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Wednesday, October 16, 2013

Peter Sinclair: Lloyd’s of London Latest Insurer to Warn on Warming, Mocks Deniers

by Peter Sinclair, Climate Denial Crock of the Week, October 16, 2013

I’ve made the point often.  If you want to know if climate change is real, check with the people who actually have money on the table, skin in the game – the big insurance companies. These folks have more money than God (almost as much as Exxon) and hire the smartest number crunchers in the world to assess their risk exposure.  They are factoring in climate change, and pricing their coverage accordingly. As Eli Lehrer points out below, if they don’t get it right, someone will come in, undercut them, and eat their lunch.

Munich Re, the big European re-insurer, has had climate on the radar since the early 1970s.

From a powerpoint by Munich Re’s Peter Hoeppe. Munich Re publication from 1973 warning of impacts of extreme events due to climate change.
The head of exposure management at leading insurer Lloyd’s has slammed attempts to dismiss the latest UN climate science report, and says he’s unconvinced by claims the world is cooling. 
“The sceptics are just trying to push the debate and they start at 1998, which was one of the hottest years on record,” says Trevor Maynard in a blog titled ‘Silencing the Sceptics‘. 
“It’s a bit like someone breaks the world record for running 100 metres and then in the next ten races people say, ‘Runners are getting slower’.” 
He added:  “In some parts of the world we expect there will be more flooding and drought and food shortages, we just don’t know where exactly. It means all regions need to think about becoming more resilient.”
Indeed, if free-market conservatives really want evidence of climate change, they ought to look towards the insurance markets that would bear much of the cost of catastrophic climate change. All three of the major insurance modeling firms and every global insurance company incorporate human-caused climate change into their projections of current and future weather patterns. The big business that has the most to lose from climate change, and that would reap the biggest rewards if it were somehow solved tomorrow, has universally decided that climate change is a real problem. An insurance company that ignored climate change predictions could, in the short term, make a lot of money by underpricing its competition on a wide range of products. Not a single firm has done this.
MIAMI — Sharp increases in federal flood insurance rates are distressing coastal homeowners from Hawaii to New England and are starting to hurt property values and housing sales in areas just beginning to recover from the recession, according to residents and legislators. 

In recent weeks, the hefty flood insurance rate increases brought about by a 2012 law have stoked widespread alarm and uncertainty, prompting rallies, petitions and concern among state governors. Mississippi has sued the federal government to try to block the law. The issue has even garnered the attention of lawmakers, otherwise mired in the acrimonious government shutdown. A bipartisan group of senators and House members from Gulf Coast states are pressing for significant adjustments to the law once the Capitol returns to normal. 
The law, officially known as the Biggert-Waters Flood Insurance Reform Act, is being rolled out in stages, with a major part having gone into effect on Oct 1. It removes subsidies that keep federal flood insurance premiums artificially low for more than a million policy holders around the country — a discount that was applied to properties that existed before the drawing of flood insurance rate maps. 
An estimated 20% of the property owners with federal flood insurance received these subsidies as the new law went into effect, and their premiums will rise, in some cases precipitously, either now, over the next several years or whenever they sell their properties. The exact amount of the increase depends on the home’s elevation above flood level.
Rising Sea level eats away at Miami beaches
Miami is the most connected city in America, a place where the entire economy is geared toward the next big banking deal, real-estate deal, drug deal. As Wayne Pathman, a land-use attorney in Miami, put it to me, “The biggest question for the future of Miami is how investors will react when they understand the risks of sea-level rise.” 
The rivers of cash that are flowing into the city right now are pretty clear evidence that few investors are worried about that risk. Brickell, the hot new neighborhood where the $1 billion Brickell CityCentre, one of the biggest new developments in the city, is currently under construction, is a few blocks from the water – streets are already nearly impassable during big storms. 
“It’s partly denial and ignorance, and partly a feeling that they can beat the odds,” says Tony Cho, the president of Metro1 Properties Inc., a large real-estate firm in Miami. 
One thing that may change that is insurance rates. After Hurricane Andrew hit in 1992, many large insurers stopped offering property coverage in the state, citing the high risks of hurricane insurance. That left Florida in a dangerous position, with only small regional insurers to underwrite storm coverage for homeowners. But in the event of a large storm, the small insurers don’t have sufficient capital to cover the claims they would receive. 
To remedy the situation, the state began offering its own low-cost insurance under the name Citizens Property Insurance Corporation, which has become the largest insurer in the state. By subsidizing insurance, lawmakers hoped to keep costs down and development booming. The problem is, Florida is now on the hook for billions of dollars. 
“A single big storm could bankrupt the state,” says Eli Lehrer, an insurance expert and president of the R Street Institute, a conservative think tank in Washington, D.C. 
Flood insurance is likely to skyrocket, too. The National Flood Insurance Program is currently more than $20 billion in debt, thanks to payouts related to Hurricane Sandy and other extreme-weather events. In 2012, Congress passed the Flood Insurance Reform Act, which jacks the price of insurance up for people living in known flood zones. More reforms of this sort are sure to come. For a place like Miami, where virtually the entire city is a flood zone, the economic costs could be in the hundreds of billions. 
The financial catastrophe could play out like this: As insurance rates climb, fewer are able to afford homes. Housing prices fall, which slows development, which decreases the tax base, which makes cities and towns even less able to afford the infrastructure upgrades necessary to adapt to rising seas. 
The spiral continues downward. Beaches deteriorate, hotels sit empty, restaurants close. Because Miami’s largest economies are development and tourism, it’s a deadly tailspin. The threat of sea-level rise bankrupts the state even before it is wiped out by a killer storm. 

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