by Jessie Roberts
Outside of government agencies, the insurance industry is the primary funder of climate-change research.
A trade group is sponsoring studies on how climate change affects tornadoes and hail. Another is backing university research on land ecosystems in a warming world, especially forests and crops. A British company is focusing on hurricane intensity and temperature rise while an insurer in Bermuda researches cloud seeding to see whether the storms can be stopped before making landfall. A.I.G., for example, just released a climate report of its own, noting “a disproportionate increase in the number of extreme weather events” in North America. [Berkshire Hathaway CEO Warren] Buffett is right: in ten years, if not sooner, calculations are bound to change. Those paying for the best research will get it first and, when they see an immediate risk, they’ll immediately price it in. For their own survival and for the sake of their shareholders, they will have to. Insurance rates will go up. And, if the risk is deemed too high or regulators block massive rate increases, as took place in coastal Florida some years ago, insurers will exit the market.
If profits equal progress, however, the insurance industry is on the right track. While researching a book that I wrote on the topic, I found that, when Hurricane Andrew landed in Florida and Louisiana, in 1992, insurers were caught unprepared, disbursing $1.27 in claims for every dollar of premium earned, for a total of twenty-three billion dollars. Those insurers started paying attention, and raised rates accordingly. Total claims were almost twice that when Hurricane Katrina hit Louisiana thirteen years later—but insurers still came out ahead, losing just 71.5 cents per dollar of premium. Industry profits were forty-nine billion dollars that year. We continue to gamble with our environmental policies. But the insurance industry, year after year, keeps winning.