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.
From http://www.reuters.com/article/us-disaster-insurance-idUSKBN0UI0XI20160104:
The whole article is alarmist in spite of the facts also quoted in the article.
“The $27 billion in insured damage last year was lower than the $31 billion registered in 2014 and also below the 10-year average of $56 billion, Munich Re said.”
“Overall damage, including that not covered by insurance, was $90 billion last year, the lowest level since 2009.”
The insurance market thrives on risk. A new “danger” helps them increase premiums. What Buffett is saying is common sense. Sadly any sense whatsoever is sadly lacking with those on the Alarmist side. Any mention whatsoever about their “bogeyman” AGW being somehow manageable will get them all apoplectic and unnecessary.
Conformity is not morality.
Consensus is not truth.
They need to realise the reality of the two points above. Some, myself included, have done this. Some will be incapable of so doing.
Buffett is a pragmatic realist. Nuff said……………
As usual, leftists assume that they know more about running a business than do the people actually running that business.
So what happens to the insurance biz when, as seems likely to me, unsupported fears of warming cause them to raise their rates above what the market will bear. Companies do sometimes decide to self-insure if it’s cheaper to set aside reserves than buy coverage. They could even face charges of price gouging, which damages them reputation-wise or even forces them to pay damages and fines.
Florida has the Office of Insurance Regulation that regulates insurance companies and their agents operating in Florida. It acts in the best interest of the people of Florida including approving/modifying requests for rate increases.
BTW, this is precisely the reason it would be a very bad idea to allow insurance to be sold across state lines. Now, if you have a complaint against an insurance company or its agents you can take it to the Florida Division of Consumer Affairs who will look into it. It is handled at the state level where you will actually have it resolved one way or the other. Imagine if you could only file a complaint at the national level with the Commerce Dept. HA! What are the chances your complaint would even be reviewed let alone have any action taken on it. So when I hear candidates or other people proclaim the “across state lines” solution I know that they have very little knowledge of how the insurance industry actually operates.
Insurance regulators actually regulate insurance to protect their friends in the insurance industry. This is true for all states.
Even better. If you have a complaint against an insurance company, take your business elsewhere and leave the govt out of it.
The state issues licenses to brokerages and agents under the statutes of that state. The statutes set the criteria for the issuance of these licenses and the oversight power of the businesses once licensed. It is presumed by the state that the consumer is not educated enough to know when they are being cheated so the state monitors insurance activity and acts as a consumer protection agency. Here is an example. It is called “churning”. Agents work on commission and it is illegal for an insurance agent to change a person from one product to another if the change harms the person financially just so the agent can earn a commission. If this happens and a complaint is filed on suspicion then the state will investigate. The state has the power under the statues to subpoena company records and hold hearings which could result in administrative or financial punishment. No other entity can do this. If you are cheated out of money, how would taking your business elsewhere get your money back? Who would stop the agent or agency from doing it over and over again? State licensing and oversight of insurance and real estate are examples of what the government is supposed to be doing.
The human race should hedge our bets on things climate. Of all the governments, major global institutions, banks, pension funds, hedge funds and private equity funds, Buffet seems to be the only one to have done any due diligence on the finance of climate change. However, what needs to be done is a thorough due diligence audit on the science, economics and finance of the failing global warming CAGW paradigm and the only group doing this is Cool Futures Funds Management.
http://www.coolfuturesfundsmanagement.com
They are literally hedging their bets on climate change by systematically doing a due diligence audit as above and then taking positions accordingly.
Won’t somebody please think of the [insurance companies]!
If socialists had a brain, they would not believe in fairy tales like AGW.
Or at least not come across as obvious cases of anti-fact checking advocacy zealots. There should be a behavioral characteristics model for this that flashes red when all the warning signs point to it. Such a model would also be warning about detriment in progress with science process and science education. We certainly have a lot of behaviors to pick from for a model, just not a lot of whistle blowers with retirement incomes and legal defense funds to fall back on. They can’t even be sure which embassies to hide out in, like Wikileaks.
The typical goal in such shareholder campaigns to get the target company to acknowledge that climate change threatens its profitability, undermining investor confidence while seeming to validate campaigners’ demands that the company divest its holdings in fossil-energy assets and invest instead in renewables. Berkshire Hathaway doesn’t invest in energy companies (http://www.cnbc.com/berkshire-hathaway-portfolio/). So presumably the activists’ objective is to enlist Buffett as a mouthpiece for climate alarm. I go into more detail in this post: http://www.globalwarming.org/2016/02/29/warren-buffet-on-climate-change-risk/
“but the damage caused by the increasing frequency and force of extreme weather events associated with a warming planet is set to become unmanageable,”
This kind of urgency cannot be left to whenever insurance companies feel the need to prepare.
A governmental role is vital now. A new climate excise tax on all insurance policies needs to be imposed immediately to build an adequate climate fund necessary to handle the coming damage claims.
Eventually, it will be necessary to weed out the middleman insurance companies altogether and establish universal coverage similar to the medicare for all healthcare.
