The U.S. government may be starting to embrace concepts that date back to Babylonian King Hammurabi’s reign 3,800 years ago.
When President Barack Obama on July 16 issued climate change initiatives on guarding the electricity supply, improving flood planning, protecting against coastal erosion and storm surge, and predicting landslide risks, he could have been calling shots from the insurance industry’s playbook.
The basics of that playbook harken back to early human history, when Hammurabi and company realized risks and disaster needed to be addressed – ergo the code of Hammurabi, which contained possibly the first insurance policy written. It decreed a debtor didn’t have to pay back loans if doing so was impossible due to catastrophe.
For those who are coming to the realization that climate change requires not only action but risk management, Robert Hartwig has some news. “The private insurance industry has been at the vanguard of these issues for decades,” said the economist and Insurance Information Institute president.
There is a growing cacophony of calls for better understanding of extreme weather events and how they will impact people and businesses, he said, noting that what the industry has been doing for millennia in regard to resilience is “absolutely consistent with everything the administration would want to achieve.”
Obama hit on topics for which the insurance industry already has its terms: “modeling,” “underwriting” and “resi-lience” – the latter is a concept that has become born again due to climate change.
“We’re going to do more, including new data and 3D maps to help state [and] local officials in communities understand which areas and which infrastructure are at risk as a consequence of climate change,” Obama said. “We’re going to help communities improve … we’re also going to invest in stronger and more resilient infrastructure.”
When Hartwig gets the same basic question over and over again from the government and the media, “What is the industry doing to prevent climate change?” he answers in a myriad of ways.
“We’re not a greenhouse gas emitting industry,” is one. His favorite answer is to point out that the industry is constantly evaluating risk, and thanks to the policy seller-holder relationship in which policyholders pay less for being and building safer, insurance buyers have an economic incentive to reduce risk.
When disaster strikes, the industry responds by paying claims and adapting.
“The industry has been managing variability since the first insurance policy was written,” Hartwig said. “What is very often lost [when the topic of climate change arises] is that it is at the core of the insurance industry’s DNA to continue to monitor these risks.”
Many of Obama’s climate change incentives are a call-to-arms to make society more resilient. If a push from the government means homes start to be built better and communities are planned with disasters in mind, wouldn’t this reduce claims payouts and make the industry more profitable?
Not necessarily. Major hurricanes, tornadoes, floods, earthquakes and massive wildfires year-in and year-out haven’t changed how people behave or their view of risk.
“More people are moving into homes and working in businesses that are in harm’s way,” Hartwig said. People still flock to live by the sea, or they yearn to own homes in places that offer airy lifestyle opportunities that come with living in the wildland-urban interface. People haven’t stopped migrating to beautiful, but often dangerous, areas.
While the government may deem areas risky and create laws, incentives and regulations to deal with risk, the insurance industry has to let nature take its course.
“The insurance industry is not the demography police in the Unites States,” Hartwig said. “We cannot tell people where they can live. All we can do is send them a signal about the riskiness of all of that.”
Emphasizing his aversion to authoritarian measures, Hartwig added, “We’re not the climate change police.”
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