At the recent ABI conference there was a session on climate change, engineered to garner insurance industry support for a 2 degree pledge. Four famous promoters of the pledge took to the stage.
Useful oral contributions included:
- Investment in the Energy Giants may have a limited shelf life, so better consider the resilience of investment income. (I noticed that no timescale was offered).
- Investments in other major industry players might be better placed if those players could state how much risk they were exposed to if the climate were to change as anticipated. (I wondered that of course the Officers of such firms are only obliged to declare material factors that are more likely than not, so given the scientific uncertainties, there may be not much reporting to make).
- Insurers might benefit from improved resilience expenditure so it would be useful to encourage politicians to make such investments. (I recall that there is good evidence that one pound spent on in land flood defences saves insurers 8 or so pounds.)
- Insurance is a very good way for people to manage resilience, more people could be encouraged to buy it.
- Radical political action could very easily hasten the devaluation of shares held by insurance companies.
Rhetoric was there in plenty too, but doesn’t serve much useful purpose without a clear business plan to guide it.
A more damaging climate would have the effect of increasing insurance turn-over and provided this was manageable, bigger profits too. But there comes a limit. One speaker declared that a 4 degree rise would lead to an un-insurable situation. (no evidence was offered, just the conclusion). One imagines that the qualitative argument is that correlated loss events would be too large and too often and that economic downturn would reduce the availability of cash for purchasing insurance. On the other hand, if economic growth outpaces the growth of damage, then cash would be relatively plentiful and assets would be made more resilient. Not surprisingly there were no error bars suggested for the 4 degree disaster point.
Assuming the net effect is disaster at 4 degrees (or some other temperature anomaly) and that the immediate prospects are for a better time for insurers then there must be a point between now and 4 degrees at which climate change is optimum for insurers. The optimum must take account of profits from revenue and the devalued assets mentioned above. If this optimum is 2 degrees then it makes perfect sense for insurers to take the 2 degree pledge. None of the speakers had considered this. If the optimum for insurers is one degree then the 2 degree pledge makes much less sense. But the basic fact is that no-one in the room knew the answer and hadn’t asked the question.
Public support for political initiatives such as the 2 degree pledge may have the effect of encouraging investment in resilience and encouraging the prevention of the 4 degree day of doom. It is also a zero risk political position provided the rhetoric remains measured and not too much like the devotees of some cult. Joining the latest band wagon to roll through town provides all the benefits of tribalism, including a greater promotion of insurance purchases.
But having listened to the speakers, there was no such business plan, no such calculation of the benefits of promoting insurance, no estimate of the risks of rhetoric, nor of the benefits of resilient infrastructures, there was no grasp of the dynamic interplay between insurability and economic performance. The position was one motivated by some more basic instinct which we were being invited to share, even if we didn’t quite know what it was.