The P&C industry has enjoyed a respite over the last couple of Atlantic hurricane seasons, following two successive record-breaking years that resonated in the public imagination not only because of the politically charged dimensions of Katrina but also the notion that global warming was contributing to increasing frequency and severity of the storms. While 2008 is unlikely to rival 2004 and 2005, it nevertheless poses the greatest natural risk faced by insurance companies this year, according to EMB, a San Diego based actuarial consulting firm.
EMB substantiates that claim in part by citing the latest report by Colorado State University's Dr. William Gray, co-authored by his colleague Philip J. Klotzbach. The authors state in the report's abstract:
Information obtained through March 2008 indicates that the Atlantic hurricane season will be much more active than the average 1950-2000 season. We estimate that 2008 will have about 8 hurricanes (average is 5.9), 15 named storms (average is 9.6), 80 named storm days (average is 49.1), 40 hurricane days (average is 24.5), 4 intense (category 3-4-5) hurricanes (average is 2.3) and 9 intense hurricane days (average is 5.0). The probability of U.S. major hurricane landfall is estimated to be about 135 percent of the long-period average.EMB's consultants argue that insurers need to prepare for this heightened risk, factoring it in with all the other natural events that threaten to damage property through the end of the year.
"Companies should not be resting on their laurels when developing risk management strategies and determining prices. Instead, insurers need to factor in issues surrounding climate change and must look to incorporate long-term weather trends into their pricing," says Tom Hettinger, managing director, EMB America.
Hard to argue with that, despite EMB's obvious interest in making the point. The climate change reference is interesting, however, given the ongoing controversy surrounding the redoubtable Dr. Gray's skepticism on that score.
Given the social dimension of science-related activities, the continued resistance of renowned scientists such as Gray gives one pause. It's only too easy to imagine scientists toeing the fashionable global warming line in the interest of receiving grants or simply not looking foolish to their peers.
The layman's skepticism is further reinforced by the cold weather that seems to be more than just a North American phenomenon. From where I sit, the winter seems to have been prolonged right up to the present. A hail storm struck as I wrote, and Mt. Hood's Timberline Lodge, which boasts average snowfall of over 400 inches, has recorded 810 inches as of April 28. Some experts warn that global cooling is the real problem - all the more since as opposed to global warming, cooling will decrease agricultural productivity. Others challenge them, etc., etc.
In the long run, it's hard to see how much it matters. According to a program I watched with my son the other day, whatever global warming may amount to, it will just be a blip between the last Ice Age and the inevitable next one, due to scrape New York City off the map sometime within the next 10,000 years. By that time, every last reinsurer will be located in temperate Bermuda, and all the direct insurers will have found more southerly headquarters as well.
I can still remember when Swiss Re began talking in serious tones about global warming and chuckled to myself how the company's posture might have seemed to enlightened members of the mainstream media to be quite forward-looking for the hidebound, capitalistic insurance industry. But of course whether the world faces global warming, global cooling or some heterogeneous form of "climate change," it's all good for an industry that manages risk."Companies should not be resting on their laurels when developing risk management strategies and determining prices. Instead, insurers need to factor in issues surrounding climate change and must look to incorporate long-term weather trends into their pricing," says Tom Hettinger, managing director, EMB America.