Insurance experts: Get ready for climate change now

Climate change denialism is an astounding ball of contradictions and conundrums.

For example, while most denialists claim to be free-market devotees, they pointedly ignore market indications that climate change is real, aggravated by human actions (and inaction), and that humans can do anything about it.

Look at the insurance industry.  I’ve noted often that, here in Texas, we pay higher premiums on home insurance because climate change has produced worse weather, which costs insurance companies a lot.  Insurance company actuaries are paid to predict the future, reliably.  If they fail, insurance companies die quickly.

The “market” girds itself to fight climate change that governments are not going to move fast enough to prevent.  This will cost you a lot of money.

A good place to go for information about climate change and how it affects is the Lawrence Berkeley Laboratories, a group that studies the future and is no longer limited (if it ever was) to nuclear future issues.

Insurance in a Climate of Change, The Greening of Insurance in a Warming World, is loaded with information about insurance industry calculations of what the future is, and how insurance companies might and should react to the changes.

How relevant are weather-related natural disasters for insurers, and is there any evidence that the situation is worsening?

Globally, we are seeing about $80 billion/year in weather-related economic losses, of which $20 billion (about a quarter) are insured. This is like a “9/11″ every year. Weather-related losses represent about 90% of all natural disaster losses, and the data I just cited do not include an enormous amount of aggregate losses from small-scale or gradual, non-catastrophic events (e.g., lightning, soil subsidence, gradual sea-level rise).

Inflation-adjusted economic losses from catastrophic events rose by 8-fold between the 1960s and 1990s and insured losses by 17-fold. Losses are increasing faster than insurance premiums. The insured share of total losses has increased dramatically in recent decades, and variability is increasing (a key trouble sign for risk-wary insurers). Weather-related catastrophes have clearly visible adverse effects on insurance prices, and availability. Of particular concern are the so-called “emerging markets” (developing countries and economies in transition”, which already have $375 billion per year in insurance premiums (about 12% of the global market at present, but rising). They are significantly more vulnerable to climate change than are industrialized countries. Emerging markets are the center of growth for the industry, yet they are also the center of vulnerability.

Increased exposures are surely influenced—and no doubt heavily in some areas—by rising demographic and socioeconomic exposures. Yet, the rise in losses has outpaced population, economic growth, and insurance penetration. The science of “attribution analysis” is still in primitive stages, and thus we cannot yet quantify the relative roles of global climate change and terrestrial human activities. Some have prematurely jumped to the conclusion [PDF] that demographic trends explain the entire rise in observed losses. In the year 2005, three independent refereed <!– –>scientific articles drew linkages between hurricane trends and climate change.

Denialists claim weather stations are badly-placed, and so we need not worry about climate change since warming can’t accurately be measured — never mind the worldwide rise in temperatures of atmosphere and oceans.   Denialists claim that the greenhouse effect cannot be blamed on carbon dioxide emissions since carbon dioxide is such a small proportion of the gases in the atmosphere, apparently wholly unaware of the greenhouse effect in atmospheric gases, or unaware that only a thin pane of glass makes a greenhouse work.  Denialists claim that polar bears do not decline precipitously, yet, so all wildlife will be unaffected – nevermind the dramatic shifts in migration patterns of birds and migrating mammals, and the dramatic shift in the arrival of spring.  Denialists claim that Boston Harbor has survived 300 years of human development, so all harbors can survive any increase in ocean levels, nevermind the pending disasters of islands sinking out of site and destroying entire nations in the South Pacific, and never mind the drownings in Bengla Desh at every cyclone.

Most denialists rent apaartments or own homes.  Denying the insurance increases will be more difficult, though I fully expect Anthony Watts and Co. will deny that the insurance company actions and studies of global warming are warranted or accurate.

Is there any good news in all of this?

By all means. Insurers need to look no farther than their roots as founders of the original fire departments, early advocates for building codes and fire safety, etc. That is to say that insurers’ history is all about risk management and loss prevention. The same thinking can apply in the case of climate change. Just as insurers fought fire risks through encouraging fire safety, better modeling, and fire suppression, so too can they be part of the climate change solution. This can take many forms, ranging from providing new insurance products (e.g., for carbon trading or energy savings insurance [PDF]), to promoting energy-efficient and renewable technologies [PDF] that also help prevent everyday losses, to engaging in the broader policy discussion on climate change. Insurers can also be part of improving the underlying science of climate change, modeling, and impacts assessment. We maintain an extensive compilation of examples of how leading insurers are stepping into the arena in a constructive manner.

