The insurance industry does not agree that Sandy was evidence of climate change.
Story submitted by Robert Bissett
I happened to be listening to NPR this morning through my pillow speaker. I was only half awake. Even so, the first balanced reporting about anything to do with climate change on NPR made an impression. Uncharacteristic, but refreshingly candid, admissions of truth were made.
The insurance industry is constantly updating their risk models as new information comes to light. Billions of dollars are at stake. Estimate the risk too high and you price yourself out of the market. Estimate too low and the volume of claims could bankrupt you. Insurance companies are highly motivated to discover what’s going on with the climate. Political correctness and flimsy climate models carry little weight in this arena.
The story began by quoting the head of Geo Risks Research: “We believe that climate change is a big problem and will drive losses in the future.” The expected standard line. But, he also admitted that evidence Sandy was caused by climate change does not exist! At that point I began to listen more closely. Risk-management consultant Karen Clark pointed out that after Katrina “some” predicted more powerful storms could be expected because of the warming climate, which she pointed out has not happened. The president of Eqecat, a risk-modeling firm, said we are actually in a low period of hurricane activity. Something you would never know from the media.
Maybe the judgment of insurance companies forced to face reality is a better measure of climate change than pal reviewed papers.
http://www.npr.org/2012/11/04/164185424/insurance-companies-rethink-business-after-sandy
Steve
As a Brit doing business in the US I can promise you that a cartel is just as illegal there as it is at home, and there have been a number of very aggressive class actions against insurers suspected of behaving in this way. So insurers can all get together and howl about Climate Change, and moan that premiums are too low (whose fault is that? – they could have chosen not to play if the clients were not paying enough) and they can individually raise prices, but they can’t get together to raise prices.
A problem with your eminently sensible solution to poorly sited or constructed buildings is that there are state- and federally-mandated residual markets where people can get cover if commercial insurers refuse or surcharge, so there is little incentive to fix the problem.
Listening to NPR, especially in the morning before ones synapse have properly woken up, can cause brain damage.
DG
I have been thinking along the same lines as you, but then I read this from Chris Landsea, who is respected on this by both warmists and skeptics.
“When the Atlantic is in a warm phase, not only are the waters warmer by ~ 1/2°F (~1/4°C), but the atmosphere has more moisture, less wind shear to tear incipient hurricanes apart, and more vigorous and plentiful thunderstorms that fuel the cyclones. Conversely, in the cool phase of the Atlantic Multidecadal Oscillation, the waters are slightly cooler and the atmosphere is drier, has more inhibiting wind shear, and cannot sustain the thunderstorm activity as readily.
The warm phase of the Atlantic Multidecadal Oscillation occurred during the 1870s to the early 1900s, the late 1920s to the late 1960s, and from 1995 onward. Conversely, the cool phase occurred during the 1850s and 1860s, the mid-1900s to the mid-1920s, and the early 1970s to 1994.
These multi-year swings in ocean temperature are nearly an exact match to the adjusted number of tropical storms, adjusted hurricanes, U.S. hurricanes, and normalized U.S. hurricane damages. When stratified by the Atlantic Multidecadal Oscillation, there is a doubling in the number of major hurricanes, a 50% increase in the frequency of U.S. landfalling major hurricanes, and over three times as many Caribbean hurricane strikes between the warm and cool phases.
http://www.aoml.noaa.gov/hrd/Landsea/gw_hurricanes/
So I see a contradiction: Does warming (specifically SST) increase hurrican activity or not?
DG
A further thought. Maybe your point is that even if CO2 caused some warming at the poles, it could only moderate the storm activity driven by AMO.
However, some insurance companies, like Munich Re, are milking global warming for all it’s worth.
http://wattsupwiththat.com/2012/10/10/climate-craziness-of-the-week-usa-today-thinks-severe-weather-began-in-1980/#comment-1106237
http://wattsupwiththat.com/2012/10/10/climate-craziness-of-the-week-usa-today-thinks-severe-weather-began-in-1980/#comment-1106556
Ben D. says:
November 5, 2012 at 1:14 am
:Like Y2K gouging, the Insurance industry into the future will probably get together to use CAGW as a pretext to gouge..
Like Big Bad Oil have done?
Ron C. says: Does warming (specifically SST) increase hurrican activity or not?
What I understand is that it’s DIFFERENCES between upper atmosphere and SST that cause more storms. And in general, warmer planet times show less extremes overall. But still, if the AMO is in the wrong phase, differences will be accentuated.
Richard Muller on climate change and the insurance industry, June 21 2012:
Greg Dalton: You’re saying climate change is good for the insurance industry because they get to create new products and raise rates?
Richard Muller: No no no not that climate change is good but that the perception of climate change is good. You get people to insure against climate change and then they (insurers) make more money……..If the climate actually does change they’ll make more money anyway because there are more things to insure and if it doesn’t change they make a whole lot more money.”
as an actuary i’ll chime in, given this is a subject close to my heart.
There are varying opinions about climate change, just as in any field. I know those who are very skeptical (myself included), while some are true believers that work in environmental type roles. To be fair, even the true believers will accept modeling that is contrary to their personal beliefs as an good actuary should.
Probably the most respected actuary i know has said “if you think there is a scientific consensus on climate change you are either mad or havent explored the issue in any detail. We have no idea at this point in time what the real drivers are”. This from a man who is, personally, very environmentally conscious (like many skeptics actually).
There is an incentive for reinsurers such as Munich Re to overhype climate change as a problem; its a nice reason for them to be increasing premiums.
While i do think David raises some good points re modeling (they have underestimated complexity and the effect of demographic shifts in the past) i dont think that the models are necessarily as bad as he suggests. You have to recognise the limits of modeling to begin with. Concentrations are quite difficult to model accurately, and they are dealing with tail risks that are virtually impossible to model (ie was Sandy a 1 in 100 year event or 1 in 50? Who knows, but it makes a big difference). Its in the tail events that the big losses occur, and here you need to rely on scenarios and other analysis rather than models to get it right. The models will almost always underestimate tail risk, simply because we havent seen enough tail events to properly understand what we are facing. A good example is Yellowstone: there is a very minute chance of a devastating catastrophe there. No model will capture it; you need to explicitly model a scenario around it.
Its pretty common in the insurance industry to have insurers willingly and knowingly set premiums below “cost” at times and make their money on investment income. This ebbs and flows along what we call an insurance cycle: premiums will get cheaper and cheaper (to the point where an underwriting loss is expected), insurers will suffer losses, premiums will then rise over time to offset those losses until that competitive instinct kicks in, and then the cycle starts again.
I enjoy arguments about companies benefiting from AGW or any other supposed factor that allows them to take “unjust” profits. A quick review of 5 major insurance companies on Yahoo Finance found that their average profit margin was 10%. That’s higher than Exxon but lower than darling do gooders like Apple. If you truly think these companies are going to benefit, then buy their stock!
I truly believe market solutions like this have good potential for accuracy. These companies have ‘skin in the game’, they aren’t just pulling down grant money and theorizing.
Pete: Thanks for your knowlegeable comments. Rufus, I agree.
Working in insurance can I just say that most quotes on climate change / CAGW are from reinsurers. These guys have a vested interest in talking the game up to maximise profit!