More Evidence on Increasing Extreme Weather Impacts
January 19, 2014
It’s hard to point to any one weather disaster and say definitively that it’s related to climate change. But it’s not your imagination: the number of major weather-related disasters in the U.S. has been steadily increasing over the past few decades. For evidence, check out the NOAA National Climatic Data Center’s series of maps showing the number of billion dollar weather disasters that have occurred every year since 1980.
Not every year has had more disasters than the years immediately prior, but the trend is there. The weather is less stable than it was 30 years ago, and it’s racking up some pretty big bills. Presumably, it’s a problem that won’t get better anytime soon.
What is remarkable is that Munich Re first warned about global warming way back in 1973, when it noticed that flood damage was increasing. It was the first big company to do so—two decades before the Rio de Janeiro Earth Summit triggered a planetary anxiety attack by publicizing the concepts of “global warming” and “climate change.”
Munich Re, Swiss Re and the other reinsurers, along with the Lloyd’s of London insurance market (unrelated to the bank of the same name), stand out from the rest of the business world by being on the same page as scientists on climate change. What’s more, while most of the planet has its head in the sand about the reality and requirements of global warming, the reinsurance industry has already moved on to mastering the math on other catastrophes.
Like any industry, the reinsurers and insurers stay in business by not losing money year after year. To accomplish that, they have to turn ever-greater portions of “unexpected” losses stemming from the weather into “expected” losses, which requires that they become adept at risk modelling.
Reinsurers and insurers lose money when they misjudge risks that come back to bite them. To reduce their own risk profiles, the insurers have to become expert at matching the premiums to the estimated risk. Charging too little for, say, flood risk in a region that is becoming flood-prone is bad business. Equally, charging too much for premiums on natural catastrophes that are not on the rise, like earthquakes, is bad business because it scares away potential insurance buyers.
Just as recognizing the trend lines on climate change is good business for the reinsurers, the oil companies’ skepticism was designed to prevent or dilute regulations that would hurt their business. The reinsurers had no such axe to grind. The question: Will they be right on emerging risks, such as genetically modified crops and Arctic shipwrecks?
Munich Re—Münchener Rückversicherungs-Gesellschaft AG, to use its proper name—is one of the world’s biggest reinsurers. In 2012, it wrote €52 billion in insurance and reinsurance and earned €3.2 billion. It has 45,000 employees and a market value of €27 billion as of early November, putting it neck and neck with rival Swiss Re. There are no Canadian players of this scale in the business. The American biggie, General Re, is privately held. Like Munich Re, it’s an investment held by Warren Buffett’s Berkshire Hathaway Inc.
Höppe, 59, is “Prof. Dr. Dr.” on his business card—he has doctorates in both meteorology and human biology. His endless CV, which includes advisory positions at the Max Planck Institute for Meteorology and the OECD’s advisory board on the “financial management of large-scale catastrophes,” underlines his stature as one of the world’s top climate-change specialists. His main areas of research have been the effects of atmospheric processes (heat, cold, ultraviolet radiation, air pressure) and pollutants (ozone, soot) on we poor humans.
Höppe is compact, intense and enthusiastic. A bit rumpled, like a scientist from Central Casting, he loves to back up his statements with official sources, jumping up every few minutes during an interview to retrieve documents. The 1973 document he prints out for me is a source of pride within the company, which bills itself as “the first alerter to global warming.” The warning notes “the rising temperature of the Earth’s atmosphere [as a result of which glaciers and the polar caps recede, surfaces of lakes are reduced and ocean temperatures rise].” It points to the “rise of the CO2 content of the air, causing a change in the absorption of solar energy.”
The warning ends with a pledge: “We wish to enlarge on this complex of problems in greater detail, especially as—as far as we know—its conceivable impact on the long-range risk trend has hardly been examined to date.”
The pledge was fulfilled. Munich Re has been examining climate change since then, compiling the world’s most extensive database on natural disasters, covering some 33,000 events and drawing on research by its own staff and more than 200 other sources. “There hasn’t been any industry or company that has addressed climate change this early,” Höppe says.
How did Munich Re and the other reinsurers get it right so early? The answer, in a word, is fear—fear of losses that could destroy their business. No industry has more incentive to know the effects of climate change than the reinsurance and insurance industries.
Much more at the link.