Guest essay by Eric Worrall
A week after Warren Buffett broke the green taboo, by suggesting climate change will not be universally disastrous for his business, the overheated activist outrage is still boiling.
The Guardian suggests Buffett won’t be able to cope with what they predict will be an exponential increase in climate damage. Apparently one of the foremost global experts in pricing insurance risk cannot handle non-linear math.
… Of course, Buffett argues that insurance prices can be adjusted upwards each year to take account of new climate information that emerges. But if climate change is accelerating, even a yearly “true-up” in insurance rates will not be enough to protect insurance company profit margins. Current rates will always lag behind accelerating growth in damages and claims. The annual adjustment will merely slow down the widening gap between them. Airlines illustrate just how hard it can be to keep rates rising in step with fluctuations in jet fuel prices. …
Insurance Business America is even more direct in its criticism;
Warren Buffett slammed for dismissing climate change as potential worry for insurers
…
Environmental activists are not buying Buffet’s arguments, however.
Naomi Ages, climate liability campaigner at Greenpeace, told The Guardian that climate risks are unpredictable and that other insurers are taking the threat more seriously.
“Warren Buffett appears to assume that climate change is a manageable risk for insurers, but the damage caused by the increasing frequency and force of extreme weather events associated with a warming planet is set to become unmanageable,” Ages said.
“And unmanageable risks bankrupt insurers.”
…
Here I was, thinking the science was settled, yet Greenpeace are telling us we can’t predict anything.
Perhaps the most telling evidence of Buffett’s ability to cope with climate risk, and other insurance risk, is the following;
Berkshire Hathaway 4th-quarter profit up 32 per cent
…
“I think these results are pretty good”, Edward Jones analyst Jim Shanahan said. Volumes may fall this year as low fuel prices limit shipments of petroleum products and material used for extracting oil, Berkshire said. Buffett has warned that it will be increasingly hard for Berkshire to continue beating the market because the company is so large.
Read more: http://stateofthestateks.com/2016/03/07/berkshire-hathaway-4th-quarter-profit-up-32-per-cent/
Perhaps it is possible, that Warren Buffett knows how to manage an insurance business.
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If the risk is unmanageable insurers don’t insure it. Most household policies specifically exclude loss or damage from war or Acts of God such as meteorite strikes for instance. While Thermageddon may be sudden in geological terms, ephemeral humans will have time to adjust and Mr Buffet and his successors still turn a profit. This storm in a teacup merely underlines just how detached are the catastrophists from reality.
I forgot to add, “von Mises knew what he was about when he said, “If socialists understood economics, they wouldn’t be socialists”.
If socialists understood society, they wouldn’t be socialists.
You mean the von Mises that was subsidized by Rockefeller for many years before his university stint? Unsurprising given von Mises view that inequality was just fine, thank you.
ticketstopper,
We CAN make everybody equal. But it will require the best efforts of TOP MEN. Who will of course not be equal.
Why is it wrong for people to benefit from their labors and abilities?
What exactly is right about forcing one set of people to subsidize another set?
Kevin,
I think it was von Hayek.
@M Simon
Even if we ignore the neccesity of tyrrany for wealth redistribution, what is the result of that action? The most likely or easiest to achieve result is to bring everyone to the lowest common denomenator, or a state of poverty.
If you take tax away the fruits of one man’s labor in order to give it to someone else you teach these two people two very opposite lessons.
The man being taxed learns that he won’t benefit from his labors, so he stops working.
The man being subsidized learns that he doesn’t have to work in order to have his needs fulfilled, so he stops working.
“Most household policies specifically exclude loss or damage from war or Acts of God such as meteorite strikes for instance.”
WAY of topic, there is a great Australian movie out there, “The Man Who Sued God”. Covers just about all this ! His boat got struck by Lightning !! (comedy)
@ur momisugly chris in Hervey Bay March 8, you got links? (I don’t follow the movie industry but that sounds like a winner)
The Man Who Sued God. Billy Connolly. (courtroom clip)
Thanks Harry, I enjoyed watching that bit again. Bloody Cockatoos !!
Chris
Billy Connolly is a man apart. And his wife is very easy on the eyes, the comely Pamela Stephenson, and smart by all accounts, but she is a psychologist so beware.
I’ve been saying for years, the Smart Money knows what’s really going on. All the rest is bread and circuses.
If you are an insurer who believes Human induced Global Warming is tripe then there is money to be made for sure.
Because a savvy insurer can take advantage of the man in the street who believes the doom and hot propaganda by charging him increased premiums of which the general public are effctively being groomed so they will may well be happy to pay.
Therefore premiums up and payouts steady = profits are up in a big way!
Does Al Gore have any investment in insurance?
