific islands, Central America and northern Brazil, particularly later in the year. Flooding downpours in Peru and Ecuador, parts of northern and eastern Africa, the Middle East and near the equator in the Pacific.
- :Higher frequency of heat waves across large parts of South America, the southern United States, Africa, Europe, parts of the Middle East, India and eventually Australia.
- "New global temperature records — especially in 2027 — probably breaking records set in 2024."
These threats come as high temperatures and low precipitation have created drought conditions across more than half the continental U.S. The problem is especially severe in the West, where devastating wildfires have become all too common.
So, while the lack of a landfalling hurricane in the U.S. last year meant insured losses from natural catastrophes were below the average for the past decade, claims could well soar this year.
Natural disasters always draw complaints about insurers. Everybody wants the recovery to be fast and smooth -- in situations where it's almost impossible for anything to happen fast or smoothly. Politicians, always looking for a way to position themselves on the side of voters, will home in on problems and publicly scold insurers -- a week ago, President Trump made a social post calling State Farm "absolutely horrible" for its handling of the Los Angeles fires early last year, and we can expect a lot more sniping at insurers from all sides in the run-up to the fraught mid-term elections this November.
So everyone in the industry needs to be on high alert as the El Niño develops, helping people make their homes and properties more resilient and then, when the inevitable losses occur, acting as swiftly and empathetically as possible to help people recover.
In the meantime, let's all hope and pray for a sane resolution to the man-made disaster taking place in the Middle East.
Cheers,
Paul