Global Warming Creating ‘Ticking Time Bomb’ for Insurance Industry
By EV World
Imagine the strange synchronicity when Tim Wagner, who co-chairs the National Association of Insurance Commissioners' Task Force on Climate Change, suggested that New Orleans be the site of the association's Fall conference, originally scheduled to take place in September 2005. Wagner says he selected the location because it, of all American cities, was most likely to suffer the earliest effects of global climate change. He even had booked former Vice President Al Gore to speak on global warming.
How could he have known that just a few weeks before the event, Hurricane Katrina would bring the nightmare he had feared?
Wagner recounts during his 10-plus minute presentation, which EV World recorded during the Re-Energize America town hall meeting in Omaha on May 25, 2006, how the four catastrophic hurricanes that hit Florida in 2004 compelled the NAIC to assign him the task of studying global warming.
"I set about doing so with the expectation of holding a symposium in September in New Orleans, during our fall meeting , on climate change. I thought that was an appropriate place and said so, because the maps show [that with] the melting of the polar ice caps, New Orleans would be under water in a matter of time.
"Little did I know there would be a hurricane on August 29th and New Orleans was virtually uninhabitable."
He told the audience of some 150-200 people gathered on the campus of the University of Nebraska at Omaha that he'd done his homework, he'd attended forums and knew the background of the scientists who were raising the alarm on global climate change.
"And it seems [their] voice wasn't heard," he commented.
The destructive 2005 hurricane season was a wake-up call to the American insurance industry, he explained. "This is no longer simply a property and casualty insurance issue. This is an issue of greater import. It's an issue that will ultimately effect the economic, political and social framework of our society; and it is very difficult for the public to grasp the implications associated with global warming. It's like a ticking time bomb."
Wagner said that the combined catastrophic loses in the United States in 2005 was $57 billion, $30 billion more than in 2004, the year of the four Florida hurricanes.
"Historically, catastrophes only comprise only two percent of the premium associated with your homeowner's policies. Today, catastrophes are running at six percent of that premium, and we're talking about weather-related catastrophes now. So, we're seeing a change in the weather.
"Why are we getting more severe hurricanes in the coastal areas? It's clear the ocean temperature is rising, that heat creates energy and that energy is translated into intensity when it comes to violent storms. Now we're saying that we can expect a $100 billion event. It is... a certainty."
He observed that not only have storms intensified, but that America has changed demographically in the last 30 years.
"The coasts have become more populated. Roughly 70 percent of our population lives within 50 miles of the coastline."
Wagner said that as an insurance commissioner, it's his responsibility to make sure the companies he regulates remain solvent. He also needs to make sure that there are markets where people can buy affordable insurance. The unpredictability of global warming, he said, is going tax the insurance industry to its "very resources", and is likely to have profound economic consequences on future growth.
"If there isn't insurance, you don't have new construction. You will have loans that will be foreclosed because there isn't insurance on the property," adding that not only do insurance companies underwrite risk, they also are major investors.
He stressed that we haven't time to waste arguing over the issue. "Scientists tell us that it takes a hundred years to take carbon out of the atmosphere. This is a long-term issue with long-term implications... I think we are going to have to spend the money and the resources to work toward energy alternatives; and I think we're starting to do that. But we're going to have to do more and more of it in the future..."
Wagner had a number of suggestions for mitigating the economic impact on consumers who live along the nation's coastline. These include strengthen building codes and enforcement, which may have to be applied retroactively to old construction, he noted.
"We need coherent land use policies. We can't continue to build in properties that are unbuildable; where the risk is so great that we simply can't afford to continue to finance the risk associated with that kind of loan."
The NAIC is also urging the establishment of a national catastrophe fund, in large measure because the risk is so unquantifiable.
"It's like roulette," he said. "In climate change, the dynamics of weather events, the paradigm is changing and there's a certain amount of ambiguity; and when that happens, it's very difficult to price."
He last remark stressed the importance to reducing carbon emissions, "and we have to address them now."
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