Cheers
Roger
http://www.thedemiseofchristchurch.com
Why do you think some insurance companies (e.g., Swiss Re and Munich Re) support publications that hype climate risks, even while they report higher profits from the lack of catastrophic climate events.
Hmmmm, interesting….maybe offer climate change insurance rider. Something like “if 80 years from now, due to increasing mean sea-level (not storms) (not eroding /changing coastline) your beachfront house is not usable. We pay”. Meantime collect additional premium for decades.
In this case following the money is exactly where it is at.. He is no fool.
Mock horror… um, I meant shock horror.
….yeah right Insurance companies will undercharge for their coverage. That will be an absolute first.
Open up a Green and you will find unconnected mush filling the space between their ears.
“That will be an absolute first.”
Sometimes going into new things they do undercharge, but not for long.
Long Term Care is an example of what they actually do.
Many companies got into this and miscalculated the risk.
They began to lose money.
Some raised rates – a lot. Others got out.
Some older folks I know have fantastic ‘legacy’ policies, being subsidized by other parts of the insurer’s business. Such deals are no longer being sold.
Warren is a friend of Bill (Gates, that is.) Notice that Bill is getting smarter about climate than he was 15 years ago.
Yes, when Long Term Care covereage started there was virtually no past data to guide insurers so they had to make guesses which turned out to be overly optimistic leading to big losses. For example some insurers priced for a 5% lapse rate and thought that was conservative but some blocks have experienced near zero lapse rates.
“Open up a Green and you will find unconnected mush filling the space between their ears.”
I’d be surprised if you found anything.
Where do Greenpeace go to find all these useful idiots?
Their bank accounts ?
Where do Green peace go to find all these useful idiots?
To Friends of the Earth – and vice versa.
I have to channel Dilbert here: LinkedIn.
Let’s try this again:
Link here
And why are they all called “Naomi”?
And why are so many of them named Naomi??
“But she said to them”Do not call me Naomi; call me Mara, which means bitter”….
Ruth Ch1:20
Does this help explain their name, they do seem to be quite bitter!
James Bull
I moan
they are all backwards, these Naomis
You mean simoaN.
Well here’s where Greenpeace and the Guardian can make a stack of money.
Go to the stock market and short all of Warren Buffett’s insurance companies.
……..on the other hand if Warrens right…….
I personally think Warren Buffet is a jerk, but that doesn’t keep me from holding a number of B Shares of Berkshire Hathaway … i.e., don’t bet against Mr. Buffet where a profit is concerned.
Mark
You’re a little harsh, but not incorrect.
I also have (and profit from) BRK/A and am appalled at Buffet’s comments regarding his tax bracket vs his administrative assistant’s: she pays income tax; Buffet pays capital gains tax. He knows this and is willfully misleading the (as always poorly educated) general public.
Also has donated the vast majority of his wealth to charity upon his death, once again, avoiding taxation.
There was plenty of rebuttal to the Guardian article in the comments section. This was one:
I saw someone make a comment on one of the Guardians Climate stories yesterday and they mentioned the song Imagine.
I wonder what it would be like if we we didn’t have to listen to the constant doom and gloom from so called climate scientists. Would we notice anything different about the climate.
Imagine there’s no climate science
It’s easy if you try
No heat hiding in the oceans
Above us lonely CO2
Imagine all the people living for today
Imagine there’s no IPCC
it isn’t hard to do
Nothing to falsify or lie for
And no hockey sticks too
Imagine all the people living life in peace, yooou
You may say I’m a sceptic
But I’m not the only one
I hope some day you’ll join us
And the world will be as one
Imagine no climate funding
I wonder if you can
No need for grants or adjustments
No brotherhood of Mann
Imagine all the people not scared of the climate, yooou
You may say I’m a doubter
But I’m not the only one
I hope some day you’ll join us
And the world will be as warm
That’s hilarious 🙂
@ur momisugly David Fotheringham , March 8, Thank you sir you made my (2 am PST) day, you made me laugh but in a way also shake my head in sorrow. but many ^^^’s. Thanks.
it is amazing it got through the Guardian censors.
From the article…”Airlines illustrate just how hard it can be to keep rates rising in step with fluctuations in jet fuel prices”.
? As fuel prices plummet and the relationship between fuel prices and CAGW is lacking.
That really deserves to be made into a SONG !! 🙂
Someone send it to the Minnesota group – names. along with most everything- slip on by!
+100000000!
‘fraid it’s been done already:
If we accept, for sake of argument, that we are on an exponential curve it matters where we are on the curve. Currently, we are on the portion of the curve where the rate of increase is so small that it is swamped by noise. In other words, we can’t tell that we are on an exponential curve.
