Study: ‘insurance industry dangerously unprepared for extreme weather’

From the UNIVERSITY OF WATERLOO and the “maybe the insurance companies know something you don’t” department

As historic flooding caused by climate change devastates communities in New Brunswick and British Columbia, new research from the University of Waterloo reveals the insurance industry hasn’t considered a changing climate in their practices, putting homeowners at financial risk.

The study which looked at data from 178 insurers, found that most insurance companies assumed the risk to property from extreme weather is static and based their premiums on historical data. However, as extreme weather events are increasing in severity, frequency, and unpredictability, insurers have not adjusted.

“As extreme events become more frequent, insurers that ignore climate change will not put away enough money to cover their claims. To re-coup those losses, they’ll have to raise rates or pull coverage from high risk areas,” said Jason Thistlethwaite, a climate change economist at the University of Waterloo. “When this shift happens, thousands of people will lose coverage or it will be unaffordable.”

Another finding in the report outlined how reinsurers, insurers for insurance companies, have been better at reacting and adapting to climate change-related financial risk. This dynamic could lead to significant disruption in global insurance industry.

“Some insurers are better at understanding climate change than others. These organizations will survive, and likely be able to sell climate services to their counterparts struggling to understand the problem,” said Thistlethwaite. “Those that don’t, will fail. Insurers are supposed to watch our backs by looking into the future and protect us from unexpected events. We pay to not worry about these things.”

A full version of the study, Insurance and Climate Change Risk Management: Rescaling to Look Beyond the Horizon, was published in the British Journal of Management.

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75 thoughts on “Study: ‘insurance industry dangerously unprepared for extreme weather’

      • Have you nothced any insurance companies losing money lately? They know exactly what they’re doing.

      • “Have you nothced any insurance companies losing money lately? ”
        YES. AIG is a famous example.
        None ever because of climate, or even “extreme” weather events, however.

      • BS again. Warren Buffett, who owns one of the largest re-insurance companies, General Re, has stated numerous times that they have not changed their policies because they have not seen any evidence that climate change has had any impact on their covered losses.

      • AIG ‘s losses were related to the 2008 financial crisis. Nothing to do with climate change

      • ” the re – insurance companies are pricing in climate change.”
        Are they, really? And how much? THAT would be the interesting figure. If it existed. Which I am very skeptical about.
        It would be a good estimate of the real cost of climate change, if any. Not the net cost, just the cost, benefits of climate not taken into account.
        But then again, while re – insurance companies DO talk a lot about climate change, they just insure wind turbine and weather-related events just like they did before. And they DO charge more, not because increased events, but because people are building wealth, so the very same weather event will destroy more property than when people were poor.

        Note that the whole european insurance industry paid in 2015 a mere €53 billions for property claims. Of which only a small part is weather related, and an even more miserable part can be claimed (only by extremist and snake-oil sellers) to be climate-change related (that is, wouldn’t had occurred without climate change).
        Europe GDP is ~€20000 billions
        If climate change cost more than 0.01% of GDP, this an upper bound, and gives an idea of the worth of climate-change mitigation. A few billions for the whole of Europe; a few €tens per capita. Investing more would be nonsense.
        But if you are ready to pay more, and enrich insurance companies in the process, just do it.

      • “Yes, that is why the re – insurance companies are pricing in climate change”

        citation please.

      • Seaside properties would be dirt cheap if most people believed the greens.
        Seaside properties would be uninsurable if insurance companies believed the greens.
        But seaside properties would be insurable at a pretty profitable premium if insurance companies believed some people believed the greens.

        None of that matters to the seaside as the sea is not influenced by belief.

      • Which is currently zero. Premium adjustments are made on an annual or biannual basis. No one is charging rates based on what they think losses might be 10 years from now.

    • How dare these companies base their rates on historical facts! They should be speculating and raising rates according to wild unfounded alarmist claims of catastrophic global warming. It’s a crime and they are not making enough money, slighting their investors. Very negligent.

    • I believe it is called “rationalism” and it is practiced by “rationalists.” Would that there be more rationalists amongst the cadre of so-called “climate scientists.” (An oxymoron?) Yup. But a lucrative one.

