Month: May 2018

Climate Rent Seekers Target Your Insurance Premiums

Guest essay by Eric Worrall

If you thought the job of insurance companies is to charge customers a competitive fee to cover insured risk, you’re sadly mistaken. According to regulators and influential green groups, insurance companies should be investing more of your insurance premiums into their green business ideas.

Insurers Will Be Hard-Hit By Climate Change But They’re Not Investing In The Low-Carbon Economy

Mike Scott, CONTRIBUTOR
MAY 31, 2018 @ 10:00 AM

The insurance sector is on the front line of the battle against climate change – it is having to pay out more to policyholders as extreme weather events such as flooding, droughts, storms and heatwaves become more frequent and more severe.

At the same time, as some of the biggest investors in the world, insurance companies also face significant losses as climate change hits the companies they invest in. “Climate change poses risks for insurance companies, so do responses to it by markets, businesses, consumers and governments,” says Dave Jones, California’s Insurance Commissioner, in a new report by the Asset Owners Disclosure Project (AODP), which sees itself as the world’s benchmark of climate leadership in the investment system.

The impacts of climate-related risks are a growing reality for the insurance sector. This reality has key implications for that sector’s valuation,” the report adds. “Weather-related financial losses, regulatory and technological changes, liability risks, and health impacts related to climate change have implications for the business operations, underwriting, and financial reserving of insurance companies.”

And yet the sector is not aligning itself with the emissions reduction targets set out by the Paris Agreement, to limit average temperature rises to “well below 2°C”, according to AODP’s report, Got it Covered? Insurance in a Changing Climate.

Read more: https://www.forbes.com/sites/mikescott/2018/05/31/insurers-in-the-front-line-of-the-fight-against-climate-change-shoot-themselves-in-the-foot/#3ba7f6040fab

The suggestion that insurance companies are at risk because of climate change is false. But don’t take my word for it, the following is an explanation for why climate poses no risk to insurance companies provided by Warren Buffett.

… I am writing this section because we have a proxy proposal regarding climate change to consider at this year’s annual meeting. The sponsor would like us to provide a report on the dangers that this change might present to our insurance operation and explain how we are responding to these threats.

It seems highly likely to me that climate change poses a major problem for the planet. I say “highly likely” rather than “certain” because I have no scientific aptitude and remember well the dire predictions of most “experts” about Y2K. It would be foolish, however, for me or anyone to demand 100% proof of huge forthcoming damage to the world if that outcome seemed at all possible and if prompt action had even a small chance of thwarting the danger.

This issue bears a similarity to Pascal’s Wager on the Existence of God. Pascal, it may be recalled, argued that if there were only a tiny probability that God truly existed, it made sense to behave as if He did because the rewards could be infinite whereas the lack of belief risked eternal misery.

Likewise, if there is only a 1% chance the planet is heading toward a truly major disaster and delay means passing a point of no return, inaction now is foolhardy. Call this Noah’s Law: If an ark may be essential for survival, begin building it today, no matter how cloudless the skies appear.

It’s understandable that the sponsor of the proxy proposal believes Berkshire is especially threatened by climate change because we are a huge insurer, covering all sorts of risks. The sponsor may worry that property losses will skyrocket because of weather changes. And such worries might, in fact, be warranted if we wrote ten- or twenty-year policies at fixed prices. But insurance policies are customarily written for one year and repriced annually to reflect changing exposures. Increased possibilities of loss translate promptly into increased premiums.

Think back to 1951 when I first became enthused about GEICO. The company’s average loss-per-policy was then about $30 annually. Imagine your reaction if I had predicted then that in 2015 the loss costs would increase to about $1,000 per policy. Wouldn’t such skyrocketing losses prove disastrous, you might ask? Well, no.

Over the years, inflation has caused a huge increase in the cost of repairing both the cars and the humans involved in accidents. But these increased costs have been promptly matched by increased premiums. So, paradoxically, the upward march in loss costs has made insurance companies far more valuable. If costs had remained unchanged, Berkshire would now own an auto insurer doing $600 million of business annually rather than one doing $23 billion.

Up to now, climate change has not produced more frequent nor more costly hurricanes nor other weather- related events covered by insurance. As a consequence, U.S. super-cat rates have fallen steadily in recent years, which is why we have backed away from that business. If super-cats become costlier and more frequent, the likely – though far from certain – effect on Berkshire’s insurance business would be to make it larger and more profitable.

As a citizen, you may understandably find climate change keeping you up nights. As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.

Read more: http://www.berkshirehathaway.com/letters/2015ltr.pdf

Could Warren’s explanation be simpler? He is not rejecting the possibility that climate change will cause more weather related disasters in the future, what he is saying is increased risk would drive greater demand for his insurance products – people would be willing to pay the higher premiums required to cover the increased risk.

If climate change causes more weather disasters, Warren Buffet’s insurance business profits will increase.

Greens were furious with Warren’s climate heresy, in my opinion because Warren Buffett’s dismissal of their false climate insurance narrative undermines their efforts to get their hands on more of your money.

But Buffett’s skepticism hasn’t stopped greens from advancing their plans. My prediction, California at least is building towards forcing financial institutions to invest part of your money into green businesses.

The least worst outcome of such coercion would be a green surcharge on all insurance premiums, as greens do to insurance premiums what they have already done to retail electricity prices in Europe and other places.

The worst case, if a substantial sum of money coercively invested in all these wonderful green ideas evaporates like a bad subprime mortgage, might be a new global financial crisis.

