November 27, 2018
What Do Insurers Think About Climate Change?
by Paul Carroll
As a reporter at the Wall Street Journal, I was taught to watch for news that companies would try to bury by releasing it over holiday weekends and to make sure that the news got all the coverage it deserved – maybe even a bit more, just to teach the company a lesson.
In that spirit, I’d like to tee up a discussion on the report on climate change that the U.S. government released on Friday, as so many of us were lounging on a couch, semi-comatose after the friendly gluttony from Thanksgiving support the night before. The report is getting plenty of coverage – somehow, the news media seems vigilant about not letting the Trump administration bury inconvenient news – but is missing what I think is a key element: the role that the insurance industry can play in adjudicating the debates that have already begun about the accuracy of the gloomy climate forecast.
The report has the potential of a Nixon-goes-to-China moment, even though so many conservative commentators went on the Sunday interview shows to say the equivalent of, “No, Nixon didn’t go to China,” or even, “China, what’s China?” in reacting to the new report. (I’m thinking mostly of those who argued that the legions of U.S. government scientists in the 13 agencies that produced the massive report were somehow paid by outside interests to manufacture claims of climate change. I’m not sure how that would even work.)
The staying power could come because this report wasn’t issued by a Democratic administration but by an aggressively anti-regulation administration that has trashed the idea of man-made climate change – yet produced a report that said there could be a 9-degree Fahrenheit rise in temperatures by the end of the century and that 10% of the U.S. economy could disappear, unless drastic changes are made.
While insurance pricing doesn’t have much to say about what will happen 80 years from now, it does have a lot to say about what will happen in the short to medium term. We won’t stop the debates about the science in the report. Debates will also rage about how much burden the U.S. should shoulder in stopping or reversing climate change. (What if China and India don’t do their part? What about the jobs that could be lost between now and the end of the century because of efforts to halt climate change? Etc.) But there’s a dollars-and-cents issue that comes into play now as insurance underwriters diligently assess risk.
I say we let our voice be heard, pointing out where risks associated with climate change are rising, leading to more frequent and severe claims–as well as where they aren’t. So, I’d appreciate any feedback on what’s actually happening with property rates and claims. Does loss experience for homeowners in hurricane zones suggest an increase in danger? If so, do today’s rates reflect that increased exposure? How much? What about rates for homeowners near drought-ravaged forests? Or for those homes along the coast who would be vulnerable to rises in sea levels?
In other words, are underwriters already factoring increased exposure into their models and rates, or does the industry regard climate change fears as overblown? And what do reinsurers, as the aggregators of all this real or perceived risk, say?
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Have a great week.