      Rationalist: A person who bases their opinions and actions on reason and knowledge rather than on religious belief or emotional response:

  1. “‘insurance industry dangerously unprepared for extreme weather’”

    Not possible, the insurance industry models invented it! Before then it was just ‘weather’.

  2. More absurd alarmism. The insurance industry has notably kept its collective head in all the climate hysteria and gone on producing evidence based figures on weather damage. Scientists not so much. And if the insurance industry did get it spectacularly wrong on weather events? A few insurance companies suffer losses. Relatively little harm except to names at Lloyd’s etc.
    More concerned as people die as a result of today’s eco-imperialism

    • Insurance companies revise rates according to the perceived risk. If extreme weather leads to more claims they simply raise rates for those unprepared to deal with harsher events. Governments also take measures to reduce risk. For example, they revise flood plain maps, and can take measures to reduce flood risk. I suspect the event insurers may be underestimating is a large volcanic eruption in the USA, Iceland, Indonesia, etc.

      • Good luck for insurers handling a major Yellowstone erruption.

        Or, indeed, California sliding into the sea…….

      • Or, indeed, California sliding into the sea…….

        It’s not a loss, so the insurance will be void.

      • Warren Buffett on the climate change risk to Berkshire-Hathaway’s insurance operations:

        …such worries might, in fact, be warranted if we wrote ten- or twenty-year policies at fixed prices. But insurance policies are customarily written for one year and repriced annually to reflect changing exposures. Increased possibilities of loss translate promptly into increased premiums.

        http://www.businessinsider.com/warren-buffett-on-climate-change-2016-2

      • You will find a direct reference in most insurance policies to the type of risks volcanoes are under.
        It’s called “Act of god” or “natural disaster”.

        If someone specifically wants volcano coverage, rest assured, the insurance companies will be thrilled to provide insurance offers.
        And don’t worry, places experiencing or under immediate volcanic threat will be considered uninsurable.

      • “Or, indeed, California sliding into the sea…….”

        insurance only covers losses, that would be a gain ;)

    • +1

      Insurance companies have an awesome grip on how to calculate an upper limit on risk and how to keep premiums high enough but not too high so that people still buy insurances. Trust me, it is not the insurance company that’s in deep shit in case of a wide-spread weather catastrophe.

      By the way, many insurers have clauses that limit their liability in case of a natural catastroph. They’ll simply hocus pocus forcius majoris on you, and you’ll find your wallet thinner than you remembered. There was a case not long ago here where a home-owner had a loan from the bank for renovations she did. Then, unfortunately, the building burned to ashes. What did the insurance company? They estimated the full value of the house below the value of the loan. Basically, the insuree who thought she could afford a replacement home, didn’t get rid of the loan of the old house.

      Perfectly legal was that. And this was a singular case, in which the insurer had not the strongest motivation to downplay lost fortune.

      In these Nordic socialisms, what could happen in a disaster is that the government tells insurance companies that their losses will be covered, for the common good (we can’t let bank-insurers into bankrupcy). And geezes the insurers will say Yuletid! as they’ll collect some tax money.

      What comes to increasing insurance rates, that’s not the freaking problem. The problem is taxes increasing like hell, as these bastards in the government think that adapting to weather is too modest an approach.

      What’s my own strategy? I own less than half my house to the bank. That’d too timid. I should owe at least 10 million so that I could safely trust it is my bank who has a problem if I can’t pay.

  3. What utter rubbish. Every spring the rivers of New Brunswick, and in particular the St. John River flood. The damage occurs for the usual reasons that human build too much on floodplains, put up dams and do other things that either impede or constrict the the river’s flow to the sea or increase runoff by paving paradise.

    The flooding was occuring well before the arrival of the white man to the St. John River valley. The Maliseeet Indian tribe (I think) would plant on islands in the river after the flood waters had receded. Much like the practice along the banks of the ancient Nile.

    • More importantly, standard polices issued by private companies always exclude flood damage. That is why house purchasers who need flood insurance must get it from the Federal Government.

