What We Worry? The Big Shrug Over Climate Change.

As climate change denial ramped up I began to wonder where the prudent worriers in our economy had gone. Foremost among this doleful and boring but responsible fraternity are the insurers. Where were they? Why weren’t they siding with the climate change scientists and giving economic muscle to the scientific warnings? It appears there was some translation of risk warnings into dollar terms, but the message was very muted. It seldom reached the public conversation, if ever.

The insurance industry has been slow to warn. Here's an article about this.

The Guardian did report as early as 2011 that Lloyds had begun warning about climate change risks, but 2011 was hardly early. In 2014 they warned again.

In this 2013 article Smithsonian described the insurance pivot as an adjustment, a subtle turn of the dial. This was before they were purchased by the fossil fuel billionaires, the Koch Brothers.

In 2014 MotherJones wrote about how the insurance industry was largely ignoring or downplaying climate change.

I suspected this broad diffidence was because the insurance giants had been bought up by financial giants who were not insurers. An investment company is inclined to think fossil fuel profits are sexier than climate change warnings. They are likelier to tell the killjoy divisions to shut up and quit spoiling the party.

I think it was another case of Moneythink overriding our rational mind. If you are a large financial company your fiduciary responsibility (I call it a fiduciary excuse) to earn maximum profits overrides your responsibility as a citizen, your responsibility as a member of society and a comfortable beneficiary of that society.

I’ve read more since I posted about insurers' climate change denialism, and learned more about the evasions and muted warnings from insurers. Insurance policyholders are as likely to be deaf to warnings as insurers are to be dumb about the risks.

Which is where the media’s deafness comes in. (The news media's denialism has had a neat bag of tricks, as reported recently in a CNN opinion piece––why does critical thinking get relegated to the opinion pages anyway?) The sad habit of evenhanded coverage hasn’t helped. There is a habit among news divisions to “play it safe” by giving both sides of an argument equal weight, regardless of the merits of the opposing arguments. It's a bit like warning people that "There may or may not be a tornado coming. You decide." Some risks are too large to play that way, and climate change is one of them. It has been described by scientists as an existential risk for decades and the pussyfooting of media has enabled fossil fuel companies’ PR departments to sow doubt and paralyze our response. I compare this to the appeasers and America Firsters of the 1930s. We will need a WW2 scale mobilization to confront climate change, where a decade or two ago we might have confronted it without as much disruption.

Or maybe disruption is something the corporate class has anticipated and planned for. Disruption gives greater opportunity for control to those who have the resources and the positioning. For example, have corporations been buying options on lands that climate change would suddenly make viable, and buying up technologies we would desperately need (enabling certain fossil fuel villains to hop on a white horse and rescue us all once they’d reaped the maximum profit from the long con of climate change denial. Is this the kind of calculation that the sharper minds have been deployed to figure out? Vs. the less sexy calculation of risk and avoidance of risk.)

These articles address the problem that kicks in when insurers decide to abdicate instead of confronting risk. (From Lexology.com and from Reuters.

Instead of helping our massive economy address the risks and helping us put policies in place that reverse the risks, what do insurers do? I guess they shrug and give up. They pocket their winnings and leave the game.

Our Financial House Doesn't Actually Need A Roof

I read a New York Times piece this morning about the insurance business. You should read it. You wouldn't believe the kinds of tricks and schemes they get away with. I've learned some new terms for trickery. "Captive Reinsurance" for example. "Hollow Assets" is another. Some of the names of these shell companies will make you laugh. "Tapioca View." Is that a company you'd trust with your money? Insurers used to be the most careful people in the world, but they've changed. Fast and Loose makes bigger profits, at least in the short term...

Imagine paying for the insurance policy on your house with shingles from your roof?

When it isn’t raining, insurance companies think their financial structures don’t need a roof. As long as the sun shines and the premiums pour in they don’t need to have a functioning brain.

They’ve behaved the same way about climate change and the enormous risks––beyond enormous risks––sea level rises present to insured coastal properties and port facilities. "If it’s not happening now it will never happen” seems to be the bizarre logic of insurance giants.

“What me worry?"

How can they be so foolish? Because foolishness earns more in the short run. And the more a division earns this quarter the more important it is. And the more colossal the foolishness the likelier the government will bail them out. Insurance companies used to be more careful and responsible than that.

Well, a few of them are beginning to come around and behave responsibly. Finally.

Why did it take them so long? I suspect it’s because the big insurers have changed from thinking of themselves as insurance companies into thinking of themselves as investment companies. The side of the company that invested the premiums became sexier and more profitable. Also, low interest rates made secure, safe investments like bond funds less profitable and therefore less sexy. Life threatening risks might be bringing their attention back to their jobs. Is it in time?

Why Have Insurers Been Silent on Climate Change?

I began asking this question among economists, opinion shapers and policy people. Then I read the article in the Guardian, about how Lloyds is finally beginning to charge for climate change risk. Then, just this week, Farmers Insurance began filing lawsuits, not against the fossil fuel companies triggering climate change, but against the communities who failed to plan for the harm climate change will wreak on properties insured by Farmers. Why did it take so long for the insurance industry to wake up?

Maybe they were distracted. Maybe they had (in Dick Cheney's famous phrase) "other priorities." Are insurers still in the business of protecting against risks? Is that just a sideline, a way of raising investment capital?

I would suggest that insurance companies stopped being insurance companies at least a decade ago. They evolved into financial companies whose main duty is getting maximum returns on Wall Street…and these days that means sizable investments in the very profitable peak-oil fossil fuels business. Damn the risks. Profits tend to speak louder than risks at shareholder meetings.

Last month* I put these questions to a small group of people whose job it is to think forwardly. One reply from (a national columnist’s intern) suggested I need to learn more about how business works. The rest was silence. It is important to consider which division of massive financial companies dominates the thinking.

There was another time, in 2006 and 2007, when huge profits dulled the financial sector’s awareness of significant dangers. We ended up paying for their stupidity. Which means they are probably still stupid.

* "When you think of the vast liabilities of violent weather and rising ocean levels, insurers should be mounting a narrative to overturn the fossil fuel industry's campaign.

One reason occurs to me why they’re not. Perhaps insurance companies are overinvested in fossil fuel stocks. The returns on these stocks are huge because of the subsidies and because of peak oil, but they cannot possibly outweigh the potential for disaster.

Can the issue be raised that insurers are investing in industries that are causing these disasters? The causal link would be difficult legally, but less so as a narrative, letting the public change its mind.

Maybe it’s time for people to start writing to insurance companies. Ask an actuary if climate change will pose risks to their insured and to their companies. These issues have enormous economic consequences. The losses may be even larger than profits can cover."