Climate Change Hits Insurance Industry

Yesterday the Washington Post ran a story on climate change and insurance companies. This is not a new subject, but the story by Joel Garreau was unusually well-written and thorough, and does have some genuinely fresh news…such as the fact that Allstate has stopped writing new homeowner policies in the New York area, fearing it could be swamped if a hurricane should hit the city. This should have been the lede, if you ask yours truly. You can’t miss this:

Insurance companies approach climate change bracingly free of theory. They take only an academic interest in whether the wind blows because of increases in carbon dioxide in the atmosphere, or cyclical fluctuations in the Atlantic, or the huffing and puffing of the Big Bad Wolf.

They just want to calculate the odds. They want to know how many chips to put on the table.

And where.

"Two effects are going on," says Nakada, of the risk modeling firm RMS. "Hurricane activity rates have gone up." But also, "Hurricanes are perceived to be longer-lived. These longer-lived hurricanes have a better chance of sneaking up the coast. The view of vulnerability has changed."

The specter looms of the big hurricanes of 1938 and 1954. Those Category 3 hurricanes devastated New England. Storm surges of 13 and 12 feet, respectively, swept through Providence, R.I. Historic markers demonstrate how high the water rose downtown. They are over your head. Photos show seas crashing over the top of a harbor lighthouse. It is 70 feet tall. Beach homes were swept out to sea.

"Our view is that there are some events that have the potential to be so large as to exceed the capabilities of the insurance industry, as well as the funding and financing capability of individual states," says Michael Trevino, the spokesman for Allstate, one of the nation’s largest home insurance companies. "Those are events that have the potential to be $100 billion. These events are so enormous, no entity has the ability to manage it."

Some require little imagination, such as a Category 4 hitting Miami or a Category 4 coming up the Houston Ship Channel aimed at the center of the U.S. oil industry, and America’s fourth-largest city.

But the one Allstate is focused on is a Category 3 funneling straight north up New York Harbor. Pushing a wall of water perhaps 15 feet tall up Broadway toward the second-story windows of Wall Street.

This is why Allstate has decided not to write new homeowners insurance in the five boroughs of New York City — Manhattan, Brooklyn, the Bronx, Queens and Staten Island — plus Westchester County, just north of the city, and the counties that make up Long Island — Nassau and Suffolk.

It’s this kind of change in corporate culture that is making climate change deniers irrelevant. I feel almost a little nostalgic for those days when I would bat emails back and forth for hours or days with deniers over the "hockey stick" or other alleged scientific overstatements.

Obviously, when huge corporations are turning down billions of dollars in business, fearing an unprecedented disaster, those kind of arcane "it’s not happening!" arguments become meaningless. As the story points out, once the insurance industry starts calculating a new risk–be it for cigarette smoking, or unsafe cars–the nature of the question changes. It’s no longer: Is this real? It’s suddenly: How much will this cost? And the industry says climate change is going to cost…a lot.

(Here’s a picture from the story of a Michigan lighthouse facing near-hurricane winds…in l998.)

South_haven_mich

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