Climate Change Is Making Parts of the World Uninsurable

Hair, smiles, favorite pets, breasts, reputation. It is hard to find anything these days that can not be insured. As long as the underwriters believe they can make a profit from providing the coverage, your obsession is their opportunity.

So, when a consortium of the world's largest insurance companies, called the Geneva Association in order to emphasize the connection with Switzerland, a country not exactly known for irrational exuberance, says that important and densely inhabited parts of the world are uninsurable because of the risk from warming oceans, it is time to pay attention.

The industry is saying that the risk from rising oceans and the storms associated with that phenomenon have become so commonplace that 'affordable' coverage, something of a joke already if you live in much of the developed world's coastal areas, may simply no longer be available.

The number of weather-related disasters has tripled in the last 30 years. Insurers already believe their exposure has become a drain on future cash flows. But they also warn that governments will increasingly become the insurer of last resort, putting further pressure on already constrained budgetary authority. Hurricanes Sandy and Katrina left their mark. And what they further demonstrated was that despite well intentioned efforts to convince people they should no longer build on flood plains, eroding beach areas and other threatened locations, the lure of the sea plus the deeply held emotional belief that coastal real estate values will continue to rise faster than others and the rights to those profits belong to them has driven people to move back and rebuild, future risks be damned. The problem is that insurers continue to be pressured into insuring the rebuilding and governments, because those doing the rebuilding are voters, capitulate as well.

It is worth remembering that the canary referred to in the metaphor about the canary in the coal mine was there to provide insurance, in that case a warning about dangerous gases. So when the canary is saying it can no longer function properly in certain environments, it is probably time to act. JL

Alistair Gray and Pilita Clark report in the Financial Times:

Insurers have issued a rare warning that the speed at which the oceans are warming is threatening their ability to sell affordable policies in a growing number of places around the world.

Parts of the UK and the US state of Florida were already facing “a risk environment that is uninsurable”, said the global insurance industry trade body, the Geneva Association.
They were unlikely to be the last areas with such problems, said John Fitzpatrick, the association’s secretary-general. He said governments needed to invest more in flood defences and tighten building restrictions in risky locations to mitigate the fallout from extreme weather hazards, citing losses from superstorm Sandy, which struck particularly hard in New York and New Jersey last October and cost the economy about $65bn.
“Governments may have fiscal austerity issues in the short run. But in the long run they’re going to have big exposures – to repair damaged infrastructure from storms.”
In spite of the losses from Sandy and a spate of natural catastrophes the previous year, overall global property insurance premiums have remained broadly stable outside loss-hit areas.
However, insurers warn premiums have been kept artificially depressed in the short term because capital has flocked to the sector in the face of historic low interest rates.
Scientists have reported signs of warming oceans for more than a decade but more recent studies cited in a Geneva Association report on Monday suggest this may be more pronounced than previously thought.
The number of weather catastrophes worldwide has risen noticeably over the past 30 years, according to data from Munich Re, the reinsurer. They show a trend in the numbers of storms, floods, heatwaves, droughts and forest fires that has risen from about 300 a year in 1980 to about 900 in 2012.
Insurers are also concerned that an increasing number, and value, of properties being built along waterways and coastlines is pushing up the costs when disasters strike.
Rising friction between the insurance industry and governments struggling to shore up weather protection has become evident in several regions in recent years.
In the UK, insurers have been locked in a battle with officials over an agreement that flood cover is made available to every household in the country. It expires at the end of next month.
Insurers argue the commitment is no longer viable, in large part because of a lack of investment in flood defences, and they want ministers to introduce a scheme to subsidise insurance for high-risk households.
Mr Fitzpatrick also cited the floods that devastated Thailand a year before Sandy, which caused $43bn worth of damage. “Had [the authorities] done a few things earlier it might not have cost [so much],” he said.
He warned of a “step change in the ocean temperature which we know is a key driver of the severity of storms”. Higher temperatures mean the oceans expand, which contributes to rising sea levels – along with melting ice sheets and glaciers.
The average global sea level has risen by nearly 20cm over the past century, but faster rises have been recorded in more recent years.
The most recent report from the UN body, the Intergovernmental Panel on Climate Change, in 2007, said sea levels rose at an average rate of 1.8mm per year from 1961 to 2003, and by 3.1mm from 1993 to 2003, though it was unclear if this reflected a longer-term trend.
As well as rising sea levels, warmer oceans are thought to be contributing to a big increase in evaporation from the surface of the seas, which in turn leads to heavier rains and potentially more severe storms, as well as longer cyclone seasons in some parts of the world.
These factors may have contributed to the devastation caused by Hurricane Sandy by maintaining the storm’s intensity and helping it make landfall, the Geneva Association report said.