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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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.
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.
With all the references to Waterloo, I can’t resist.
Someone had to fill the silence after Buffett and Munger just labeled it a non [insurance] issue. Climate ER teams to the rescue.
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.
“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.
Most household insurance premiums are set year by year. Best approximation to what will happen next year? What happened over the recent past.
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.)
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.”