When the signal is finally strong enough to distinguish from the noise I guarantee that the cacophony from the alarmists will be so loud that the insurers won’t be able to miss it. In other words, the insurers have an early warning system, the alarmists. The insurers will have an excuse to dramatically increase premiums, in excess of what is actually warranted, and the panicked public will accept that.
God bless the alarmists, the saviours of the insurance industry.
Anyway, most (all?) non-linear systems have large areas were they behave linearly.
You can safely huge these systems as long as you don’t push them in dangerous areas.
When I was a pup we had to worry about things like that. These days we just throw a computer at the problem and force linearity … except occasionally it doesn’t work. 🙁
I once visited a rolling mill with giant motors dating back to the 1920s. The old, simple (but not easy to understand), analog system worked. The new computerized system produced the occasional awful pile of crumpled steel. The engineers who designed the original system were long dead. As far as I can tell, the new engineers never got the system sorted out.
Greenpeace are to environment as FIFA are to football.
Guardian Media Group never minded fossil fuel investment until someone pointed it out to the Guardian crackpots. Then all of a sudden they were “divesting”.
The Guardian doesn’t like off shore money dealings, but the Guardian media group do.
I wonder how many bike pedaling acolytes it would take to run the presses, let alone deliver the papers that are made magically out of bark to “spread the word”, I guess they use helium balloons to go world wide? ( made out of latex the process using ??… oh forget it, their crapola is astounding.
Helium is recovered from natural gas wells. including the fracked kind.
Besides, it takes real hard physical work to make bark into paper and convert latex sap into natural rubber.
“exponential increase in climate damage”
maybe so but no evidence to blame that on fossil fuel emissions
https://www.researchgate.net/publication/292991614_THE_SPURIOUSNESS_OF_CORRELATIONS_BETWEEN_CUMULATIVE_VALUES
The major DAGW scaremonger in insurance circles has long been Munich Re, which takes the view that weather worries are a great lubricant for premium increases.
And that’s awkward because Berkshire Hathaway, its largest shareholder, believes transparency is a better way to earn its clients’ trust.
IPCC WG2 AR5 Ch10 has a substantial section on climate change and insurance. It argues that the insurance market needs to change and that, if it does reform, risks are manageable.
https://ipcc-wg2.gov/AR5/report/full-report/
Buffett certainly isn’t saying that there’s no need to worry about climate change. His letter is here. Here is the relevant part:
“If super-cats become costlier and more frequent, the likely – though far from certain – effect on Berkshire’s insurance business would be to make it larger and more profitable.”
I see what he means.
Nick, here is the factual part of the relevant quotes you selected..
==============================================
“Up to now, climate change has not produced more frequent nor more costly hurricanes nor other weather- related events covered by insurance.”
==============================================
All the hoopla, all the scare tactics, all the blaming of your SUV on this years drought and flood, last years sea ice increase, this years sea ice decline, this tornado, that hurricane, etc…, is unmitigated B.S.
is unmitigated B.S.
NAILED !!! 🙂
Nick: There is also the “too big to fail aspect”. AIG was essentially bankrupted by the mortgage meltdown. Their demise would have caused severe losses at other companies, notably Goldman Sachs. So the Federal Government decided that they were “too big to fail” and bailed them out. This also bailed out Goldman Sachs (Buffett had bought a substantial amount of preferred stock in GS).
In economics, this is termed a moral hazard – people tend to act rashly when they are absolved from the adverse consequences of their actions.
It may be rash to ignore the consequences of climate change, but it is moot if the government are going to bail you out if you are wrong and suffer what would be catastrophic losses.
Nick –
Instead of the government bailing people out, consider the other side of the coin. What if — and this is a big if — GS, Chase, the Fed, Wall Street, and the CFR are the government? And nothing really happens unless they sign off and set it in motion? That all else is bread and circus?
Thanks for digging up the quote, Nick. It is clear that Buffet accepts future climate change and at least some damaging consequences as likely, and thus he doesn’t really challenge any dogma. But, he does point out that so far no such damage has manifested itself on his balance sheets.
That he gets berated for this simple factual statement makes the whole brouhaha even more ridiculous and revealing, of course. Obviously, even mentioning facts that might suggest the possibility of climate change being merely damaging rather than apocalyptic, now qualifies as a thought crime. Comrades Stalin and Mao would be proud of their little Green disciples.
Buffet is talking out of both sides of his mouth, with one goal: keep my insurance business profitable.
Side 1: The precautionary fallacy (calling it “Pascal’s Wager” didn’t change what he actually said) says that even if there is a teeny tiny little chance of disaster: BUY MY INSURANCE, just in case, for there is definitely AGW going on (“Hyuck, hyuck, I’m no scientist… but, I KNOW” — barf).
2. AGW is happening, but we can manage it: BUY STOCK IN MY INSURANCE COMPANY.
The End.
