Another Industry Takes a Dive: Retreat in the Face of a Warm Reception

 by Bob Stapler  

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By accepting the catastrophic model of global climate change, the insurance industry is buffered against all liability, can deny coverage and charge pretty much whatever it wants.

Try not to bleed. There are sharks in the water.

Allstate Insurance recently announced it will no longer issue new homeowner policies in coastal areas of Maryland due to global warming .  Shore-hugging homeowners and business are worried this will hurt property values and stifle growth.  The rest of us are thinking our premiums are about to go up.  They cite global warming-driven increases in hurricane frequency and violence, and the unpredictability of their risk in making this decision.

My initial reaction was that hype has triumphed over commonsense to the point even insurance companies (the least likely of businesses to succumb to hysteria) have caved to environmental pressure.  But what if there’s more to it than that?  So, I began researching other possible reasons they would have for jumping on this particular bandwagon, starting with the reasons they cite.  Here’s my short list of results:

a) convinced anthropogenic global warming (AGW) is real and are doing something about it (altruistic argument) – possible they’ve been infiltrated by GW zombies at very high levels;

b) fully expect global warming related damage to outstrip recent storm trends, and are upping the ante before they get caught footing the bill (reasonable business argument);

c) public is preconditioned to accept GW as reason for tolerating higher premiums whereas they won’t accept that insurers need an increase to make up for reduced profits (coward’s argument in lieu of admitting they are profit driven);

d) government has changed the rules governing insurance based on its belief in global warming that puts more of a burden on insurance industry (it’s not my fault and I don’t really believe in it but what else am I to do argument);

e) using global warming to force property owners to build away from storm areas or build to withstand storms so as to reduce insurance risk (reasonable business combined with nanny-state argument);

f) realized (as so many other businesses have) there’s far more money to be made going along with the hype rather than resisting it (cynical argument).

The truth is probably a combination of all the above and not all companies equally.  The insurance industry has been infested with cadres of ‘socially responsible’ types as much as anyone.  The scientists they hire to provide them analyses are not screened for ‘environmental bias’ (and they’d be skinned alive if they did).  Like other businesses, they see the writing on the wall and realize public perception trumps solid science and reason any day of the week.  The insurance business is high risk and, therefore, says it must operate at higher profit margins than other businesses to survive a succession of lean years; yet this high margin results in a public perception that they are thoroughly corrupt, validated by a long string of profitable years.  Government has been changing the rules because of Katrina: Katrina’s reinforcement of the public perception that climate change (aka, global warming) is man-made and the many fraudulent claims for which FEMA is now blamed.  Some insurers, in the aftermath of Katrina, have been demanding that government take over reinsuring them (most did not have sufficient reinsurance) because courts forced them to pay many claims their policies excluded.  Government, for its part, wants the industry to restructure without dependence on government; believing that could only weaken the insurance industry and leaving the government holding the bill.

The insurance industry appears to be presenting a united front with few holdouts and nobody declaring the emperor naked.  In the larger scheme, Allstate is only a second tier player and it is big guys like Allianz, AIG, Marsh, and Travelers calling this tune.  Nor is this restricted to beach front property.  Travelers and others have taken to penalizing gas guzzling SUVs and non-Green buildings in their campaign against greenhouse gases (GHG).  They call it giving incentives to green-cars and green buildings, but you can be sure they aren’t losing any money on it; and the cost of this bias is being spread over those of us not making the leap.

How can I be so sure this is cynical?  Insurance companies are the biggest, most profitable industry on the planet; and have a vested interest in staying that way.  They hire the brightest minds and triple think every decision before making announcements.  If they are declaring for climate change now, it is not because the verdict is in, it is because they have looked at the risk of not declaring and decided they can’t afford not to.  It may be a hundred years before we have ‘proof,’ but the risk to the industry’s bottom-line is now.

Suppose for a moment anthropogenic warming is real and we get the 2-6°C rise predicted (others say less than 1°C) by the global warming faithful.  The worst case scenario is not that publicized by Al Gore.  Gore has all the stuff predicted happening in an impossibly short and near simultaneous timeframe.  His scenario is repeated all over the internet (why not, since he invented it!).  If all the ice in the world melted today, the oceans would supposedly shoot up 80 feet, putting my mom’s eastern shore home under 60 feet of water.  At 420 feet, my home in central Maryland is a little more secure.  However, this rise is not predicted to take place in my lifetime or even in my great grandchildren’s lifetime, if ever.  It is only stated as a worst case possibility with a very low probability.  A more probable case, according to the IPCC, gives a 1 to 3-foot sea level rise; whereas skeptics argue no measurable rise.  Other predictions include draught, disease, deforestation, heavier rainfall, and species extinctions.  Yet, it is as easy to predict these will improve as worsen our situation.  There are even signs of negative feedback to moderate these effects and geological evidence that warmer temperatures coincide with better conditions.  Warming, if it takes place, will mainly take place at the poles with little effect on the tropics, and greater rainfall will distribute over wider areas making them more, not less, habitable.  If AGW is real, why aren’t insurers shielding themselves from these disasters the way they are hurricanes?

A number of articles and activist web-pages are citing the insurance industry change of heart as proof AGW is real, as though one more go-along-with-the-crowd constitutes proof.  All it proves, is that one more holdout has succumbed to activist pressures and is reworking its public image to align with the new ‘consensus.’

Every storm is being declared a global warming event, making the decision to defend it as ‘natural’ subject to greater exposure.  The historical and geological data all argue against increases in storm frequency and ferocity with warming.  Yet that does not seem to deter judges from declaring hurricane damage a ‘scientifically proved’ product of man-made meddling any more than it does agenda-obsessed scientists declaring their certainty based on computer models tailored to proving precisely that.   Agreeing it is unnatural and unchecked (i.e., we did not sign Kyoto protocols) merely shifts responsibility for not having dealt with it ‘properly’ onto government in the wrangle over accountability.

Normally, insurance companies are backward looking in making this kind of decision.  They spend huge amounts on sifting data and analyzing trends for predictors of liability.  It is the first time they have accepted a purely theoretical model of anything as statistically indeterminable as weather.   Granting the past is a far more reliable predictor than even the best computer-massaged theory, it seems unlikely an industry as conservative in its policies as insurance would go along with this.  Unless, of course, it is absolutely certain the risk in going along will be no worse than what the AGW gods predict.  In the case of accepting the catastrophic model, the industry is buffered against all liability, can deny coverage and charge pretty much whatever it wants, and can save itself the enormous expense of daily sifting data for ruinous omens.

The insurance industry has always played a leading role in advocating building and safety codes.  Now, it appears, they are taking an interest in championing climate protectionism; and for the same reasons.  If human-induced global warming is real, they reason, then it is in their interest to minimize it as a factor cutting into their profits while, simultaneously, providing a public service for which they can be rightly proud.  This has been the model behind the industry’s success through participation with government in things we now take for granted: sanitation, professional accountability, worker safety, transportation, fire, electrical and construction codes, etc.  However, if anthropogenic climate change is as bogus as we have every right to think it is or if there are reasons to think it benign, they have deviated from their proven and successful paradigm, and joined the biggest fraud in history.

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