NYT reporter Felicity Barringer reports: Three States to Require Insurers to Disclose Climate-Change Response Plans. The underlying problem is this:
Many insurance companies, particularly large international reinsurance firms, have been grappling with the issue of assessing risks that are not reflected in the historical record of insurance payouts.
Free market...blah blah blah.
Even if insurance executives saw the Black Swan land, they've not acted on the observation.
In the US, unlike other developed nations, insurance is regulated at the state level (except for flood insurance). Insurers, facing an estimated $27 billion in US losses, were mainly performing ostrich maneuvers.
Eleven of the 88 companies surveyed last year,... reported having formal policies to manage climate change.Insurance commissioners of three states, thus, felt the need to intervene.
Few corporations have reached the turning point - awakening to the present risks of climate change and taking steps to managing financial risks proactively. I'm not suggesting that this represents a massive turnaround, but it gets the winds of change blowing.
Plunkett research explains why insurance is a big deal.
Insurance and risk management make up an immense global industry. According to a survey conducted by a leading global insurance firm, Swiss Re, worldwide insurance premiums totaled $4.33 trillion in 2010 (the latest data available), up from $4.06 trillion in 2009. This was equal to 6.89% of global GDP. Global life insurance premiums were $2.52 trillion during 2010, while all other types of insurance totaled $1.81 trillion.Seven percent of global GDP. Can you imagine what might happen if claims made due to extreme weather double...triple...quadruple?
Were insurance commissioners in Texas or Oklahoma or Pennsylvania or West Virginia to require the same reporting there would no doubt be some fast de-commissioning of the respective state insurance commissioners. Elsewhere, however, I think we'll be seeing more of this as the years go by.
What might insurance companies do to more actively manage climate risk?
- Raise premiums the most where the most extreme weather events are projected in IPCC-calibrated climate models.
- Assume that regions which got tens to hundreds of tornadoes in April of 2011 will get more of the same and require that insured new buildings have storm proofed designs.
- Texas/Oklahoma drought...ahem.