🧵 Something profoundly important (and scary) is happening.
Climate change is finally starting to break through the financial firewalls Americans and our government have put up, and affecting where people can live -- now and in the future.
There's an unlikely driver of this new reality:
The insurance industry.
1/🧵
gift link:
“If you had to pick a canary-in-the-coal-mine industry to measure the extent to which climate change is real, I think insurance is probably the best one I can think of. The balance sheets—they’re not going to lie.”
Climate change is the fundamental driver behind insurers abandoning California, Florida and more than 200 zipcodes elsewhere in the U.S.
2/🧵
Part of what's going on is that regulators can't keep up with the rate at which our climate is changing and the degree to which it's leading to increased payouts.
They're trying to keep policies affordable for regular homeowners and business owners.
But what they're finding out is, sometimes they can't.
Increasingly, some properties are so at risk that the only alternative is the state-funded insurer of last resort.
3/🧵
So guess who is paying to rebuild properties all across the nation when they're destroyed by climate change-driven extreme weather?
You are.
You, the taxpayer.
As one source put it to me, we're socializing the cost of rebuilding where we probably shouldn't.
4/🧵
Others in the insurance industry are coming up with new ways to deal with the problem of extrem weather -- better data and algorithms, internet-of-things connected sensors, you name it.
But at the end of the day, while this can help some homeowners stay, and some businesses recover from catastrophe, nothing can stop the future abandonment of some properties -- and whole swaths of our nation.
Experts in risk -- insurers -- are among those most keenly aware of this.
5/5
Insurance companies staying silent?
They are increasing premiums to cover losses.
When the risk is to great they will stop covering the risk.
If the corporation can't afford the insurance and the corporation has higher losses due to climate change, who should by lobbying? The insurance company?
They are increasing premiums on "property owners" because the risk is higher and losses are higher.
When the State says to the insurance company "you can't increase rates anymore" the insurance company pulls out of the State until the State recognizes the risk. That says a lot.
I think the posters point is that large industries *routinely* lobby in the order of hundreds of millions of dollars to get things they want.
I also have not seen this industry doing the same.
I guess I see it as when an insurance company tells a state they are not going to write new policies in an area because the risk is to high, they kinda cut to the chase. Just saying.
The point is that there is surprisingly little record for the insurance industry speaking out publicly about our and their perspectives in a changing climate. Compare this to other industries that are very swift in pressuring politics even before they see their business model in danger*.
Even more puzzling: Insurers have an important role and power as asset managers (they have *a lot* of money laying around) combined with highly insufficient policies for sustainable investment.
It's like if they were structurally not able to stop sawing off the branch they are sitting on. Lack of internal capacity to add 1+1? Different departments? Ideological short-sightness? Short-term shareholder profits over long-term perspective?
Hey, this is more or less the same as our governments or corporations in general. But with the difference that insurers have a reputation of knowing in theory how to use data... 🤔
I understand the point that government and corporations should do more. We all should.
To say that insurance companies know the data but are silent. Or that "they are doing no political lobbying to help prevent climate change from happening" is, I feel, a bit of a prejudiced statement.
When the insurance company increases rates due to losses and higher risk, they are telling the policyholder risk and losses are increasing. This is not being silent.
When the insurance company tells the state of California that it will no longer write new policies due to factors "beyond our control, including climate change, reinsurance costs affecting the entire insurance industry and global inflation". They are not being silent.
I hear this as speaking out publicly and putting pressure on local and fed governments.
The writings is on the wall. If you continue doing the same thing you are doing, we (insurance company) are not going to cover your stuff!
I understand what you say, but I think you use a different definition of "lobbying" than other people in this thread...
I suppose. Thanks
@trisweb @earthworm @KayseeColorado Id think it depends on the perspective of the observation. For a given insured asset, sure it makes sense.
When you stop selling your product in entire states due to the risk, that's a fundamental threat to your future business.
@pixelpusher220 @trisweb @KayseeColorado
Are these people really like grey robots in grey suits, only doing their duty, structurally incapable of seeing the catastrophe to come instead of blowing the horn?
This is what bugs me...
Take e.g. the fossil industry: they destroy the world, but justify themselves by shifting responsibiliy or plainly buying loyalty:
"it's the clients that need/want to burn the oil and if we don't do it, somebody else will. Additionally, if you work with us, your children will have enough money to live a decent live. And, btw, climate change will be manageable anyway. So, we try to make as much profit as possible while the party is going on."