  4. The idea of insurance companies not using the best hard evidence when their livelihood depends on it is laughable. The most likely scandal is insurance companies raising rates based on climate fears – but the competitive market will fix that.

    • However, Insurance companies will be only too happy to have an excuse to raise ALL premiums by an arbitrary amount…

      • Which is exactly what they’ve been doing. After all, they’ve had global warming and climate change dangled in front of their nose like a carrot. . Since when has flooding not happened in the spring time in Canada. How about like, never.

      • +1 Oh the losses have been increasing, so unfortunately we had to check our rates. But you can get now a hurricane insurance in Alaska! Buy now, half the term for only 50% higher price!

      • But that assumes there is no competition, and that they collude. That is, they act illegally.

        If all but one insurer raises its rates, guess how much business that one will get?

  5. Some insurers are better at understanding climate change than others. These organizations will survive, and likely be able to sell climate services to their counterparts struggling to understand the problem,” said Thistlethwaite. “Those that don’t, will fail. Insurers are supposed to watch our backs by looking into the future and protect us from unexpected events. We pay to not worry about these things.”

    Let me see if I understand this. The smart companies will recognize that the real risk is far worse than anybody’s worst-case scenario. So those companies will charge, I don’t know, ten times as much for the same policy as their stoooooopid competitors. The brilliant consumers will naturally spurn the shoddy cut-rate policy in favor of the much more expensive one. As a result, the cagw-wise company will thrive and the d-nier companies will all sink below the inexorably rising seas?

    In the US, experience shows that people prefer to pay less for insurance. (bourgeois troglodytes).

    I’m sure that doesn’t apply in the Great (formerly-) White North, though. Most likely, up there the smart companies would be subsidized at the expense of all taxpayers to ensure that their virtue signalling is appropriately rewarded, because – climate justice.

    Is that correct?

    • Yes, the writer simply assumes he is right and those with a different opinion are wrong. Personally I have seen so few forecast about anything that turn out to be true that i wouldn’t be betting on his claim.

    • And that summarizes the entire problem with Climate Change policies. They purport to prevent future damage by raising costs now. People are simply not willing to pay exorbitant premiums for insurance against something with unknown impacts that may never happen.

  6. “As extreme events become more frequent, insurers that ignore climate change will not put away enough money to cover their claims.”

    The idea a recently evolved group of hominids can change the clouds or melt the polar ice and raise the oceans and is right up there with the biblical narrative that we were created in God’s image.

    It’s as if the academics, along with all of our elites and the MSM perceive Al Gore’s fictional documentary “An Inconvenient Truth” as scientific fact….good grief, what is happening? What is wrong with these people? Are they so conceited they can’t see the truth?

    Marshall McLuhan said the medium is the message. Noam Chomsky says the media manufactures consent. It’s hard not to agree. The acceptance of the Catastrophic AGW concept has been headline driven. A certain amount of energy is kept in the climate system by the man-made GHG’s, other than projections from experimental numerical models there is no evidence of this energy’s contribution (the human fingerprint) to climate change.

    A computer simulation of the climate, as defined (a coupled, non-linear chaotic system), is virtually impossible. The observed fluctuations in weather activity, temperature, sea level and ice volume are shown to be within the boundaries of natural variability. The correlation between rising CO2 levels and the mean temperature increase of 0.8° Celsius during the last 150 years is not evidence of human activity as the cause, to say so, is conjecture and a claim beyond what the data allows.

    It is suggested the orbital/axial cycles began with the creation of the moon from a planet-sized bolide (a rock known as Thea) that collided with the Earth 4.5 billion years ago, the ice-age glacial/interglacial and stadial/interstadial stages follow their combined rhythms. The wind, the water, the Sun and albedo are the Earth’s daily climate regulators.

    The Catastrophic AGW hypothesis awaits verification, it does not have the approval (and never will) from the detached and reasoned inquiry of science.

  7. “These organizations will survive, and likely be able to sell climate services to their counterparts struggling to understand the problem,” said Thistlethwaite

    Sounds like Thistlewaite wants a well paid consultancy for himself or his colleagues at an insurance company providing “climate services”
    And the gravy train rolls on.

