Felix Salmon
About this author:
The insurance industry is fighting back against the kind of articles which accuse it of price-gouging, especially when it comes to natural disasters in general and hurricanes in particular. Yesterday Munich Re held a webinar for journalists, and wheeled out a lot of statistics relating to natural disasters in the first half of 2008. And they're pretty compelling when it comes to the hypothesis that natural disasters are getting more frequent and more damaging.
Here, for instance, is a chart of H1 natural disasters in the US going back to 1980. While the number of geophysical disasters has remained very low, the number of climatological disasters has more than doubled. And it's still growing fast: the number of disasters in just the first half of 2008 was bigger than the number of disasters in any of the full years between 2001 and 2005.
The global trend is also clear:
Of course it's not just the number of disasters which is increasing: It's also their severity, and the insured losses associated with them. Here's what's happened to US thunderstorm losses in the first half of the year, going back to 1980:
These losses, it should be noted, do
notinclude any damages from the devastating Midwest flooding in June: Floods and thunderstorms are two different things, for insurance purposes.
There are similar charts available for wildfires and winter storms too, but clearly by far the biggest natural-disaster risk facing the US is hurricanes, which over the long term have historically accounted for roughly half of total insured losses. It's hard to find a climate scientist who'll claim that the risk of severe hurricanes isn't growing - even as the insured value of property on the US coast is rising fast. Insured coastal exposure in Florida, for instance, was $1.9 trillion in 2004; by 2007, that number had risen to $2.5 trillion, with total coastal exposure in the US reaching $8.9 trillion, largely as a result of the boom in construction activity.
These are enormous numbers, and help put the insurance industry's policyholder surplus of just over $500 billion into some perspective. Yes, that's an enormous amount of money. But if a hurricane hit Miami, or Houston, or New York, it's not hard to imagine how quickly the bills could add up - bills which would be paid overwhelmingly by private insurers.
Does it even make sense for private insurers to take on that kind of hurricane risk? I'm not sure. Certainly attempts to offload the risk onto the capital markets, using catastrophe bonds, seem to be going nowhere any time soon: total cat-bond issuance was less than $8 billion in 2007, and that was by far a record year. But if private insurers are to take on this kind of risk, then I can certainly understand why they'd want to raise insurance premiums in anticipation of increasing hurricane frequency and severity.
Homeowners won't like it, and regulators won't like it. But increasingly-severe natural disasters are an inevitability at this point, and they'll hit the US just as much as they'll hit the rest of the world. In other respects, the US is actually in a fortunate position with respect to global warming: Other, poorer countries are at much greater immediate risk. But when it comes to potential insured losses from hurricanes, the US is by far the world leader.
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This article has 45 comments:
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Tom B
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1771 Comments
Jul 09 08:24 AM-
huangjin
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282 Comments
Jul 09 08:44 AMAs for hurricanes and global warming, it will reduce the number of Atlantic hurricanes, which is what Americans are concerned about.
news.mongabay.com/2008...
The real problem is that insurance is heavily regulated and the costs are not borne by those who receive payments. It has led to overdevelopment in dangerous areas, causing higher losses. Force people living in earthquake/hurricane/f... zones to pay more for insurance, and they will build less home or move to safer areas. Then we can read an article that argues climate change has lowered the incidence of natural disasters.
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satellite radio is dead
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11 Comments
Jul 09 09:09 AM-
truthinvesting
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166 Comments
My Website
Jul 09 09:17 AM-
Tom B
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1771 Comments
Jul 09 09:40 AMSo which are you, among my various categories, and can I see your scientific credentials?
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Pent up demand
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114 Comments
Jul 09 10:14 AMTom B, I hope you like crow. Your ilk are going to be eating a lot of it as global temperatures continue to moderate.
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Tom B
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1771 Comments
Jul 09 10:30 AMThey already pay more. Compare coastal insurance rates along the eastern seaboard to inland. Also, building codes in fire prone areas reflect the danger. It is true that many people live in places they shouldn't live, but you might have a hard time convincing people that a property beyond the 500 year flood line (like some along the Mississippi, recently) is too dangerous. The climate is changing pretty rapidly now.
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barnburner
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75 Comments
Jul 09 10:33 AM-
notsosmart
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1263 Comments
Jul 09 10:55 AM-
helplessobserver
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413 Comments
Jul 09 10:55 AM-
TAS
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82 Comments
My Website
Jul 09 11:07 AMI appreciate your efforts on this topic, but perhaps your data is too compressed in time. I prefer to see cycles of at least twenty-five years or more. A century is even better.
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fabricator
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46 Comments
Jul 09 11:29 AMFor a real eye-opener, quit drinking at the fount of ignorance and get acquainted with the Greenland glacier melt and its implications for the next few decades... then brace yourselves for the indifferent reality Tom mentioned.
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Tom B
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1771 Comments
Jul 09 11:41 AMHow quaint! There are people who are still afraid of lurking Stalinists!
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fabricator
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46 Comments
Jul 09 11:44 AMModeration in all things... well, those within our control anyway. ; )
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mdmrjsds
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94 Comments
Jul 09 11:59 AMAs far as climate change goes and how it pertains to this article.
