View this article online: https://www.insurancejournal.com/magazines/mag-features/2005/11/07/62360.htm
“Heaven has no rage like love to hatred turned, Nor hell a fury like a woman scorned.”
Powerful, but perhaps prophetic words, following the passage of Katrina and Rita. Have we “scorned,” in William Congreve’s words, the scientific community’s warnings that the world is getting warmer? Have we ignored their conclusions that human activity in the form of greenhouse gasses is polluting the atmosphere and contributing to the problem? Are we ostriches, with our heads buried in the sand, hoping that if we ignore the problem it will go away? Or, are all those think tank people just a bunch of chicken littles, proclaiming that the sky is falling just because of a few raindrops?
It’s a much-debated subject on the street; so we dropped into one of those cozy gin mills where weary insurance types gather after a hard day and listened in on the following conversation to see what the street thinks about the problem. We can’t reveal their names, so let’s just call them “Chicken Little” and “The Ostrich.”
Ostrich: I’ll tell you what I think about all this global warming. It’s gone on forever. The world heats up; then it cools down. Nothing you can do about it; it’s nature, see, and all these guys making a big fuss over it just want money to do research. Now, because they won’t get any more money, unless they find something’s gone wrong–they find something. Doesn’t mean it exists.
Chicken Little: Obviously you haven’t been paying attention. Sure warming and cooling are natural, but this time around we’re making it worse. First, and let’s get this straight, the atmosphere and the oceans have been getting hotter. Not even you can deny that. Second, there’s proof that what we’re doing is contributing to it. And third, it means we’re in for some rough times–more floods, more droughts, more fires and bigger hurricanes. Sure, the industry looks set to pay for Katrina and Rita, but what about Jennifer, Tiffany, Henry or whatever in the future?
O: Same way we always have. Raise premiums and get out of the high risk areas; they’re already doing it. Besides Katrina and Ivan last year weren’t even the most powerful hurricanes. Camille hit Louisiana as a Cat 5 in 1969; Andrew was a Cat 5 as well. You know, I’ve read a bit about this and something they call the North Atlantic Oscillation has been warming up and cooling down the areas where hurricanes form ever since we’ve been studying them. It goes in cycles, and right now we’re in a warm one, so we get more hurricanes.
CL: That may be true, but you should study it a bit more; all the big boys–Munich Re, Swiss Re, Allianz, Aviva–have whole scientific departments working on it. They aren’t there just because the boss’ brother-in-law needs a job; they’re really worried. One of the Munich Re guys talked about your cycle, and he said global warming would make it last longer and you’d have more intense storms. Looks like he was right.
O: That’s a coincidence. It’s still a natural phenomenon, just like El Niño in the Pacific. Sure the industry should wake up and stop covering stuff that is built on flood plains or along shorelines where you get big tidal surges; that’s just common sense; it’s what we have models for, to tell us where and what the risks are. Then, if it’s too risky and you can’t cover it, you get the feds or the states to come in and do it. If they won’t, then maybe fewer people will build stuff in places that get flattened, flooded and burned out.
CL: And if I told you that more than half the world’s population lives in those areas, then what would you say? Plus, look at Katrina, most people opted out of any flood coverage, even when they were living below sea level. I haven’t heard anybody from Florida raving about citizens either. The industry can do the job better, but only if it gets a level playing field and more support. That means we have to look at what’s really happening, not a lot of spin and wishful thinking.
O: You’re confusing apples and oranges. Who says we’re not looking for solutions? If you have new risks, or the old ones increase, you build that into your pricing. Plus all those models need to be updated. The industry’s done this before, and it will do it again, but that doesn’t mean it’s all due to greenhouse gasses; it’s simply fine-tuning what’s already in place.
CL: Well, since you mention it, let’s apply a bit of risk management analysis to the question. Warmer temperatures mean there will be more severe weather events; it also increases the risk that the losses from those events will be larger than in the past. Now if you apply risk mitigation techniques to the problem, you come up with the solutions you’ve been mentioning. But suppose for a moment that greenhouse gasses do play a role in warming up the atmosphere and the oceans. If you could do something about that, wouldn’t you want to?
O: There are a lot of things I’d like to do, but I’m realistic enough to know that most of them aren’t possible. You can’t change the weather; besides no one has come up with any real proof that CO<->2<$> and the other stuff going into the atmosphere really causes any of this, so why spend tons of money, including the increased burden on the economy, trying to do something that’s probably impossible, and may not even be necessary?
CL: There is proof, and there are ways to mitigate the greenhouse gas effect. Last February the Scripps Institution of Oceanography at the University of California in San Diego came up with the first clear scientific evidence that human activity–and very little else–is warming the world’s oceans, which in turn determine the world’s weather patterns. Here’s their Web site, if you want to read the report: http://scripps.ucsd.edu. Then the Intergovernmental Panel on Climate Change, which studies all this for the United Nations Environment Program, came up with a study, which concluded that capturing and storing the CO<->2<$> produced by power plants and factories before it enters the atmosphere could play a major role in minimizing climate change. So we can do something about it.
O: I don’t think you should base a drastic economic program on two studies from think tanks. They have their own priorities. The industry should stick to what it does best–analyzing the risks and changing policies and programs to take new variables into account. Let the governments handle it.
CL: I agree with you, but those “new variables” you mention include the strong possibility that the scientists are right, and the industry is in a good position to get governments to do something about it. However, I’m worried that by the time we realize that, it may be too late.