Whatever your views on the politics of global warming, well, they have to take a back seat to this business reality: The people who get paid to assess risk — the actuaries at insurance companies — are mighty worried. They don’t care about Al Gore or environmentalists or right-wing or left-wing politics. They do care about events that cost them billions of dollars. These are people who take an unemotional, ruthless, mathematical look at risk, and they don’t like what they’re seeing, according to this Op-Ed column in The Washington Post (27 September 2007):
Ten years ago, Peter Levene, chairman of Lloyds of London, was skeptical about global warming theories, but no longer. He believes carbon emissions caused by human activity are warming the Earth and causing severe weather-related events. “At Lloyds, we feel the effects of extreme weather more than most,” he said in a March speech. “We don’t just live with risk — we have to pick up the pieces afterwards.” Lloyds predicts that the United States will be hit by a hurricane causing $100 billion worth of damage, more than double that of Katrina. Industry analysts estimate that such an event would bankrupt as many as 40 insurers.
The insurance industry cites hard evidence:
- Wildfires have increased four-fold since the 1980s, and they are bigger and harder to contain because of earlier-arriving springs and hotter, bone-dry summers.
- Storms grow ever more intense: Since the 1970s, the number intensifying to Category 4 or 5 hurricanes has almost doubled, costing insurers tens of billions of dollars.
- Increasingly destructive weather — including heat waves, hurricanes, typhoons, tornadoes, floods, wildfires, hailstorms and drought — accounted for 88% of all property losses paid by insurers from 1980 through 2005. Seven of the 10 most expensive catastrophes for the U.S. property and casualty industry happened between 2001 and 2005.
And the insurance industry is beginning to realize that its very survival is at stake.
At a meeting of the National Association of Insurance Commissioners, Andrew Logan, insurance director of the Ceres investor coalition, representing $4 trillion in market capital, warned that “insurance as we know it is threatened by a perfect storm of rising weather losses, rising global temperatures and more Americans living in harm’s way.” Ceres cites estimates that losses related to catastrophic weather have increased 15-fold in the U.S. property casualty industry in the past three decades.
Some insurance companies have simply abandoned catastrophe-prone markets or are jacking up rates. Already it’s very hard to get insurance for waterfront property, the type of real estate favored by the the well-to-do and yet the most threatened by rising water levels.
I’m no fan of the insurance industry or its business practices, but it seems to me that each and every forecast we make must account for this sobering risk assessment — from the experts in risk assessment.