I got my Masters degree in Ecology in 1974. Barely 40 years ago, we were on the precipice of “The Ice Age Cometh”…Scientists were warning about a coming Ice Age. The cover of Science News, March 1, 1975, featured the headline THE ICE AGE COMETH? with a lurid drawing of NYC skyscrapers being swept away by glaciers. Somewhere along the line, the winds of climate research funding shifted, and global warming became the next new great fear of the future. But the phrase “global warming’ was just not adequate marketing, and what if those winds were to shift again back to cooling….? Aha, call it climate change and you cover both bases.
So whom to look to for objective evidence of the seriousness of climate change-global warming? I spent the last 25 years of my professional life in financial planning, which included an emphasis on risk management. The risk premium is a ubiquitous feature of not only daily life, but also finance. Investments, insurance, loans and credit ratings all have armies of actuaries who gather voluminous information to help them calculate the proper risk premium–the extra cost associated with increased risk. Probably the most familiar example is auto insurance rates. Get in a fender bender, and if no one is hurt, the very next worry is how the accident will affect your insurance rate. In applying for a loan or credit card, a person with a lower credit score will pay a _________ rate of interest. A high risk driver pays _______ for insurance than a low risk driver. The interest rate a bond pays the investor on a safe, secure company is _________ than the interest rate an investor will demand on a high risk or “junk bond”. The correct answers are higher, more and lower respectively. Therefore, the most reliable indicator of the seriousness of climate change is the risk premium, or how much more the insurance company would charge to insure a home at sea level vs. a home higher up.
The National Association of Insurance Commissioners–NAIC–survey asks insurers questions about governance structures in place to address climate risk, climate risk management programs instituted across their enterprises, how they are using modeling tools to manage climate risks, how they are engaging with stakeholders on climate risk and how they are measuring and reducing greenhouse gas emissions. Despite the improvements from two years ago, the report shows that most of the 148 insurers evaluated still lack focus in addressing climate risks and related opportunities. A report says, “From their disclosures what we could tell was that they’re not really addressing climate risk in any sort of comprehensive way. Many responses lacked information about the impact climate change is expected to have across insurers’ lines of business, investments at risk because of climate change, underwriting practices and modeling. What that usually means is that perhaps senior leadership and maybe the boards of directors are just not engaging this topic.”
Since vast sums of money, and possibly the very solvency of many insurance companies, is at risk if climate change fears have a solid basis in fact, and if climate models promoted by the climate change lobby are even close to accurate, insurance companies should be pulling out the stops to re-evaluate their risk premiums. They “are not engaging the topic.” What does this mean? Are they lazy, foolish, ignorant or…maybe the world as we know it won’t end in 12 years. Can you still get a 30 year mortgage on beach front property? Yeah, or even a longer one. Hysteria comes and goes, it recycles. Those covers of Time Magazine should be a lesson.