Alas, there is no insurance against the dithering of climate change denialists.

Go, with all thy internet getting, get thee wisdom.

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13 Responses to Insurance experts: Get ready for climate change now

  1. […] Insurance experts:  Get ready for climate change now (Millard Fillmore’s Bathtub) […]


  2. blueollie says:

    John, I understand the probability theory and the hypothesis testing that you are getting at (use the normal approximation to the binomial distribution, reject the null hypothesis if, say, p l.t. .05, etc.)

    What I don’t understand is

    1. What are the statistics being measured
    2. If H0 = “no climate change”, what p value are we seeing with regards to, say, “the number of expected hot days, “wet” days, etc.)

    I should point out that where I live, we are seeing an abnormal amount of rain and the University of Illinois is directly attributing this to climate change.


  3. Ed Darrell says:

    Mike said:

    Regarding harbors – much of northeastern San Francisco is landfill built up from taking down some of the hills and filling up San Francisco Bay. Perhaps if the Obama Administration allows the continued removal of mountaintops to access the rich coal veins of Appalachia they could authorize landfill build up to restore coastal cities swamped by rising ocean levels.


    Mike, I think some readers may have missed the sarcasm in your comment.


  4. Ed Darrell says:

    Human action will tell, too — time and human action, or inaction, will tell.


  5. elmike says:

    This is a very interesting article, thanks for posting. Maybe we could create our own mountains using landfills, or maybe we are doomed to the fate portrayed in Wally. Only time will tell.



  6. mark says:

    I’m surprised the insurance industry doesn’t refuse to pay off on global-warming related claims, insisting that global warming is not anthropogenic, but an “act of God.”


  7. Nick Kelsier says:


    And if it’s not a reaction to that?

    One doesn’t put fire alarms in a building after a fire.


  8. John Mashey says:

    Oops, for previous post, the right link was this.


  9. John Mashey says:

    The simplest way to think about climate change and weather goes like this:

    1) Flip a fair coin 100 times. Put n=100, p=0.5 in binomial probability calculator, to see the distribution of heads.

    2) Now, change to p=0.6 (ie.., a slightly unfair coin).

    You cannot prove that any given Heads happened due to the change from 0.5 to 0.6, but:

    a) You know Heads will happen more often.

    b) You expect to see more/longer sequences of Heads in a row.

    Here’s a more involved <a href=" Excel spreadsheet to illustrate this.


  10. […] Millard Fillmore’s Bathtub offers an interesting argument about climate change being real: insurance companies have changed their weather related insurance rates. Of course, I’d have to see if this happens due to temporary cycles in weather (e. g., does […]


  11. blueollie says:

    I honestly don’t know if this is evidence for Global Warming or not (BTW, I agree that climate change is real and human activity is a significant factor).

    But there are often cycles in weather patterns and what we are seeing in terms of risk might be a reaction to that.


  12. John Mashey says:

    See for Texas drought, and also Lou Grinzo’s collection of graphs.

    re: harbors

    Mike: do you actually *participate* in sea-level-rise planning exercises with scientists, town planners, governments? Say, like Preparing for Sea-Level Rise in the Bay Area?

    a) Doing landfill by trucking modest amounts of dirt a few miles downhill.

    is not the same as

    b) Moving huge volumes of dirt hundreds of miles to protect thousands of miles of coastline, and worse, to do something for existing sealevel infrastructure. For example, building dikes may protect houses and such, but it doesn’t magically raise them, and especially, it doesn’t help sewage treatment plants, which:

    – are usually located near sealevel so that the sewage flows downhill to them
    – but above sealevel, so that treated output can flow downhill as well. Yes, of course, you can do more pumping – it’s just energy.

    c) Some of the SG Bay Area is at least hilly, but +1m laps at Rt 101, much of San Jose is flat and

    d) Even without that, high sea levels mean stronger saltwater incursion into aquifers for groundwater. Depending on location, that may or may not be an issue.

    To bring it back to Texas, here is a GoogleMaps on sewage plants around Corpus Christi


  13. Mike says:

    Regarding harbors – much of northeastern San Francisco is landfill built up from taking down some of the hills and filling up San Francisco Bay. Perhaps if the Obama Administration allows the continued removal of mountaintops to access the rich coal veins of Appalachia they could authorize landfill build up to restore coastal cities swamped by rising ocean levels.



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