If you've read any of the reports of climate change, you will know that the authors take great pains to stress that year to year fluctuations are *not* due to long term climate change. And if you have any scientific training what will strike you is the level of ignorance that is professed (or sometimes not professed) by those same authors.
In the last several years, it has been shown that the melting of Kilimanjaro is due to a shift in the jetstream over the Indian Ocean, not CO2 buildup (at least not directly). The arctic melting is due to the increased particulate pollution from China, not CO2 buildup. The melting of the Himalayan glaciers is due to the perpetual brown cloud of particulates over the Indian subcontinent due to overpopulation and the burning of dung and wood as fuels, not CO2 buildup.
The models are predicting changes over the next several decades to centuries. If they are so wrong as to be off by decades in their prediction of effects, how can we trust any of the results they produce?
For example, there are some scientists predicting that the North pole might be ice free this year. Models weren't predicting that to happen until 2040 or 2050. What did the model miss that made it so wrong? What isn't being taken into account? And given the inadequacy of the model, can we trust any conclusions drawn from its output?
If you look at the middle ground, between the "true believers" and the "load of bunk" camps, you will find that there is no way to know at this point whether global climate change is due to CO2 or not. The time frame of good data is way too short, and our ignorance of the underlying processes too great.
The reasonable course would seem to be to continue the research in order to gain better understanding and to take reasonable measures to mitigate effects that might occur.
Tom B A 500 year flood is a statistical measure, it doesn't mean that a flood of that magnitude only occurs every 500 years. It means that there is a 1/500 chance that any given year will have a flood greater than that magnitude. Questions I would ask are, 'Where did the 500 year number come from?' 'Is the 500 year number wrong?'. We obviously don't have 500 years of experience of the Mississippi basin, so we are judging this from geological data, I would guess. And if that is the case, the fact that the river is now completely different because of levees and that the drainage basin is completely different because much of the forest has been removed might have something to do with this as well. The fact that there was an ice age in the recent past could also bear on this. And it could just be a fluke occurrence, like flipping a coin and getting 9 heads in a row. 2**9 is 512, so the likelihood of flipping a coin and getting heads 9 times in a row is 1/512.
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Pent up demand
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114 Comments
Jul 09 12:02 PM-
notsosmart
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1263 Comments
Jul 09 12:14 PM-
Tom B
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1771 Comments
Jul 09 12:34 PMThe polar ice caps and the Himalayan glaciers don't care WHY they are melting, but the economic impact of these events is huge. Ice cap melting leads inevitably to coastal flooding; the Himalayas feed the Ganges and other rivers in India.
Oh-- and by the way-- atmospheric CO2 is increasingly. maybe it's coming from comets from outer space or from the Tooth fairy, but, gee, cars and power plants make CO2 and CO2 is increasing-- what an amazing coincidence!
"you will find that there is no way to know at this point whether global climate change is due to CO2 or not."
Methane and CO2 trap heat because of their physical properties; because of the way they absorb infrared radiation. This is old science.
"The reasonable course would seem to be to continue the research in order to gain better understanding and to take reasonable measures to mitigate effects that might occur."
As the price of oil goes up, wind and solar power plants become more attractive. Conservative Capitalist T. Bone Pickens is betting hard cash that way, with his wind project. Using electricity to replace or supplement gas in cars is established technology, and getting better with research. I'd say we can do a LOT more and still be within the realm of "reasonable"... I think, even nuclear might be part of the solution, though I find the mining and waste issues troubling. World population is 7 billion and growing; the planet isn't getting any bigger.
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fabricator
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46 Comments
Jul 09 12:55 PMAs to pent-up demand's naive blathering: forget models, okay? Even those of us who recognize the reality of global warming understand that, despite their actual scientific value, they are imperfect. Again, use your own powers of observation and reasoning (I'm giving you some benefit of the doubt) and cogitate over what things like the massive (and escalating) Greenland ice melt mean. These processes were considered linear until even conservative scientists had to begrudgingly accpet the latest data: the change is anything but. Brace yourself-- climate change doesn't care if you're educated or not, and it's gonna be an equal opportunity pain in the ass. Unless you live on Mount Everest, maybe.
Oh, and as for energy: solar, tidal and wind are great for starters, but let's get serious about geothermal. It's basically free energy, baby, and it's more useful and available than many suspect. Even in the US.
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patrius
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2 Comments
Jul 09 02:12 PMAh, Greenland..isn't that the place that used to be so warm that Europeans settled there and raised livestock until it became too cold in the 1600s or so? How about all those glaciers that melted to form the Great Lakes thousands of years ago? Now THERE was some warming, no doubt caused by cave men building fires.
Man-made global warming is a myth that depends on ungrounded people not grasping that day-to-day or year-to-year weather changes are affected by forces far bigger than tiny increases in CO2. A couple of solar flares or a volcano will totally overwhelm any minute man-made effects on the weather. This is so obvious it shouldn't have to be stated.
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patrius
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2 Comments
Jul 09 02:21 PMAh, Greenland. Isn't that the place that was once so warm that Europeans migrated there and successfully raised livestock and crops before it got so cold they all disappeared around the 1600s?
And something caused the Great Lakes to form from melting glaciers thousands of years ago. Must have been cavemen campfires.
Weather patterns change. There are huge natural forces that completely outweigh any minute effects of a little extra CO2 that itself is only a tiny portion of the atmosphere. Duh.
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notsosmart
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1263 Comments
Jul 09 03:37 PM-
User 223834
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1 Comment
Jul 09 03:39 PM-
fabricator
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46 Comments
Jul 09 03:41 PMAnd Greenland's glaciers date back much farther than the 1600s. You can dance around what their collapse means all you like, but the danger they portend exists, nonetheless. Ain't life crazy?
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fabricator
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46 Comments
Jul 09 03:44 PM-
Pent up demand
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114 Comments
Jul 09 04:52 PMThe climate models are not simply imperfect, they are worthless. They can't even do a decent job of backfitting the data they have, much less make valid predictions that can be proved. Before I subscribe to a radical CO2 reduction program (which will drastically reduce the standard of living of every person on Earth), I'd like a bit more proof that it would actually reverse the warming we've seen thus far.
"Climate change" is a political & religious movement, not science.
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ksmithdc
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92 Comments
My Website
Jul 09 05:31 PM-
TERN
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45 Comments
My Website
Jul 09 05:51 PM-
Thomas F.
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4 Comments
My Website
Jul 09 06:13 PM1) H1 Climatalogical (temperature extremes, drought, wildfire) doubling, how does that affect insurance rates in coastal areas? Any wildfire in Maryland I haven’t hear of? The Carolinas? I know there have been fire in Florida, have they burned down any cities I’ve heard of?
2) The trendline in the US thunderstorm graph doesn’t include 2006 & 2007 which would drive the trendline down significantly depending on the type of regression used. Frankly, it appears they intentionally over fit the line to prove a point. Do a simple linear regression on the line, adjust it for inflation throw in the fact that property values exploded during the last 10% of the graph and in inflation adjusted dollars I’m guessing, not much change.
3) “Insured coastal exposure in Florida, for instance, was $1.9 trillion in 2004; by 2007, that number had risen to $2.5 trillion, with total coastal exposure in the US reaching $8.9 trillion, largely as a result of the boom in construction” Frankly, I’d expect better financial analysis from an article on Seeking Alpha. Was the increase in value from building or from the bubble? Will the bursting of the bubble, with a 20-25% reduction in value reduce this number back to $2.0 trillion? If it does, does the insurance company benefit from having the same premiums but lower exposure?
4) A hurricane hit New York, what’s the likelihood? Particularly of it being above Class III after having left the gulf stream thousands of miles behind? This is a strawman argument, Nor’easters hit New York all the time, the building are built for it. Is there any record of a hurricane stronger than a class III hitting New York…..ever?
Now a word on the “sky is falling…” argument. The glaciers in Greenland have melted? The North Pole will melt this summer? It is July. After having introduced that much new water, how has the east coast escaped flooding? I live in Virginia Beach 8 ft. above sea level. If the Atlantic had risen so much as a foot, people all around me would have notice. So much on both sides is taken as gospel without so much as looking outside or at Google Earth. Seems to me that before believing someone who was telling me the North Pole was melting, I’d go look at a recent satellite shot.
Turns out, North Pole still has some ice and my house is still 8 ft above sea level. On the other hand, oil is a finite resource and isn’t renewing itself as quickly as we are consuming it. It is unethical to use up all the petroleum when there are viable alternatives. What are future generations going to think about us, when our answer to them about why we used up all of a finite resource is, “screw you we got ours?”
For more on this, see www.rightiswrongandlef...
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dbamich82
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1 Comment
Jul 09 07:11 PMI think any level headed person would agree that reducing any pollutants would be good. The only answer I see with 7 going on 10 billion people is to have everyone live in the stoneage or shift to powering the planet with nuclear, but this will be a 50 year shift.
If Gore or the greens seriously believed that warming was a serious problem they would be introducing 55 mph legislation and the such, this is about power and money grab. But , I have to hand it to Gore, coming up with an issue people will fall in line for based on assumptions and computer models, and a hypothosis that will take decades to test is genius.
Bottomline the insurers will be ok, the politicians need them. The govt cannot bailout disasters as the growing entitlement spending built in will eat up the funds.
PS where did the c02 originally come from; the public schools taught me it originally came from the atmosphere, sucked into plants and fossilized into fuel. Are we not returning the earth to its natural state?
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fabricator
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46 Comments
Jul 09 08:52 PMUm, Thomas? You may be up to speed on statistical analysis as a science, but do yourself a favor and look deeper into the science of climatology (as well as physics and geology)-- especially vis-a-vis Greenland's melting glaciers. Hint: we're not talking about the results of a typical hot month here. Your comment doesn't even approach the neighborhood of the actual problem.
Do your research. THEN opine. That's just common sense, bud.