But the insurance industry has the numbers AND has their business model in danger.
Or are they just so discrete we don't hear from them? Like is there some weird business moral code "not to interfere with politics" (while they obviously lobby with great effort for the privatization of the pension system to inject money into the financial markets...).
I am intrigued.
@trisweb @earthworm @pixelpusher220
I'm sure there are caveats to the nature of the industry.
To say they have no stake or opinion, or don't care is a bit cynical. I mean remember insurance companies were pivotal in pushing for regulation change for seat belts in cars, or airbags, smoke detectors in homes? Did it help their bottom line, sure. Was it a good thing to do, sure. Does that mean they care, I don't know.
All I am saying is that when the insurance company tells the state "we are not going to write new business in your state till you start making regulations that will mitigate the risk". That is saying something, that is not being silent, and that puts pressure on the state to start looking at solutions.
What should they (insurance companies) lobby for or against that would speak louder?
@michaelgemar @KayseeColorado @mimsical
As usual, the rich have ways to evade the consequences of their actions. Captive insurers.
https://www.investopedia.com/terms/c/captive-insurance-company.asp
The oil industry has even convinced governments to permit self-serving underwriting
https://www.oklahoman.com/story/opinion/columns/2023/03/06/guest-irss-guidelines-on-captive-insurance-leave-some-in-limbo/69971204007/
https://www.eenews.net/articles/a-new-energy-battleground-insurance-for-lng-terminals/
https://www.cbc.ca/news/canada/new-brunswick/irving-paradise-papers-1.6628921
@Npars01 @michaelgemar @mimsical
Yeah, your talking captive insurance companies.
There are also have mutual insurance companies.
The poster noted that the insurance was increasing premiums to "individuals" and staying silent.
All I am saying is that if losses are higher due to whatever reason, including climate change, and the insurance company says "we are not going to write policies in this area due to risk" that gets' governments and corporations to take a look.
@Npars01 @michaelgemar @KayseeColorado @mimsical
Self insurance is another way. The company hires a risk manager in house. There is no separate entity. A wide variety of companies use this.
@mimsical It seems problematic that typically regulated rates have to be set based on historic losses, even though we have good reason to believe future loss profiles will be substantially different.
Long term electric utility planning is facing similar issues, where it's very hard to get utilities to integrate expected future climatic conditions and electrification into demand curve estimates and thermal/water constraints on generation.
@mimsical It’s the same in Denmark. We have a state-backed flooding disaster fund to which all insurance customers pay a certain (indiscriminate) amount.
The economic council has in a brand new report recommended that this be changed (in Danish, but a Google translate will work): https://dors.dk/vismandsrapporter/oekonomi-miljoe-2023/kapitel-ii-klimatilpasning-kystzonen
@sorenhave But at least that makes for a balanced insurance pool. Something altogether different is happening in #Florida with #CitizensPropertyInsurance.
https://www.budget.senate.gov/chairman/newsroom/press/whitehouse-launches-investigation-into-citizens-property-insurance-amid-questions-about-companys-long-term-solvency
Same story we've seen with #Obamacare.
@mimsical Yep. It would be far far cheaper for the gov't to pay top current market price and buy out affected areas. And stop the future losses that are most definitely coming.
The thing people don't realize is that this threatens the entire real estate market.
No one is loaning you $100,000 dollars if you don't have insurance against catastrophic, but predictable, losses. The insurance company, correctly driven by data, is starting to expand the areas that qualify for climate change disasters and no longer covering catastrophic losses in those areas.
No loans, no buying. No buying....no selling except for cash.
Significantly smaller market means significantly reduced value.
The state providing a safety net is not wrong.
Rebuilding that flooded house on the same spot at the river side IS WRONG.
Rebuilding should be done in a SAFER spot.
@mimsical if, like me, you prefer video to pdf here's a good summary of the paper:
Insurance costs are driving other industries too.
Real estate is out of reach for the next generation, in part due to insurance.
You can't get a mortgage without property insurance. You can't build or sell a condo without condo insurance.
Daycares did not reopen after the covid pandemic, in part because of insurance costs.
The oil industry is creating captive insurance subsidiaries to evade the true cost of upcoming environmental litigation risk.
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