Climate change and insurance, or, hope is not a strategy

Ken Wolslegel in Environmental Leader: ….The insurance industry is a good lens to view the effects of climate change: first, because it is the largest industry on earth and thus, is truly global, and second, because central to the industry’s profitability is recognizing loss trends within the marketplace and adjusting rates, deductibles or coverage accordingly. The art and science of understanding loss trends is known as “attribution.”

…In the case of climate change however, attribution of a storm event, a drought, or the proliferation of a new invasive species is less clear. Attribution of individual events to a global phenomenon like climate change is inherently onerous and fraught with opportunities for obfuscation. Put another way, the scale and complexity of climate change is such that its current effects like the worldwide disappearance (melting) of glaciers or the Pine Beetle superinfestation decimating Canadian forests is easily obscured by opponents of action or by current economic woes.

The difficult attribution of singular events to the broad specter of climate change is perhaps the biggest barrier the insurance industry faces in making adjustments. For better or for worse, we live in a world where empirical proof is usually required before we act. Given the stakes presented in the majority of climate models’ “most likely” outcomes, it seems ridiculous to operate in the business-as-usual mentality.

…[T]he US insurance industry has hardly begun its nascent efforts at preparing for a new reality and insurance products which respond to climate change are slow in coming. The failure to prepare leaves the US insurance industry vulnerable, and some who study the problem predict mounting losses, the failure of weaker carriers, and a shrinking of the industry. Contraction in the US insurance industry will spell opportunity for European markets who have been preparing for decades. An old boss of mine used to say: “‘hope’ is not a strategy.” However, continuing the wait for empirical proof is just that. It is time for the US insurance industry to make a reasonable attribution of climate change data and prepare, before it pays an even bigger price than it already has.

Bird Island, FL, August 21, 2008 -- Houses on Sea Gate Circle in the North Brevard County community are locked in by the flooding from Tropical Storm Fay. State and Federal teams have started assessing the extent of damage caused by the slow storm throughout the Central Coastal and North Central regions of Florida. Barry Bahler/FEMA