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May 31, 2018 at 10:56PM

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Latest Forecast for the Atlantic Hurricane Season

Latest Forecast for the Atlantic Hurricane Season

Brief Note by Kip Hansen

 

Phillip Klotzbach and Michael Bell, who continue the invaluable work of the late  William M. Gray,  at the  Department of Atmospheric Science of Colorado State University have issued their latest updated forecast for the Atlantic Hurricane season of 2018 which begins 1 June.  The short-form summary reads:

 

 

EXTENDED RANGE FORECAST OF ATLANTIC SEASONAL HURRICANE ACTIVITY AND LANDFALL STRIKE PROBABILITY FOR 2018

We have decreased our forecast and now believe that 2018 will have approximately average activity. While we still do not anticipate a significant El Niño during the 2018 Atlantic hurricane season, most of the North Atlantic has continued to anomalously cool over the past two months. The eastern and central tropical Atlantic is cooler than normal at present. We anticipate a near-average probability for major hurricanes making landfall along the United States coastline and in the Caribbean. As is the case with all hurricane seasons, coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them. They should prepare the same for every season, regardless of how much activity is predicted.

(as of 31 May 2018)

By Philip J. Klotzbach and Michael M. Bell

The full 35 page report is available in .pdf format here.

# # #

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May 31, 2018 at 09:52PM

NOTE: Please find our new website

NOTE: Please find our new website

If you’ve landed here on this homepage, please be advised that we’ve moved off WordPress.com hosting to a new server host (also run by WordPress) called Pressable.

If you keep finding yourself here, it may be because your browser cache still wants to redirect you to the old site at https://wattsupwiththat.wordpress.com. Instead, you need to be at https://wattsupwiththat.com

To solve this problem of ending up here regularly, here are the steps:

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This older site will remain up for awhile until we are sure everyone is migrated over.

Thanks for your patience – Anthony

 

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May 31, 2018 at 06:46PM

Good news: real air pollution trends in US continue downward, but slower than hoped

From the “EPA models are always accurate” department comes this bit of good news.

The air we breathe today in the United States is much cleaner than it was in the 1960s and 70s. But recent satellite data show that air quality is not improving as quickly as predicted by models.

“Air quality is better than it was decades ago, but now we’re starting to see the improvement slow down,” said Helen Worden, atmospheric scientist at the National Center for Atmospheric Research.

In a recent study supported by NASA, lead author Zhe Jiang, Worden, and a group of researchers used satellite data and advanced computer simulations to find that major air pollutants are not decreasing as rapidly as expected. That is, air quality is not improving as much as the U.S. Environmental Protection Agency’s (EPA) inventories and computer models indicate they should.

The team looked at two major air pollutants: carbon monoxide and nitrogen oxide (NOx). Both are emitted by cars, trucks, and other vehicles, and by industrial sources such as power plants. In the presence of sunlight, both chemical compounds are key ingredients in ground-level ozone and smog.

BEFORE

Pollutant Emissions Leveling Off a Bit in the U.S.

acquired 2005 – 2009 download

 large image (752 KB, PNG, 2894×2324)

AFTER

acquired 2011 – 2015 download

 large image (750 KB, PNG, 2894×2324)

The maps above show the change in NOx emissions from 2005–2009 and 2011–2015. NOx decreased by 7 percent annually from 2005 to 2009, whereas overall emissions only decreased 1.7 percent annually from 2011 to 2015. The maps were assembled from data acquired by the Ozone Monitoring Instrument (OMI) on NASA’s Aura satellite and correlated with measurements from ground–based air monitoring systems.

The study also showed that carbon monoxide emissions have not declined as quickly as expected in recent years. Those data came from the Measurement of Pollution in the Troposphere (MOPITT) instrument on NASA’s Terra satellite. Both OMI and MOPITT provide global, standardized views of emissions that are not subject to differences in regional and national ground–based reporting.

This slowdown in emissions reductions could make it more difficult for the United States to meet new federal regulations for healthy levels of ozone pollution. For example, in Southern California, the South Coast Air Quality Management District requires NOx emissions to be cut by 45 percent by 2023. In recent years though, NOx emissions and smog in Southern California have actually worsened.

“Ozone and other pollution standards are always health–based,” said Worden, a co–author of the study. “These emissions cuts are needed to reduce hospital visits and early mortality.”

acquired 2005 – 2015

The satellite observations and the EPA estimates showed similar carbon monoxide concentrations in recent years, but NOx satellite data differed from the EPA’s ground–based inventories, which are represented in the graph above. EPA data showed that NOx concentrations continue a consistent decrease after 2011, but satellite data show that the improvement was not as steady. EPA estimates are measured directly from sources and based on monitored readings or engineering calculations emitted by vehicles or factories, whereas the satellite data measures total emissions in the atmosphere over a large area.

One explanation for why NOx concentrations are not falling as quickly as the EPA estimated is that smaller emission sources may have a bigger role than previously thought. Federal and state regulations have been effective in controlling large-scale emissions from motor vehicles and power plants. But more subtle emission sources—such as industrial boilers, residential water heaters, and construction equipment—now play a relatively larger role. Researchers also found that changes in heavy-duty diesel trucks have not reduced NOx emissions in the real–world as much as laboratory emission tests suggested they would.

The study suggests these smaller sources could be better monitored to improve the accuracy of the EPA’s emission inventories. “We can use the trends derived from satellites to inform EPA inventory trends,” said Worden. “Satellite observations and the EPA’s inventories can be used together to give a more complete picture of the nation’s air quality.’

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May 31, 2018 at 06:02PM