This is a proposition only.
People often ask about how we can measure the effects of climate change. And this does seem to be difficult.
One possible method might be to compile a yearly figure which involves the combined factors of insurance company figures for weather related damage, added to the cost of weather disasters in each year for government departments.
If we factor in inflation, we should get some kind of sense as to whether, the effects of climate change have been getting worse.
One advantage of this method is that insurance companies are widely rumoured to underpay and underestimate damage, to keep their profit under control. So the figures should have be recognized as conservative, rather than exaggerated.
One of the problems with this method is, that as fires, cyclones and other extreme weather events become much more severe as we slide out of established climate stability into a new state of climate turmoil, we might expect climate damage to be so great that measures like this are totally inadequate.
For example, Insurance companies will probably try to avoid paying out, because that is how they make their money, and they have no way of calculating risk in the new circumstances, so they are continually threatened by the change. To help deal with this, flood plain areas, for example, are likely to be expanded giving insurers excuses for extending the lack of coverage. The same kind of thing will happen as governmental budgets run out, and help gets scaled back: I am told that Hurricane Katrina already broke the US national flood insurance.
As insurers retreat from insuring people, and government budgets run out, then the figures will become much too conservative to be of use, so we might have to find other measures of real damage. However, until then such measures might be worth while.
Addenda from 4 March 2021
In 2018, natural disasters killed more than 10,000 people and left millions more homeless. In the same year, natural catastrophe-related economic losses reached US$160 billion (A$215 billion) (half of which were all insured losses). The vast majority – 95 per cent – of the registered events were weather-related.
Ticha How resilient is the insurance industry against climate change? UNSW newsroom. 16 December 2020
One problem for the Insurance industry is that they rely on stability. They assume that changes in mortality and property damage, on the whole, move slowly, and that any crisis will probably be succeeded by a return to normality. This is not the case in a changing climate system. We simply do not know the changes in weather which will be produced. This makes calculating risk extremely difficult and highly inaccurate. It may also affect their business in general.
Insurers, however, must be careful not to underestimate the true threat of climate change. Because its effects are systemic, climate risk is likely to stress local economies and—more grimly—cause market failures that affect both consumers and insurers. More frequent catastrophic events, in combination with the need to meet evolving regulatory requirements, can threaten company business models—and make insuring some risk unaffordable for customers or unfeasible for insurers…. Some historically stable premium and profit pools will shrink, and possibly disappear…
McKinsey research shows that the value at stake from climate-induced hazards could, conservatively, increase from about 2 percent of global GDP to more than 4 percent of global GDP in 2050. And the risks associated with climate change are multiplying. They vary by locale, evolve, and have nonlinear systemic effects that tend to be regressive. In short, a small physical shift can change entire systems irreversibly
[Some companies] have publicly committed to reducing their exposure to carbon-intensive industries by 2030 or 2040. In recent interactions with industry executives, more than half have said that the industry’s response so far has been underwhelming and inadequate—even though the vast majority said that responding to climate risk is either “very important” or “a top priority.”
Grimaldi et al. Climate change and P&C insurance: The threat and opportunity. McKinsey & Company 19 November 2020 [Rearranged]
The Ticha article referenced above, tries to explain some ways of countering these problems, but I’m not sure I understand what they are talking about.
The only safe thing to do for the industry is stop insuring people in areas which seem to be likely to get increasing damage, or massively increase the price of insurance. This action has huge consequences for the precariousness of ordinary people, as if they get hit by climate change they can lose everything.
The Australian Prudential Regulatory Authority (Apra) executive director Dr Sean Carmody told a Senate hearing on Tuesday the nation’s insurers and banks were taking steps to prepare for worsening bushfire seasons and more extreme weather events.
However, he said the resultant rising insurance premiums may put coverage out of reach for many people, threatening the stability of the wider economy…..
The total cost to the insurance industry from extreme weather and natural disasters between November 2019 and February 2020 alone stood in the range of $5bn.
Kermelov Climate change could put insurance out of reach for many Australians. The Guardian 2 March 2021
Tags: climate change, economics
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