Adapting moral hazard

Insurance is going to play a huge role in getting policymakers and the public in general to get a tangible grip on the effects climate change will have on our daily lives. I’ve blathered blogged previously about some of the interesting moves that state regulators are making to force the insurance industry to be more transparent in how it classifies threats posed by climate change, but don’t think they have it all figured out either.

Last Friday, ClimateWire posted a fascinating little ditty on the current battle in the state insurance regulator world about a national catastophe plan. The issue at hand is whether or not the federal government should accept the risk from increases from swirlier hurricanes, twistier tornadoes, blowier winds, and other incredibly technically-termed problems. This could prove to be a boon for states like Florida, which could rely on the other 49 states if this year’s hurricane season is particularly nasty.

Florida could use a little help, especially with its state-backed Citizens Property Insurance Corp., which has up to $45450 billion in exposure and about $3 billion to cover it all. For those of you math-challenged, that is 0.67 percent of total exposure that Florida can cover, and non-Floridians can cover the rest. This of course is in lieu of private insurance, which is retreating from coastal Florida faster than a gale force wind.

The regulators haven’t approved the plan yet, not are they anywhere near doing so. Despite the reprieve, there are still reasons to be concorned. While there is not much we can do about existing infrastructure in at-risk areas, we should still reflect the actual risk we face in different areas with insurance premiums.

I know this is radical idea, but I promise I’m not out on this limb all by myself. Howard Kunreuther, an expert in risk management, said the same thing two years ago in a far-more reputable publication than this one. Not reflecting real risk in really risky areas is what we in the business call ex post moral hazard. As climate changes manifests itself in nasty ways, what with the sea level rise and all, we are going to face this type of moral hazard more and more, and we’ll have to decide how to deal with it. Hopefully, it works out better than the last one.

Full article after the jump.

The British are coming

Most of us involved in climate  research and policy have thought seriously about the impacts of  ”climate refugees” from Least Developed Countries (LDCs) or Small Island Developing States (SIDS) from the perspective of basic human rights, national sovereignty and international relations. Driven from their homes by rising sea levels that swallow up entire countries or devastating droughts, these thousands or millions of poor individuals could starve, initiate violent conflict or generally disrupt global peace and security. Many developed country leaders are genuinely concerned about this, as they should be. However, there’s one other potentially disastrous source of refugees that has not received much consideration (at least outside of this blog): the UK.

Getting a little too hot and stuffy in old London? Why not set sail (flying’s too expensive because of the EU ETS) for the wild, untamed land of hobbits, orcs, elves and children-biking-friendly-neighborhoods that is New Zealand. Once the British Isles succumb to the rising tides and descend into chaotic, steamy tribal warfare between Manchester and Chelsea supporters, you’ll certainly have the last laugh…on another island.

Anyway, my point is not to belittle the British (as much fun as that is), or make light of the truly dire situation faced by many threatened countries, it is really to call attention to the vast disconnect that still exists between developed and developing countries over the impacts of and solutions to climate change. For LDCs and SIDS it’s not a matter of a slightly higher electricity bill or our inalienable right to consume, it’s a matter of survival. Of course that’s easy to say from a cubicle in Washington, but I think it’s a message often lost in the crunch of “political feasibility”. But god forbid anybody in the US or EU should be asked to give up part of their lifestyle (not “sacrifice” because that’s misleading). I am starting to feel the heat here in DC…Canada anybody???

Like a good neighbor

Interesting news on the insurance regulation front, courtesy of ClimateWire (subscription req’d):

Insurance companies are facing new rules designed to prod them deeper into the fight against climate change, a remarkable transition that is poised to be set in motion when a group of key regulators casts a preliminary vote today.

Eighteen state insurance commissioners on a climate change task force are on the brink of approving the nation’s first regulations making companies reveal their efforts to spur emission-reducing policies. The rules could affect how members of one of the country’s largest industries make investments, offer products and anticipate losses related to rising seas, stronger storms and wilting drought.

This disclosure plan has been in the works for a while and would represent a pretty big departure from the industry norm. As one might expect, many of the potentially regulated parties are not thrilled and some even see it as a trojan horse to advance various tree hugging elitist-friendly agendas:

Requiring public answers to knotty questions about how stronger hurricanes, for example, could affect investment portfolios, or affect coverage in certain areas probes deeper into their business than some insurers would like.

Some critics see the disclosure plan as the first step toward other “green” regulations, like making companies offer car insurance that rewards reduced driving or provides discounts for hybrid vehicles.

