DOI: 10.5176/2251-1997_AF18.53
Authors: Morton Lane
Abstract:
In June 2017 Science magazine published a multi authored1 article entitled “Estimating economic damage from climate change in the United The Reinsurance Industry An often-asked question is, what is the insurance/reinsurance market doing about global warming or climate change? The answer is often reported as, “nothing significant, yet” or “we are assessing the situation”. The question might be pertinent, but it is often seen as impertinent or politically motivated. It is a question that can be accusatory, in the sense of – on which side are you? Do you believe that climate change/global warming exists? Is it caused by man? Shouldn’t something be done? It is not surprising that businessmen from the industry are somewhat muted in their response. They want to avoid the highly charged questions and get on with their business in ways that make financial sense. The truth is that the insurance/reinsurance industry has done an awful lot about global warming and has been doing something about it for some decades now, both explicitly and implicitly. Explicit actions are seen in the works of the large reinsurers and brokers of the world – Swiss Re, Munich Re, Guy Carpenter, Aon, Willis, Lloyds of London – documenting the changing effects they believe they see in the world and their speculations about those they expect to see if such trends continue. Similarly, the companies that serve the insurance community – the catastrophe modelers - AIR, RMS2 , Eqecat – discuss at length the effects they predict through publications that they write. A visit to the website, many whose links are appended, of any of the companies mentioned will show considerable thought and analysis about global warming/climate change. However, before moving on to the more implicit actions of these and other players, let us stipulate that the industry is agnostic on the accusatory questions. Their actions are financially motivated not politically motivated, as should be. The measurable, but implicit, action of the industry is the level of premiums now compared to premiums charged in environments several decades ago when global warming was not of apparent concern. The other implicit action is changes in the terms and conditions for the coverages they provide now compared to then. If premiums are higher now than in the past – it is a measure of one element of the cost that global warming has imposed upon us all. If terms and conditions are tighter, it is a cost to us all. Perhaps not the major element of cost - direct disaster costs are major- but a telling cost nevertheless. After all, insurers will want to recoup those direct costs over time through the premiums they set. 1The authors were Salomon Hsiang, Robert Kopp, Amir Jina, Michael Delgado, Shashank Mohan, D.J. Rasmussen, Robert Muir-Wood, Paul Wilson,Michael Oppenheimer, Kate Larsen and Trevor Howard States”. It is an extensive article that produces among other things a forecast of economic costs from productivity and property damage. The study is wide-ranging and results in important depictions of losses by coastal county (see reproduced figure below) and a fitted prediction of costs-to-come (as an impact on US GDP) as a quadratic function rising sea surface temperatures – i.e. a measurable component of climate change. Included in the estimated costs are the direct effects on coastal cities of rising sea waters, higher temperatures on crop yields and the direct effect on energy as well as the indirect effects on mortality, violent crime, labor, of further changes in temperatures.
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