    • I know, right? So here’s another URGENT CONCERN!!!

      Never mind flooding rivers in New Brunswick (obviously caused by the recent unprecedented melting of the famous New Brunswick glaciers, which is bad enough).

      What about this disaster brewing in neighbouring Nova Scotia? Which was amazingly NOT heard on NPR yet.
      https://www.tide-forecast.com/locations/Walton-Nova-Scotia-over-keel-blocks/tides/latest

      The sea level is projected to rise at a rate of about 1,410 KILOMETERS per century (roughly 10 meters in 6.2 hours). And the highest elevation in NS is only 535 meters. How long before the whole province is wiped out? I reckon about 54 hours. Oh the humanity!

      (well, fortunately it’s also going to fall at the same rate after it reaches high tide, so experts say it may not be as bad as that. It might not have been reasonable for me to extrapolate out a full century, but let’s not lose sight of the precautionary principle. I mean how do we know for sure that the tide won’t just keep on rising, just like global temperatures only go up?)

  8. My my
    I tried to hold you back, but you were stronger
    Oh yeah
    And now it seems my only chance is giving up the fight
    And how could I ever refuse
    I feel like I win when I lose
    Waterloo I was defeated, you won the war
    Waterloo promise to love you for ever more
    Waterloo couldn’t escape if I wanted to
    Waterloo knowing my fate is to be with you
    Oh, oh Waterloo finally facing my Waterloo

    • Some are. In 2010 Catlin financed and Arctic Survey – which proved to be a disastrous waste of money. However something was salvaged from the wreck.

      The principal finding was:

      “Data from Catlin Arctic Survey 2011, collected during an eight-week expedition from March to May, indicates the temperature of Arctic seawater below 200 metres depth has decreased by a ‘surprising’ one degree Celsius in comparison with previous observations.”

      Which was, apparently the reason why sea ice melt was accelerating. Those with better understanding of physics and Hydrodynamics than I possess may care to explain the logic.

  9. “As historic flooding caused by climate change devastates communities in New Brunswick and British Columbia…”

    Evidence for that claim?

    • Reply to Phoenix44 :
      This guy , Jason Thistlethwaite is a SERIOUSLY WELL QUALIFIED climate expert !
      He’s into the CARBON market governance , evaluating flooding insurance risks , evaluating property disclosure as a tool to support flood risk management ( Buyer Beware ) , and on and endlessly on !
      So HE must know what he’s on about , after all he’s got a PhD , is Assistant Professor at U Waterloo ,
      School of Environment , Enterprise and Development (SEED) and has a large lecture circuit from what I
      can gather. He seems to be BASICALLY AN ACCOUNTANT ( advising government departments etc ).
      So………we HAD BETTER take notice of HIS “weather prognostications ” !
      The TWO ASPECTS that I approve of is that he seems to favour ” keeping your eyes open
      BEFORE you BUY that special house on the river-flood-plain” and………. ADAPTING to change !
      These seem to be a reasonable requirements ANYWHERE IN CANADA.( or the World generally ).
      I gather that Canada is home to a lot of water at times………………and ALSO that iconic and ironic and
      impossible exhortation to ” Drink Canada Dry “!
      Still………..it might count as a form of “mitigation” ( if you don’t follow up with the equivalent micturition ! )

  10. “The study which looked at data from 178 insurers, found that most insurance companies assumed the risk to property from extreme weather is static and based their premiums on historical data. However, as extreme weather events are increasing in severity, frequency, and unpredictability, insurers have not adjusted.”

    There is no evidence that “extreme weather events are increasing in severity, frequency, and unpredictability”. In fact, just the opposite. One recent example: No tornadoes in April 2018, in Oklahoma. And don’t think that’s the only example.

    The people making these dire claims about more intense weather are living on a different planet.

    • But let one tornado occur in Oklahoma and that will be evidence of global warming. And all tornado rates will be compared to the April 2018 “baseline” as proof.

  11. Hilarious! Yes, let’s worry about the poor insurance industry’s suffering due to climate change!

    The insurance companies are in the forefront of whipping up hysteria about climate change for their own advantage. Here’s an example.