“For the global environment, that may be beneficial, but does that truly benefit the individual insurance company?” said David Kodama, a climate policy expert with the Property Casualty Insurers Association of America, which opposes the plan. “That is a worthy goal, but should that be a prominent goal of the insurance industry?”

I don’t care that much whether or not the insurance industry should be promoting hybrids, but I definitely think it should have more transparency in how it determines and measures climate risks. Adapting to climate change (and doing it well) is going to require that decisionmakers have a pretty good understanding of risk, and nobody understand risk better than insurers. The insurance industry has been described as ‘the canary in the corporate mine‘ of climate change and its models could shine a bright light on areas where climate change is going to hurt the most. Wouldn’t be nice if the canary could say ‘Hey, I can’t breathe’ instead of just dying?

For those w/o a subscription, full article after the jump.

On the next boat to Wellington

Climate change adaptation is years away from having its day in the policy limelight, but someday soon it will be a big deal. Until then, we just get to enjoy the random places where it pops into the public consciousness. The Washington Post today has a fun story today about climate-driven ecomigration. They interview Adam Fier, who has determined the United States is not a safe place for he and his family to be in this climate-changing world of ours. Where will they find refuge? Middle-earth New Zealand!! The logic (which is pretty solid) behind Mr. Fier’s choice is as follows:

Fier, 38, a computer security professional who used to work at NASA, said he thought hard about the risks of global climate change. He knew moving to a new country would be difficult but thought that the dangers of staying in the United States were worse. Several years ago, he drew up a list of countries and studied how they might fare over the next century. He examined their environmental policies, access to natural resources and whether they would be safe from conflict. He decided that New Zealand would offer a comparable quality of life, has an excellent environmental record and is isolated from global conflicts by large tracts of the Pacific Ocean. Its tropical, subtropical, temperate and arctic zones also offer a variety of “bioenvironments” as a hedge against the vagaries of climate change.

Ready to jump on the panic train to southern Pacific safety? If not, a peek at the lovely people you’ll be living with should entice you a little further. You won’t be alone though. The article mentions that the 100,000 citizens of Kiribati are busy looking for a new place to live and have similar thoughts to Mr. Fier. Props to President Anote Tong for getting on the ball, but he’s not quite as impressive as Mohamed Nasheed, the first democratically elected President of the Maldives. Last November, President Nasheed annouced he was going to start diverting tourism revenue to purchase a new homeland. At least someone is willing to invest in real estate in this market. As for me, I had a brilliant plan to retreat to the Rockies and build a giant Swiss Family Robinson-type tree house to wait out the climate crisis, but that might not work out either. Any other brilliant climate refugia ideas out there?

Climate change adaptation: Donald Trump edition

“Well, real estate is always good, as far as I’m concerned.” — The Donald.

Maldives is considering directing some of its tourism revenue into a dedicated investment fund.  The nation, three feet above sea level, plans to buy dry land if climate change leads to rapidly rising sea levels:

Mohamed Nasheed, a former political prisoner who was sworn in Tuesday as the country’s first democratically elected president, named Sri Lanka and India as possible spots for a refuge, according to the BBC.

I’m impressed by the foresight, which I suppose would help alleviate some of the otherwise inevitable refugee issues.  How many Pacific Island enclaves will the future bring?  And, extending this to the domestic context, will the wide-open spaces of the Mountain West and Alaska be flooded by Floridians as they flee the coastline and buy up ranches?

Spare tire, jumper cables, and… wading boots?

A couple of new government studies assess the impacts climate change is going to have on U.S. transportation infrastructure, including roads, ports, and rail lines. Some of the quoted statistics are a little nerve-wracking. According to today’s New York Times the report put out by the U.S. Climate Change Science Program highlights some major vulnerabilities:

Produced by a collaboration among agencies that included the United States Geological Survey, the National Oceanographic and Atmospheric Administration and the Department of Transportation, the report offers three estimates for sea-level rise by 2100: about 16 inches a century, a rate it said had already been exceeded; about two feet, an estimate many scientists regard as optimistic; and up to three feet, which the report says would be catastrophic for wetlands and other coastal features but that is “less than high estimates suggested by more recent publications.”

…

The multiagency report cited the Port of Wilmington in Delaware as an example. The report says that if the sea level rises by two feet or even a bit less, 70 percent of port property will be affected.

Meanwhile, it says, such a rise in sea level would leave almost 2,200 miles of major roads and almost 900 miles of rail lines in Maryland, Virginia, North Carolina and the District of Columbia “at risk for regular inundation.”

I guess if I live long enough I am going to be boating to work.

Here’s the lede from the NYTimes’ story, and some further info on the other report: