Insurance Industry: Climate Change Price Hikes on the Way

July 14, 2011

Insurance giants Swiss Re, and Munich Re are the insurance companies that insurance companies go to for insurance.  They spend a lot of money to hire very smart people to figure out what their risks are now, and in the future.

These giant companies have been on the forefront warning about the damaging effects of climate change, now and in the pipeline. Now, after this year’s hammering by weather events from the “new normal” of climate pumped weather events – they will be raising their rates.

Birmingham News:

Homeowner’s insurance rates are likely to go up in the wake of the deadly and costly April 27 tornado outbreak, but the extent of the increase will vary by company and will depend on whether the storms are considered a freakish anomaly or part of a new normal for tornado risk.

Alabama Insurance Commissioner Jim L. Ridling said his department, which oversees the insurance industry, has had discussions with major reinsurance companies in recent weeks and they have indicated that they are anticipating a 7 percent to 10 percent increase in their rates.

New York Times:

The reasons behind the three-decade rise in disasters are multiple. Many experts point to the growing number of people and infrastructure in the path of storms as a key cause for growing losses. Also, the effect of La Niña — which punctuates the collision of cooler and warmer air over the United States — has agitated rougher weather this year.

But neither of those answers fully explains the catastrophe increases, says Peter Hoppe, head of Munich Re’s Geo Risks Research. He says climate change is affecting storms.

When the role of new homes from rising population is removed from the accelerating trend in losses, a signal from climate change can be detected as a cause of stronger and more frequent storms, Hoppe said. That climate signal amounts to a 2.4 percent increase in insured U.S. losses since the early 1970s.

A few years ago, when I debated a so-called “free market advocate” climate denier and brought up this issue, he, perversely blamed “greedy companies” for opportunistically raising rates to take advantage of the climate change “fad”.

Problem with that argument is, I actually believe in markets, their power, and what they tell us about reality.
If an insurance company starts raising rates without regard to real risks, that is an open invitation for another equally sharp operator to come in and undercut them, for instance in offering cheaper flood insurance in coastal areas.

So far, we are not seeing that. The people that know risk best are not buying the climate denial kool aid.

3 Responses to “Insurance Industry: Climate Change Price Hikes on the Way”

  1. prokaryotes Says:

    2011 already costliest year for natural disasters
    Expert: ‘We are rewriting the financial and economic history of disasters on a global scale’

  2. Gene Madison Says:

    I can’t help but wonder…

    Is the chart adjusted for Inflation?

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: