No Deniers in the Foxholes: Insurance Industry Copes with Climate Reality

December 2, 2013


The green lines are storm wind and flood events. The red line is geophysical events.

Climate deniers hate those pesky intrusions of reality.  For Insurance giants like Munich Re, Swiss Re, and Lloyds of London, climate change is a reality that is showing up where it hurts most, on the ledgers. The long piece excerpted below is quite an extraordinary investigation for a mainstream publication, and deserves a look.

Globe and Mail:

In the aftermath of the German and Canadian floods, the victims, the insurers, the media, the politicians and the scientists were all asking the same questions: What caused them? Was it the relentless buildup of atmospheric carbon dioxide? Could “extreme” weather events become the new normal or were they once-a-millennium acts of god?

In Munich Re’s offices, there wasn’t much debate as the claims cheques flew out the door: The higher frequency of extreme weather events is influenced by climate change; and recent climate change is largely due to burning hydrocarbons. “I’m quite convinced that most climate change is caused by human activity,” says Peter Höppe, head of geo-risks research at Munich Re.

His statement is not remarkable, even though the big American insurers don’t like to put the words “climate change” and “anthropogenic” in the same sentence. 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.”

From a powerpoint by Munich Re's Peter Hoeppe.  Munich Re publication from 1973 warning of impacts of extreme events due to climate change.

From a powerpoint by Munich Re’s Peter Hoeppe. Munich Re publication from 1973 warning of impacts of extreme events due to 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.

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.

Climate News Network:

LONDON, 30 November – The insurance industry doesn’t like climate change. Global warming is introducing a whole new element into the business of quantifying risk – the basic function of the insurance business. One of the main challenges facing insurers is the increased occurrence of floods in many countries.

The UK is one of the world’s leading insurance centres:  a recent seminar at the University of Oxford in the UK examined flood patterns in Britain over recent years.

Not only is the incidence of flooding increasing – it is also becoming ever more unpredictable. “No business, particularly the insurance industry, likes volatility” says Matt Cullen, a floods specialist at the Association of British Insurers (ABI). “There’s no doubt there’s been a ramping up of flooding in the UK since the 1990s and this tends to spook the insurers. And the situation is only going to get worse with climate change.”

Assessing when and where flooding occurs is a highly complex business, says Professor Edmund Penning-Rowsell, of Oxford’s School of Geography and the Environment. Flooding is episodic and can also be very localised, he says: a particular area might be flooded for two years in succession and then be dry for ten years – while another, previously dry area sees the waters rise and homes wrecked.

The ABI says flood-related costs in the UK have been rising dramatically: over the 2000 to 2010 period the industry paid out £4.5bn (US$7.2bn) to those whose homes or businesses had been hit by flooding – a 200% rise on pay-outs in the previous decade.

Under a long-standing agreement between the UK Government and the insurance industry, insurers have guaranteed that cover would be available to homeowners – even those judged to be in high flood risk areas – as long as the authorities continued to spend money on flood prevention works.

That agreement ended in mid-2013: in a move being keenly watched in other parts of the world, UK insurance groups and the Government are now trying to come up with a formula which both guarantees continuing flood risk cover for homeowners in future and also ensures the continued financial viability of the insurance industry.

Often, say insurance analysts, it’s the poorer in society who live in homes most exposed to flood risk. If there was a move towards a free-for-all in the insurance market, those households would either find it impossible to find insurance – or be forced to pay highly expensive premiums to specialist brokers.

The ABI is proposing setting up a new scheme called Flood Re which would provide insurance at what it says would be an affordable level for those most at risk from flooding. Flood Re would run a multi-million pound fund — financed by a general levy on all household insurance policies — which would cover the costs of flood claims.

The Government has given its tentative approval to the idea. However, the scheme is dependent on continuing government expenditure on building up flood defences.

According to UK government figures, about 5.2 million properties in England alone – that’s one in every six properties in the country – are at risk of flooding, either from rivers or the sea or from surface water flooding.

At present the UK is spending about £600m ($960m) per year on tackling flooding. The Government admits that, just to maintain existing flood protection levels, expenditure will need to rise by around 80% by 2035. And that estimate, say officials, does not include the cost of managing the risk of surface and groundwater flooding. – Climate News Network

Worth considering in this discussion: Eli Lehrer, Founder of the conservative R Street Institute, and formerly of the climate denialist Heartland Institute, broke with his colleagues a few years ago, for, among other reasons, his misgivings about the denial of science among right with “think” tank colleagues. Lehrer’s special expertise is on the insurance industry. He writes:

On one hand, if one doubts the opinion of an overwhelming majority of scientists, the insurance industry provides another major data point.  Given that accurate and unbiased weather forecasts are key to property insurers’ business, the fact that the industry broadly accepts that climate change is real and likely to be a problem should be taken seriously by anyone who believes in the power of markets to aggregate information. If insurers were not concerned about climate change, that would be a very strong piece of evidence that politicians, the media or scientists have hyped the issue beyond what it deserves.

In fact, every large property insurer incorporates climate change-related projections into its own models. Every large property insurer that I know of considers the likelihood of climate change-linked catastrophes to be a future operational threat. Smaller property insurers do less long-term planning and are less likely to make direct use of climate change projections, but they still feel the impact of those projections in terms of how much reinsurance they can buy and at what price.

Finally, a NOAA study authored, appropriately enough, by one Adam Smith, notes:

An increasing trend in annual aggregate losses is shown to be primarily attributable to a statistically significant increasing trend of about 5% per year in the frequency of billion-dollar disasters. So the question arises of how such trend estimates are affected by uncertainties and biases in the billion-dollar disaster data. The net effect of all biases appears to be an underestimation of average loss. In particular, it is shown that the factor approach can result in a considerable underestimation of average loss of roughly 10 to 15%. Because this bias is systematic, any trends in losses from tropical cyclones appear to be robust to variations in insurance participation rates. Any attribution of the marked increasing trends in crop losses is complicated by a major expansion of the federally subsidized crop insurance program, as a consequence encompassing more marginal land.

Recommendations concerning how the current methodology can be improved to increase the quality of the billion-dollar disaster dataset include refining the factor approach to more realistically take into account spatial and temporal variations in insurance participation rates.



35 Responses to “No Deniers in the Foxholes: Insurance Industry Copes with Climate Reality”

  1. Keith D Says:

    This is an easy one for the deniers though. “It’s a convenient excuse to raise their rates.”

    • greenman3610 Says:

      perfect example of how deniers, many of whom claim to be free marketeers, know nothing about how markets work. (how would you if you worked in a “think” tank all your life?)
      Insurers who pad their rates with imaginary risks will soon fall prey to smart competitors who “know” climate change is not real. this has not happened, of course.

      • Cody Rapai Says:

        You’re forgetting that deniers are also conspiracy theorist. They believe that every company that could possible make money off this is in on the scam.

      • daveburton Says:

        “Free market?” In things like flood insurance? Are you kidding?

        The reinsurance industry runs a massive con game, siphoning money from homeowners and other taxpayers, through manipulation of government-run and government-guaranteed insurance programs, supported by incestuous relationships with politicians and Climate Movement think tanks, like the Potsdam Institute for Climate Impact Research, which peddle the most outrageous hoaxes in the climate change biz, like preposterous predictions of wildly accelerated sea-level rise and the imaginary extreme weather linkage. (My longest sentence of the day, so far!)

        • dumboldguy Says:

          (My longest sentence of the day, so far!), says Dave

          Yes, but perhaps not the dumbest—and it’s full of the very baldest of unsupported bald assertions as well. Can’t you find a more reliable and relevant source to distract us with? Oh, sorry—-I forgot, you are more interested in politics than climate science, so “message” once again trumps truth.

  2. David Brunette Says:

    tell me what you think about this piece. Deep Down, the truth behind hydraulic fracturing. They are very open about funding, and the information seems to me very factual and the argument compelling.

    • Well, I think they are completely full of ****, and since you come here trying to hijack the thread, you probably are as well.

      How do you earn a living, Dave?

    • dumboldguy Says:

      I think the documentary is quite well done, and it will certainly fool some people, especially the cognitively dissonant who want to believe it all. Goebbels would be proud of those who wrote and produced it—although it is far more subtle that what the Nazis did back in the 1930’s.

      It is visually attractive, except for the shots of wells and facilities located in very scenic places—that’s kind of tone deaf—and I like the way they showed so many single wellheads in wide open vistas—not the way it really is in “gasland”.

      WPX is one of the companies that is being sued by lots of folks, and this will probably be money well spent for them—maybe they can influence some jurors. The documentary also plays like a symphony with its crescendos and counterpoints—of truth and lies—and of whining about being misunderstood and picked on versus “we are good guys and we CARE”.

      There IS truth to the claim that the fracking itself is so far underground that in the narrowest sense it “does no harm”. The tap dancing they do about all the near surface issues would put Fred Astaire and Gene Kelly to shame, to say nothing of all the BS about natural gas being a “good” source of energy. I agree with Roger that they are full of ****, but they DID make it look pretty and smell nice, and that’s what counts in the infowars.

      I too would like to know DB’s background and motivation. Is David Brunette just another persona for that other DB we know? Calling this “open” and “very factual and the argument compelling” is a “sea level rise is not accelerating” argument.

  3. omnologos Says:

    How does the above relate to AR5 WG1? In particular given natural variability isn’t expected to be surpassed for some decades still, why increase premiums now?

    • dumboldguy Says:

      Perhaps because the insurance payouts are following the same trend as the catastrophes in the opening graph? And maybe even increasing at an exponential rate?

      • omnologos Says:

        perhaps…but as Munich Re had to admit a few years ago, they _believe_ there is a climate signal in there but _know_ that it is overwhelmed for the time being by other factors (population increase, vastly more expensive things to insure, an expansion of the number of people that insure themselves, land reclamations etc).

        • Huh?

          The graph shows number of events, not the economic impact. Since geophysical events are nearly flat, and climate-based events are clearly and consistently rising, how do you come to the conclusion that the climate signature is not clear?

          And why do you imply that climate event’s” natural variability isn’t expected to be surpassed for some decades still”? The whole point of the last two decades of climate research has been to demonstrate that what we are seeing is NOT natural variability.

          • omnologos Says:

            Roger – it’s all in the IPCC SREX report, confirmed by AR5

          • “Roger – it’s all in the IPCC SREX report, confirmed by AR5”

            Gosh, why am I just the teensiest skeptical of your assertion? Just the smallest wafer-thin scintilla of doubt that omnologos might not be telling the whole truth?

            Good grief.

          • omnologos Says:

            Roger – don’t worry about my opinion. Go read SREX and come back letting us know in what timeframe they expect climate-change-related extremes to be different from natural variability.

          • “Roger – don’t worry about my opinion. Go read SREX and come back letting us know in what timeframe they expect climate-change-related extremes to be different from natural variability.”

            They already acknowledge that there are “climate-change-related extremes to be different from natural variability.”

            Examples from the executive summary:

            “It is very likely that there has been an overall decrease in the number of cold days and nights,3 and an overall increase in the number of warm days and nights,3 at the global scale, that is, for most land areas with sufficient data.

            It is likely that these changes have also occurred at the continental scale in North America, Europe, and Australia.

            There is medium confidence in a warming trend in daily temperature extremes in much of Asia. Confidence in observed trends in daily temperature extremes in Africa and South America generally varies from low to medium depending on the region.

            In many (but not all) regions over the globe with sufficient data, there is medium confidence that the length or number of warm spells or heat waves has increased.

            There have been statistically significant trends in the number of heavy precipitation events in some regions. It is likely that more of these regions have experienced increases than decreases, although there are strong regional and
            subregional variations in these trends.”

            … It is likely that there has been
            a poleward shift in the main Northern and Southern Hemisphere extratropical storm tracks.

            There is medium confidence that some regions of the world have experienced more intense and longer droughts, in particular in southern Europe and West Africa, but in some regions droughts have become less frequent, less intense, or shorter, for example, in central North America and northwestern Australia.

            There is limited to medium evidence available to assess climate-driven observed changes in the magnitude and frequency of floods at regional scales because the available instrumental records of floods at gauge stations are
            limited in space and time, and because of confounding effects of changes in land use and engineering. Furthermore, there is low agreement in this evidence, and thus overall low confidence at the global scale regarding even the sign of
            these changes.

            [Note that the report emphasizes that a low confidence does NOT imply a lack of effect.]

            It is likely that there has been an increase in extreme coastal high water related to
            increases in mean sea level.

            … There is evidence that some extremes have changed as a result of anthropogenic influences, including increases in atmospheric concentrations of greenhouse gases.

            It is likely that anthropogenic influences have led to warming of extreme daily minimum and maximum temperatures at the global scale.

            There is medium confidence that anthropogenic influences have contributed to intensification of extreme precipitation at the global scale.

            It is likely that there has been an anthropogenic influence on increasing extreme coastal high water due to an increase in mean sea level.

            Economic losses from weather- and climate-related disasters have increased, but with large spatial and interannual variability (high confidence, based on high agreement, medium evidence).

            Long-term trends in economic
            disaster losses adjusted for wealth and population increases have not been attributed to climate change, but a role for climate change has not been excluded (high agreement, medium evidence).

            So, your assertions are contradicted by the text you cite.

            Beyond that, everyone in the room except you understands that the IPCC is a VERY conservative document, and needs to be interpreted in that context. You, on the other hand, use this conservatism in a moronic ploy to demonstrate contradictions with more contemporary analyses, as if that is a legitimate use of the report.

            To you, coming here to cavil and disrupt the conversation is a game, a game which only you enjoy to your everlasting discredit. Your overall dishonesty is pretty transparent to anyone who bothers to pay attention. That you continue to prowl these halls when no one appreciates your sophistry can only be interpreted as a symptom of your psychopathology.

            Take the hint, already. Go away.

          • omnologos Says:

            Roger – sorry to hear about your problems in interacting with fellow human beings. Perhaps you can take it upon yourself to find a nice echo chamber where nobody asks questions unless they have been approved by you first?

            There is nothing disruptive in my objections and remarks. I always make a point to be relevant to the topic in the original post.

            As for the IPCC it makes no sense to claim it as a ‘conservative text’ to get a free hand in exaggerating its claims. SREX doesn’t exclude climate change as a factor, and I don’t either. BUt back to the original topic of the blog post, is this ground enough for insurers to extract additional money from their customers right here and right now?

            Some insurers believe so and good luck to them. I hope nobody will find secret internal papers similar to the ones Ford produced at the time of the Pinto.

          • dumboldguy Says:

            The laugh of the day (so far) is seeing O-Log talk about someone else having “problems in interacting with fellow human beings”.

            Followed by his assertion that “he always makes it a point to be relevant to the topic in the original post”. And then he talks about “secret internal papers similar to the ones Ford produced at the time of the Pinto”? Lord love a duck, O-Log!

            I must agree with Roger—-Take the hint, already. Go away.

        • dumboldguy Says:

          If I follow your logic, Munich Re should then NOT raise its premiums because the climate signal is in some people’s minds inconsequential? How long should they wait before they set the premiums to reflect the risk? Isn’t the whole point of this post that the insurers look forward and try to set premiums that will allow them to make future payouts? (and a profit?)

          • omnologos Says:

            Hmmm…so if I follow your logic people are paying now to cover what insurers believe they might have to pay back twenty or thirty years down the line.

            Am not sure the insured are aware of that fully.

          • dumboldguy Says:

            Perhaps one of us is illogical or does not understand how insurance works, but I always thought that insurers needed to build up reserves BEFORE they had to make payouts, and that they carefully assessed future potential liabilities in order to decide what rates to charge in the short term. (With an eye on competitiveness with other insurers, of course). Then, as reality unfolds, they adjust those rates as needed—I live on the east coast, and my homeowner’s insurance premium increased because of Sandy—if we have no more Sandy scenarios for several years, my premiums will go down. Is this post not about that process—-did even you read it?

            Considering what the various types of insurance cost any more, I would hope that “the insured” are at least minimally aware of all this, and how what they pay is affected by what coverage they desire on top of the general “sharing of risk” that is what insurance is all about.

            And the short answer is YES, people are paying “now” to cover “when” (Although you do go to extremes with “twenty or thirty years down the line”—but O-Log is nothing if not “extreme”).


          • omnologos Says:

            dumboldguy – Once again, I am not the one claiming things will become different from the past (they will leave natural variability that is) in 20-30 years. If you have an issue with the IPCC you know how to contact them.

            I am unaware of any insurance area or process where customers pay now to cover the insurers’ losses several decades hence.

