Rising insurance costs could convince people that the risks of climate change are real

By Andrew J. Hoffman, University of Michigan / The Conversation

One of the great challenges of the fight against climate change is to make it real for people without scientific background. This is because the threat it poses can be so difficult to see or feel.

After Hurricanes Florence and Michael, for example, we may have to ask, "Did this climate change happen?" Many politicians and activists have claimed that the recent violent storms were the result of climate change, but it's difficult.

Those who want to make climate risks known need to rephrase the issue of probabilities rather than causes and outcomes. And for that, insurance is the "canary in the coal mine", sensitive to the trends of the impacts of climate change and the costly risks they impose.

In other words, when scientists and educators have failed to convince the public and policymakers of the urgency of climate change, insurance companies could impose themselves.

Jane Lubchenco, an environmental scientist who oversaw the National Oceanic and Atmospheric Administration from 2009 to 2013, offers an intelligent analogy to convince people of the link between the destruction caused by a single hurricane and climate change. It involves steroids and baseball.

His analogy is the following. If a baseball player takes steroids, it is difficult to connect a particular circuit to his drug use. But if its total number of circuits and its batting averages increase considerably, the link becomes obvious.

"In the same way, what we see on Earth today is the weather on steroids," says Lubchenco. "We are seeing more heat waves, longer durations, more intense storms, more droughts and more floods. These models correspond to what we expect from climate change. "

And these weather conditions have a cost.

In 2017, for example, hurricanes Harvey, Irma and Maria and other natural disasters such as earthquakes in Mexico and California wildfires caused economic losses of 330 billion US dollars, or nearly double the adjusted annual average inflation of $ 170 billion from the previous 10 years.

The estimated cost of Hurricane Florence, which hit the Carolinas in September, could reach $ 170 billion, making Florence the most expensive storm ever in the United States.

More generally, the total economic losses from forest fires in the United States in 2017 – the third hottest year ever recorded, behind 2016 and 2015 – were four times higher than the average of the previous 16 years and losses due to other violent storms were 60% higher.

Unfortunately, convincing politicians, business leaders and the public that these costs are the result of increased risks associated with climate change has not been easy, a challenge that has been central to my work since 10 years.

In 2013, I helped organize a series of leadership forums to introduce a wide range of business leaders to the 30 petabytes (30,000,000,000,000 bytes) of weather and climate data held by the Climate Data Center. national.

Although the hope was to see the value of such amounts of data in climate risk management, we found only limited interest, which leaves us wondering if we were too early and if our target was too large.

This has led me and others to realize that we should focus more on insurance companies, the company's first line of defense to absorb these costs, making their sector the most directly affected by climate change.

For example, the insurance industry generated a record $ 135 billion in natural disasters in 2017, almost three times the annual average of $ 49 billion. Not to mention the uninsured losses that were also sustained – uninsured losses from Hurricane Sandy in 2012 accounted for 50% of total losses of $ 65 billion, an impressive figure picked up by citizens and the public. taxpayer.

Insurers will eventually adapt to this new reality. And that will bring changes to our economy, including higher costs that will affect everyone's portfolio.

Our ability to drive a car, buy a home, build an office building, manage a manufacturing plant and enter into contracts is all covered by insurance. Without this, many of these activities would become more expensive or even stop.

Thus, as the insurance industry adjusts to account for the increasing risks of hedging and premiums related to climate change, it will become a powerful lever to encourage society and the economy to become more resilient to expected changes in the future. climate change.

While reinsurance companies – which mainly insurers – are increasingly studying climate-related risks, traditional insurance companies with known names such as State Farm, Travelers and Liberty Mutual'un.

There are two main reasons for this. The first is that they have been able to pass on the most catastrophic or uncertain risks to reinsurers and other investors. Second, insurers are too confident to be able to quickly adjust their policies from one year to the next in order to manage climate risks. For example, a 2012 study found that only 12% of insurance companies had a comprehensive climate change strategy.

It's starting to change. A study conducted in 2018 found that 38% of insurance companies now consider climate change a central issue, a figure that will likely continue to grow.

Last August, the International Association of Insurance Supervisors, a respected international standard-setting body in the insurance industry, released a report describing climate risk as a strategic threat to the insurance industry. He warned against the use of annual adjustments to manage climate risks, as physical risks can change suddenly and "non-linear".

Recognizing this threat, many insurers are abandoning decades of obsolete weather data and are recruiting teams of climatologists, computer scientists and in-house statisticians to redefine their risk models.

In the end, they are looking at whether they need to change their coverage and increase their rates. This is where the impact will be felt, forcing citizens, businesses and governments to pull themselves together and pay attention.

When Galileo Galilei overturned dominant beliefs in the sixteenth century, claiming that the Earth revolved around the sun and was forced to retract, he is supposed to have answered "Eppur si muove", meaning "and yet he moves."

Today, even though many are challenging the climate change, we could offer a similar replica: "And yet, that changes.

As humans persist in our greenhouse gas emissions, the climate continues to change, weather conditions are becoming more unstable, damage from hurricanes, forest fires, droughts and floods is increasing. and insurance payments are increasing.

In response, insurance premiums will increase and coverage will decrease. Hopefully, this will lead us to build more resilient, reduce our greenhouse gas emissions and, ultimately, increase the severity of the storms for what they are: a consequence of climate change.

Learn more about climate change from the experts at The Conversation.

Andrew J. Hoffman is a professor at the Ross School of Business and at the School of Environment and Sustainability of the University of Michigan..