The challenge ahead cannot be left to the profit motivated private sector to handle.
Steve Oregon March 8, 2016 at 8:25 am
“Eventually, it will be necessary to weed out the middleman insurance companies altogether and establish universal coverage similar to the medicare for all healthcare. ”
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Oh, you mean like National Flood Insurance? That program is over $26 billion in debt. Because it’s legal authority comes from Congress it is only Congress that can change the program. So you have elected officials caring only about their reelection making financial decisions. Very bad idea and one that has proven disastrous in the past.
Placing buildings and related infrastructure in areas prone to destruction by natural events is stupid. Stupid always costs lots of money.
Which is why it’s a bad idea to put insurance regulation in the hands of govt. Even state govt.
Riiiggghhhtttt Steve.
The government does things so much better….IRS, VA, Student loans, FCC, FDA, spying on innocent citizens, etc, etc.
If you have no competition and sovereign immunity, there are almost no consequences for malperformance. Toss in just a little corruption and things go to hell pretty quickly.
forgot to mention bank & Wall St regulation.
I love the way the fool actually cites medicare as an example of a program that needs to be copied for the rest of the economy.
Billions in the red. Doctors abandoning it right and left.
The govt does nothing well. There is a tiny, tiny handful of things that it does less badly than does the private sector. Such things are marked by non-exclusivity. For example, when you provide defense, you can’t provide defense for one house, but not for it’s neighbor.
For all other things, the private sector always does a better job.
Anyone who presumes to school Warren Buffet on casualty loss calculations is smoking their own dope.
Yep
Price of one share of BRK-A: $208,069.00
QED
Doug
The price is irrelevant, it’s the change in the price, and that’s where Berkshire has performed magnificently. For those into P/E, BRK/A PE is 15; Amazon’s is 448 (yes: four hundred forty eight).
I’ll go with Warren Buffet’s model.
When I was a young man I lived in Omaha a few years. I was amazed as the mature residents there dismissed the intense and panicky financial excitement that rolled out of New York and the glitzy and fast paced show biz excitement that rolled out of Hollywood. Omaha natives remain calm and shunned all that hype. In the end, it seems they were able to filter out the noise and grasp the important points. I wish I had realized how smart they were and learned to think like them. Instead I clamored until I made it to New York and eventually sampled a bit of Hollywood. Now as an old man I can only express my admiration for the people of Omaha and laugh at all the silliness I endured in the big Apple and the show biz capital. Hooray for Omaha.
Perhaps that is why Peyton Manning chose “Omaha” for his signal calling.
It is a shame there is no insurance available to cover losses due to confiscatory climate mitigation policies.
It’s called the ballot box, it’s free, and people are staying away in droves. Go figure,
Invasion by space monsters will probably not be disasterous for the insurance business either.
Buffet makes very clear a major difference between a corporation and government. His business takes in insurance revenue, re-invests the funds in a way which protects his stakeholders and grows the kitty until the time comes that some funds are needed.
Government takes in money long after it has already been spent and pays interest on the ever-swelling deficit, knowing it may simply confiscate ever more wealth when it is needed.
Buffet’s message is insurance companies will not be blind-sided by climate change as it is slow moving which allows timely adjustments. Earthquakes and subsequent tsunamis, on the other hand…
Actually, in the recent past, Buffet has also made a killing (sorry about that) on earthquake insurance.
I was joking above. Trying to say the most preposterous thing possible.
That’s how bad the lunatic side is.
It’s hard to deliberately out absurd them.
That’s why God invented the sarc tag.
For those who missed it, that too was sarcasm.
“Berkshire has now operated at an underwriting profit for 13 consecutive years…”
At least Warren implies this is a religion by bring up Pascal’s wager. It IS a religion.
Why aren’t we building devices to deflect asteroids if we are supposed to respond to all serious threats, no matter how unlikely?
JD Rockerfeller single-handedly saved the whales, and did far more for the environment than Sierra Club or any other Environmental group could ever hope to do. His petroleum created an extremely efficient energy source that allowed for an extremely efficient economy, and afforded us the resource that allow us to have such nonsensical discussions like is carbon dioxide a pollutant. Poor nations don’t have the luxury to be so idiotic. Only rich nations have the resources to be so wasteful, and RD Rockerfeller made this nation very very rich.
Well of course the watermelons are in uproar about someone taking a pragmatic approach to the potential additional costs of climate change. They haven’t been able to bully Buffet into conceding CAGW will make a massive difference to his business! Now the premiums of certain ‘climate-associated’ businesses and industries WON’T have their premiums jacked through the roof, adding further pressure to their businesses that are almost regulated out of existence. AND they won’t be able to bleat about how ‘yet another insightful visionary’ is recognising the catastrophic consequences if all the bad bad things we are doing to Mother Earth….why won’t everyone else!?
Now what I’d REALLY like to see is a direct question to all companies involved in renewables schemes to publically disclose the risks to their businesses if CAGW is exposed as a scam and the billions of dollars in subsidies are susddenly shut off.
What then hmmm…?