          • dumboldguy Says:

            O-LOg says “I am unaware of any insurance area or process where customers pay now to cover the insurers’ losses several decades hence”. Neither am I.

            O-Log has actually doubled down and gone from “20-30 years” to “several decades hence”. I am not the one who suggested that premiums are collected today to cover losses 20 to 30 years or several decades from now—-YOU are. And I pointed out that you were being extreme with that statement. Why are you always in such a hurry to get in an argument? You might do better if you slowed down and actually read what is posted here.

    • fortranprog Says:

      Extract from AR5

      TS.5.4.3 Projected Near-Term Changes in the Water Cycle:

      “In the near term, it is likely that the frequency and intensity of heavy precipitation events will increase over land. These changes are primarily driven by increases in atmospheric water vapor content, but also affected by changes in atmospheric circulation. The impact of anthropogenic forcing at regional scales is less obvious, as regional-scale changes are strongly affected by natural variability and also depend upon the course of future aerosol emissions, volcanic forcing and land use changes.”

      I think that the graph from Munich RE backs up the AR5 statement above, the increasing patterns of flood are also meticulously, independently and handsomely illustrated by EM-DAT, the International Disaster Database from CRED (Centre for Research on the Epidemiology of Disasters). If this is not a strong hint to drastically reduce (if not cease) our exploration and use of fossil fuels, especially as alternatives are readily available, I don’t know what it will take to be a strong hint.

      • omnologos Says:

        fortranprog – first of all large reinsurers like Munich Re cover the whole world. So on the basis of the text you quoted, the impact of anthropogenic forcing on their global business “is less obvious”.

        Secondly as noted by somebody else the first graph of this post is a “number of events”. Given that insurers and reinsurers are economics players, they will naturally focus on the economical losses, rather than a “number of events”. That’s the graph we should look at.

        Thirdly there are many indications that economical losses have been on the way up for a combination of factors to which climate change adds a minute contribution. And it is expected to do so for many years still.

        • fortranprog Says:

          You have interpreted the AR5 Technical Summary extracted statement exactly opposite to my own understanding (worldwide flood increase obvious/regional less obvious), and have completely ignored the independent CRED data which substantiates the increased worldwide flood incidents reported by the insurance body. Essentially you saying that we should continue exploiting fossil fuels (coal, oil etc.), until supplies are finally dried up ?. say in 300-500 years time, at which time all AR5 long term climate predictions may well be true. James Hansen (who some criticize as alarmist/extreme) has published an open access paper with others, out of concern for his children, and I can understand, admire and empathize with this, I cannot understand people like David Bellamy who say Climate Change science is “poppycock” and want to keep on burning fossils until they are a distant faded memory and the Earth is in a dire state.

          Hansens open access paper

  4. […] Re. No climate-change deniers to be found in the reinsurance business – The Globe and Mail No Deniers in the Foxholes: Insurance Industry Copes with Climate Reality | Climate Denial Crock of … Sign in or Register Now to […]

  5. […] Climate deniers hate those pesky intrusions of reality. For Insurance giants like Munich Re, Swiss Re, and Lloyds of London, climate change is a reality that is showing up where it hurts most, on …  […]

  6. kingdube Says:

    Thank you David Brunette for spreading the truth. There is, in fact, a large segment of true deniers who wish to share their self-hate with all. They want to convince us that humanity itself is evil and antithetical to Mother Gaia.

    Fortunately most of us work hard and appreciate our lives and the bright future of the lives of our children.

  7. climatebob Says:

    When the insurance companies see a risk that is too expensive and won’t insure then the tax payer is expected to take on the risk. Politicians are normally only there for a short time and are quite happy to take on the risk because they won’t be there to pay the bill. The tax payer is always there as the insurer of last resort. Kicking the can down the road.

  8. jimbills Says:

    National Academy of Sciences: Abrupt Impacts of Climate Change: Anticipating Surprises

    Covered by New York Times: An Update on Risks of Abrupt Jolts from Global Warming

  9. […] No Deniers in the Foxholes: Insurance Industry Copes with Climate Reality (Peter Sinclair’s Climate Crocks) […]

  10. […] No Deniers in the Foxholes: Insurance Industry Copes with Climate Reality (Peter Sinclair’s Climate Crocks) […]

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