    My insurance company has ‘bundled’ overland flooding insurance forcing me to pay coverage for a deluge that might inundate my property. I’m not saying that it couldn’t happen and that Noah certainly would have appreciated the coverage.

    My condo is on the 15th floor.

    • I would think that all your insurances with the exception of internal contents would be paid for by your condo fee which would be evenly distributed among the owners in accordance with the bylaws.

      • Tom,

        Logic doesn’t apply here! The overland flooding coverage was ‘bundled’ with my contents insurance by my friendly carrier. That’s exactly my point.

      • Are you in the U.S.? If so you are mistaken about the flood insurance, if not perhaps you need a different carrier.

      • Tom,

        This is a Canadian story. Apparently our insurance companies are more creative than yours!

  12. Insurance companies are required by law to have a certain percentage of liquid assets to cover there liability exposure. In 2004 & 2005 there were many smaller insurance companies in Florida that went out of business due to the number of hurricanes and financial losses suffered by the insured. So it can and does happen. There are also many insurance companies that will not write policies in weather dangerous areas. Florida set up Citizens Insurance, a State run company, that does insure those who cannot get it from private companies. It was supposed to be the insurance of last resort and be the most expensive. Of course politicians screwed that up and it became cheaper than private so many people just went that way. The financial exposure to that fund is great and only because Florida had over 10 years of no major hurricane damage did Citizens survive. Now law makers, seeing the danger of not enough money in the kitty, are moving people out back into private companies. But to do this they authorized smaller companies a waiver of the liquid asset minimums as long as they had sufficient re-insurance. But that is another disaster waiting to unfold.

  13. OMG, it’s spring time. Sun shines, snow melts, storms happen. Seattle, Kalamazoo, BC, Florida, NB, etc.
    Sounds like normal to me.

  14. The basic assumption that extreme weather events are on the increase has been shown to be incorrect. But as they regress to mean, there will ne an increase…..duuuhohh

  15. “coupled non- linear chaotic system” rolls off the tongue in a a deliciously onomatopeic fashion. It rolls off thousands of tongues as a substitute for thought. Really the climate is far too stable and controlled, varying a couple of percent in temperature up or down over eons.

    Geothermal heat has declined from youthful earth times when Archean komatiite basalt lavas were so hot that they melted their riverine channels in solid crustal granite on the surface of the earth. This gradually cooled up to today where it is near equilibrium with radioactive decay supplying a fair proportion of the modest internal heat. So yeah, the earth has cooled inside. Heat supplied by the sun has varied with its output, but from time immemorial this has been modulated incredibly so by (mainly) an earth-water heat engine, an engine as beautifully controlled as the finest auto racing car.

    Milankovic cycles which alter the distance from the sun and the pattern of surface insulation – causes cooling, big time, but even then, earth modulates this through releasing latent heat from freezing water, cranking up ocean currents and atmospheric flows and clearing the skys to maximize insulation to moderate the cooling.

    And what happens when the cycle returns things to the way they were? Well, let us forecast the average temperature within a degree or two for the ensuing 20,000 yrs! And hey, the earth went through eons without an ice age to modulate, so it just modulated whatever came its way. A huge bolide – a piece of cake. The ocean devoured the rock’s heat by absorbing it, using a precise (predictable) amount of phase change in the sea or deformation, heating and cominution on land. And the dust temporarily cooled insolation and was nicely washed back out of the atmosphere with its nucleated water drops.

    !Prediction: it will repeat and rinse. Strange attractor be damned

  16. The belief in ‘climate change’ is like the belief in witchcraft. Once you believe in it you see it everywhere. You see extreme weather events ever increasing in severity and frequency and, wait for it, unpredictability. No quantity of real data will convince you that the witches do not exist. No, those who claim that surely are witches themselves and at the very least in cahoots with the devil himself. Climate alarmism is a disease of the mind.

