Insurance Industry Needs to Change to Avoid Profiteering from Climate Change
Catastrophe models are seen by some as the saviours of catastrophe insurance; insurance companies as the saviours of
property-owners. These views would be immediately thrown out if it was shown that model vendors and insurers actually
made the risk worse. It would be a kind of moral hazard. An example of a moral hazard is the person who drives more
recklessly because they know they are fully covered in the event of an accident. I argue that the increased hazard from climate
change is not being seriously addressed by model vendors and companies. As experts in risk, we need to act swiftly otherwise
we could be viewed as at-best hypocrites and at-worst profiteering from a humanitarian crisis.
The hazard from climate change is unlike hazards such as floods, earthquakes and hurricanes because vendors and insurers contribute to it. At the back of my mind, I worry that insurers do not really care where the risk comes from as long as they
can price it and sell it. If this dour view is true, then insurers have no incentive to mitigate their own Greenhouse Gas (GHG) emissions and adapt to climate change.
Air travel, air conditioning, insuring fossil fuel companies, car insurance, asset-investment in fossil fuel companies, extravagant and wasteful, carnivorous meals: there is plenty of room for these companies to improve their GHG footprint. Insurers market themselves as experts in risk. They have a duty to educate their customers and the wider public on how changes in behaviour can reduce risk e.g. park the car off the street, install protective shutters on your windows. They also have a duty to practise what they preach.
The point of this blog post is that climate risk is different to other catastrophe risk because the insurance industry is directly responsible for causing it. This is a anthropogenically-induced risk. If the companies in this industry do not change their habits to reduce their GHG emissions then they could be guilty of making the risk worse and benefiting from that by raising premiums. In other words, profiting from the very hazard they helped create.
Alastair Clarke
1 August, 2019