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.
Perhaps it is possible, that Warren Buffett knows how to manage an insurance business.