  17. Could it be that the U of Waterloo professors are giving the insurance companies ammunition to raise rates?

      • “Junkie”………………….It looks as though it is now KARL MARX CENTRAL !!
        .
        Up to 35,000 students being brainwashed every day at Waterloo !!
        .
        CANADA…………….YOU REALLY HAVE TROUBLE AHEAD !!
        .
        Get in touch with Prof. Jordan Peterson at University of Toronto and START A POLITICAL MOVEMENT
        TO REGAIN CONTROL OF YOUR COUNTRY !!

  18. “Some insurers are better at understanding climate change than others. These organizations will survive, and likely be able to sell climate services to their counterparts struggling to understand the problem,” said Thistlethwaite. “Those that don’t, will fail. Insurers are supposed to watch our backs by looking into the future and protect us from unexpected events. We pay to not worry about these things.”

    All specious sophistry.

    As is common with alarmists and alarmism in general, amateurs or academics in isolation assume they have greater knowledge than very experienced professionals.
    From their lofty imaginary heights of gross assumptions and inexperience, alarmists make more future predictions of doom or success.

    Yeah, that worked so well with solar and renewable energy companies.

  19. “As historic flooding caused by climate change devastates communities in New Brunswick and British Columbia…” -insert pictures of babies and elderly people-

    Because floods never ever happened in the 1930s…
    A poor obviously innocent CBC journalist kindly recapitulated the various major floods in New Brunswick in the pas century and showed this is a regular occurrence…
    In BC the last major Frazer flooding was 70 y ago.
    And now these Waterloo clowns are discovering climate change…

  20. What utter rot. Insurance companies in BC (and likely all of Canada) do not cover flood damage.

    Right now I’m sitting 3 feet from the Fraser River just outside Vancouver BC. The river is in flood as happens every spring and has come up about 10 feet over the last week. This is completely normal.

    We have just been given an evacuation order because we are on the wrong side of the dikes. Which is no big deal because our house is on wheels.

    The point is if you build a house in BC you better make sure you are not on a flood plain unless the house is on wheels or floats or stilts.

    Nothing to do with climate change. Everything to do with the geography of BC which gets tons of rain and snow and is almost 100% mountains. Look at a map. BC is mountains and rivers and cold and wet.

  21. They keep trying to make the insurance industry toe the line. And, for the most part, they keep failing. Perhaps because Actuaries are said to have a long and rigorous training, particularly in mathematics.

    But what draws the eye, and the ire, is that the insurance industry generates a lot of profits.
    And the climatists would like a piece of the action.

  22. Someone had to fill the silence after Buffett and Munger just labeled it a non [insurance] issue. Climate ER teams to the rescue.

  23. All the while other studies show the economic value of damaged goods is rising with GDP, but the severity and numbers if storms is not.
    Insurance companies know what their payout to revenue ratios are doing. They will act when there is an actual, not a scenario-problem tells them to.

  24. “Insurers are supposed to watch our back…and protect us…we pay them not to worry about these things.”
    How ignorant is this guy? Insurance companies use stats to make money. It is not rocket science.

    You say, ‘I bet a hail storm destroys my house next year.’
    Insurer says, ‘I bet it doesn’t.’
    You say, “I bet a tornado destroy my house next year.”
    Insures says, ‘I bet it doesn’t.’
    You place your bet when you buy insurances and the insurer makes off like a bandit.

  25. Most household insurance premiums are set year by year. Best approximation to what will happen next year? What happened over the recent past.

  26. I remember seeing something on The History Channel debunking The Bermuda Triangle. (This was before they started looking for alien Bigfoots.)
    One of the most telling points made was that Lloyd’s of London, which insures most shipping, does not add a premium for cargo passing through the Bermuda Triangle
    (Similar sized triangles could be placed on other areas of the globe and they had about the same number of unexplained events/disappearances. The difference being that The Bermuda Triangle got a name and a headline from the media.)

  27. Buffet’s 2015 shareholder letter:

    http://www.berkshirehathaway.com/letters/2015ltr.pdf

    Excerpt from page 26

    “Up to now, climate change has not produced more frequent nor more costly hurricanes nor other weatherrelated events covered by insurance. As a consequence, U.S. super-cat rates have fallen steadily in recent years, which is why we have backed away from that business. 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. As a citizen, you may understandably find climate change keeping you up nights. As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.”

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