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eurogreen:
Your argument seems to be that they commissioned and used voluntarily alarmist projections to raise capital and profiteer with it. But this isn't the only interpretation. If there had indeed been a wave of expensive hurricanes in the last few years, the picture would be different.

The key point here is that there wasn't anything close to such a wave.

I do not argue at this point that insurance companies commissioned anything, or deliberately used projections to raise capital. The only thing I was attempting to bring into view was the cause-and-effect of what can happen when unsettled and controversial science lifts on (popular) sentiment, to the profit of industries and to the detriment of ordinary people. It's not an indictment to industry per se; it is, however, intended as a critical look on how science ticks, and how it effects on society.

by Nomad on Mon Nov 1st, 2010 at 08:38:43 PM EST
[ Parent ]
I think you've missed the wider point (remarkably, since this is your diary! and thank you for posting it)

There is a huge, global problem emerging : how to insure / reinsure against increasing risks due to climate change.

That rapid climate change is happening is not controversial. That it is overwhelmingly destructive in its net effects has not escaped insurers.

That hurricane activity has not increased in the Carribean / Atlantic in the past few years, is something that has surprised, mildly, many people who keep up with climate science.  It's not controversial that warmer sea is correlated with more intense hurricanes, and it's not controversial that the Carribean has been warmer in the past few years. But weather, and hurricane prediction in particular, is not simple. I don't think that the re-insurers will have been more than mildly surprised either. They are, after all, used to provisioning risks that finally don't occur.

In any case, if for you, this phenomenon of an over-provisioned risk informs the wider question of reinsurance and climate change, and brings you to the opinion that climate-change risks should not be provisioned, then I fear you are falling victim to the "cry wolf" phenomenon.

Meanwhile, in Asia, storm intensity and damage has spiked in recent years. Perhaps it's lucky for them that they have less well-developed insurance industries, since these might well have worsened the damage, as they seem to have done in the USA.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Nov 2nd, 2010 at 07:18:58 AM EST
[ Parent ]
if for you, this phenomenon of an over-provisioned risk informs the wider question of reinsurance and climate change, and brings you to the opinion that climate-change risks should not be provisioned, then I fear you are falling victim to the "cry wolf" phenomenon.

I'd appreciate it if you could either stop projecting your own thesis onto my writings, or point me out the specific sentence where I write that particular opinion.

The focus was on American hurricanes. You're welcome to address this wider question if you want to.

eurogreen:

That hurricane activity has not increased in the Carribean / Atlantic in the past few years, is something that has surprised, mildly, many people who keep up with climate science.

And yet it wasn't for people who kept up with the scientific literature on this subject and were well aware of the considerable spread in uncertainty and the lack of statistical significance for the data available. I've long argued at ET that the reliance on doom scenarios for climate poster subjects (like hurricanes) could come back to haunt people who frequently touted the worst-case scenario, and for a number of climate subjects (like hurricanes), this is practically what has happened over the past few years, and may well have led to a declining public belief in the urgency to address the anthropogenic contributions to climate change.

How (re)insurance companies provision against catastrophic risk, including hurricanes, should be based on proper data analysis. Yet for the (Atlantic) hurricane segment there isn't much scientific data with a significant trend (at best, a hint of one), there isn't yet a reliable prediction model on which (re)insurance companies can actually rely on.

That is all. What this means for this wider question of provisioning for global catastrophic risk, and what the state is of the science on which that perception of risk is based, I've no idea. The science could be more certain. It could be less certain. It could be the same. You're welcome to pitch in from here.

by Nomad on Tue Nov 2nd, 2010 at 07:31:37 PM EST
[ Parent ]
A wider confidence interval in your models should make (re-)insurers charge higher premiums. Insurance is the business of taking your money and your volatility and/or uncertainty. Increase the uncertainty, increase the fair price of taking it.

Now, you can easily get me to believe all kinds of nasty stuff about any financial business principally operating out of Bermuda. But raising (re-)insurance premiums in the face of uncertain modelling is not prima facie evidence of alarmism.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 2nd, 2010 at 09:35:48 PM EST
[ Parent ]
Increasing trend in losses by hurricane damage, increasing premium. Increased uncertainty and confidence interval, increasing premium. And I'm sure that range has also been quantified by the industry, and it may have changed over the years. All fine.

Except that there were public claims of a significance of trend in hurricane losses, not on confidence intervals or uncertain modelling.

If people come back with arguments that the uncertainty was bigger, that's all fine - but it doesn't excuse anyone to claim something which has not been proven, and particularly when it's being done by people working in an industry that may benefit.

by Nomad on Wed Nov 3rd, 2010 at 08:49:39 AM EST
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