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Tuesday, January 04, 2011

Major Insurer Sounds Global Warming Alert

Warming planetThere are a lot of industries that would be adversely affected by global warming -- agriculture, fishing, real estate development, tourism, and timber all come immediately to mind. Shifting weather patterns means greater uncertainty for industries that rely on weather and a rising sea level means the redrawing of maps. As the world changes, the ancient evolutionary law kicks in -- adapt or die. Many of these industries may be able to adapt, but behind them all stands a second industry; the insurance industry.

As we all know from the dragged out healthcare debate, insurance isn't about avoiding risk, so much as it is shared risk. It's simple math -- bad things happen, but they don't happen to everyone. If only X in ten people suffer a heart attack in their lives, for example, those who don't have heart attacks pay into a fund that helps pay for the victim's treatment. It's like a bet -- you bet you'll have a heart attack, even though the odds are against it. And, because the insurer is willing to give you odds, the money is worth it, since the payout is the only way you'd be able to afford the consequences of winning the bet.

This is also the reason why you can't buy insurance for some eventualities. You can't insure your car against rust or the paint on your house against peeling. These are things that happen to almost everyone and are practically unavoidable. You can insure against death, but the bet there is that you'll die earlier than most people, before you've paid in the amount that the insurer pays out, not that you'll die eventually. The concept of insurance is, at its heart, mathematical and rational.



Now, imagine a world where you couldn't insure crops or seaside hotels or ships at sea. Or that you couldn't insure homes in certain areas from fire or storm damage. Remember, insurance is all about shared risk and statistics. If something is sure -- or even almost sure -- to happen, there's no money in insuring against it. Which brings us back to global warming.

L.A. Times:

Leading reinsurer Munich Re said Monday that extreme natural catastrophes in 2010 led to the sixth-highest total loss for insurers since 1980 and showed evidence of climate change.

Severe earthquakes, floods and heat waves last year led to $37 billion in insured losses, according to Munich Re's annual review. Total economic losses, included those not covered by insurance, rose to $130 billion from $50 billion in 2009.

Altogether, 950 natural catastrophes were recorded last year, including floods in Pakistan, a heat wave in Russia and major quakes in Haiti, Chile and central China.


"Out of the last 100 years, 2010 was one of the most intense for storms, with 12 of 19 tropical cyclones attaining hurricane strength," the Times reported yesterday. "Floods caused by monsoons in Pakistan caused $9.5 billion in damage."

Climate change deniers (I refuse to call them "skeptics") will glom on to the mention of the Haiti earthquake. The article also mentions the eruption of Eyjafjallajokull in Iceland, which shut down travel across much of Europe as another factor, as well as the earthquake in Chile. But anyone dismissing this as puffed-up "alarmism" will not have bothered to look up the statement from Munich Re for themselves.

Right at the start of the 2010 hurricane season, the water temperatures in the tropical North Atlantic were up to 2°C above the long-term mean -- and thus significantly higher than the level to be expected for the cyclical warm phase in the North Atlantic that has persisted since 1995. The water temperatures thus provided ideal conditions for the occurrence and high intensity of hurricanes. As from the beginning of August, atmospheric conditions also favoured the occurrence of Atlantic tropical cyclones ("La Niña" conditions).

"That is in line with the trend of the past 30 years, in which all ocean basins show an increase in water temperatures. This long-term trend can no longer be explained by natural climate oscillations alone. No, the probability is that climate change is contributing to some of the warming of the world's oceans", said [Prof. Peter Höppe, Head of Munich Re's Geo Risks Research]. "This influence will increase further and, together with the continuing natural warm phase in the North Atlantic, is likely to mean a further high level of hurricane activity in the coming years."


Now, I want you to consider who's behind global warming denial -- oil companies. If everyone agrees global warming is real, then they're a dying industry (never mind that they're dying anyway. They're in denial). Long story short, if global warming is happening, they have the most to gain by convincing people it's not and the most to lose if people decide it's real and needs to be dealt with.

On the other hand, insurers like Munich Re have the most to lose if people decide global warming is not real. However, unlike the oil industry, they have nothing to gain by a lie. If global warming is not happening, but everyone decides we need to do something about it anyway, insurers get jack. Yet Munich Re is devoting a lot of time, effort, and money toward raising awareness of climate change. They've even gone so far as committing to making the entire company carbon neutral by 2012. For the record, that ain't cheap. Munich Re is one of the largest insurers in the world.

Now, given those two positions, who do you think is most likely to lie; the industry that will continue to make money if global warming is ignored or the company that would gain nothing by lying about it?

I'll let simple logic speak for itself.

-Wisco


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