The Green screamers either don’t get what he meant (he PROMOTED the fantasy of AGW) or are actually sock puppets for ins. market competitors/potential competitors trying to expand the disaster ins. market/get their own insurance products marketed by saying Buffet’s policies are not adequate.
Insurance companies are a source of large pools of money for renewable energy projects such as wind and solar.
UNEPFI/UNEP Finance Initiative has a list of insurance companies that have pledged to fund renewable energy projects and some already have funded projects for several years.
Scare the public and get insurance rates up as an increased source of funds.
Nick
Buffet doesn’t really say very much about climate change one way or the other. What he is focused on is Berkshire profitability
Chip,
“Buffet doesn’t really say very much about climate change one way or the other.”
Well, he says:
“It seems highly likely to me that climate change poses a major problem for the planet. I say “highly likely” rather than “certain” because I have no scientific aptitude”
That’s something, but the caveat is important. What he does say is that when people suffer more damage, that is good for the insurance business. After the initial payout, demand grows. And he’s saying shareholders should be of good cheer.
OT: did you guys see all these holes opening up in Siberia ?
https://www.rt.com/news/316261-siberia-crater-new-abnormal/
How many holes does it take to fill the Albert Hall?
Looking at the size of some of them? Only one.
I dunno, shall we count them all ?
They have formed all over the place.. for AGES !!
Donald Trump is building a new golf course.
Warren is an Omaha boy. I grew up there. I’m friends with his wife’s former hair dresser.
Smart feller. For a Democrat.
A single share in Berkshire Hathaway, Buffett’s company, trades at about 208,000.00 USD. The Guardian is running with an annual loss of £ 25,000,000.00 – I think I know which of them has the better business acumen.
Pointman
The standard insurance formula calculates premiums based of the product of the probability of loss times the severity of the loss.
Warren Buffett is insuring based on the probability of loss in the real world and not the probability of loss in broken climate models that have never shown any skill at predicting what actually happens in the real world. Buffett made a fortune betting against the increased frequency and severity of hurricanes that was predicted to occur after Hurricane Katrina.
Green nincompoops telling Warren Buffett how to invest would be like me telling Roger Federer that he does not know how to serve and that I know better.
After reading about UN climate hypocrite Leo dicaprios ” Eco resort ” which will cover 1/2 the land area of a previously uninhabited and undeveloped tropical island with capital intensive energy intensive residences for uber wealthy oligarchs and His eco conferences , my first thought was who in the world would insure a beach front sea level mega development on an island barely above sea level in the middle of the Caribbean hurricane zone ? Even with a former Goldman Sachs honcho as his partner who would insure such a thing ? Inquiring minds want to know . If actions speak louder than words clearly Leo and his buds aren’t too concerned about sea level rise or the threat of future hurricanes .
If you accept the fact that the Earth’s climate systems are too complex to model and understand then it seems to me that adding on the additional layer of an even more complex world economy pretty much makes economic predictions of the impact of climate change completely impossible.
friend told me.
agw must be real… the insurance companies believe it is.
true ,
left me standing jawdropped
Now here’s a real money-losing insurance program …
Union of Concerned Scientists: Overwhelming Risk. Rethinking Flood Insurance in a World of Rising Seas
http://assets.njspotlight.com/assets/13/0813/2103
If Berkshire loses money the cost is borne by the stockholders who can stop being stockholders any time they want. The cost of the National Flood Insurance Program is borne by taxpayers who don’t have the same option.
..and rising “sea levels” have nothing to do with the situation. They nailed it in their opening; “risky patterns of land development”, both location and capital intensity. When I grew up in NJ, many seaside communities had very well maintained “shacks” with cots and changing rooms (and an outdoor saltwater shower) where commuters could spend weekends. Other areas were marshes. When a storm hit (and there were many) there were minimal financial losses. When development got crowded and “pricey”, private insurance companies realized premiums were not going to cover losses and they pulled out of the market. Taxpayers stepped in with Federal Flood insurance.
Enter the Moral Hazard mentioned above.
This nicely exposes the Green Blob’s failure to accept ANY contrary opinion to AGW or any component of it. Criticism = heresy, with NO exceptions. What Warren Buffet doesn’t know about his business isn’t worth knowing, yet rather issue a considered response their reaction is simply to lash out and attack everything he said. Pitiful stuff.
Whimper fury is a better description
People don’t read the Guardian to learn anything (and fewer are reading it all) which is good since they never will.
‘Airlines illustrate just how hard it can be to keep rates rising in step with fluctuations in jet fuel prices. …’
Er, given their increase in profits due to fuel costs falling I don’t think they are having much of a problem. Although now they are facing demands to reduce ticket prices in the light of the increased profits.