Global Warming Insurance: Don’t Buy It

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The reason insurance exists is because risk does too. For instance, with car insurance, an insurance company calculates the risk of a driver getting into an accident by considering a number of variables including age, location, type of vehicle, etc. Consumers buy insurance to protect against unexpected events that could jeopardize their financial well-being such as a serious car accident where someone needs serious medical attention.

Global warming also poses a risk. Climate change was sold in a way that the scientific consensus on global warming is so well established, it might as well be considered a law like gravity. And the insurance companies bought it. They bought that global warming will cause more frequent and severe hurricanes, floods, fires and earthquakes and since the risk of global warming is higher, the premiums ratepayers pay will also be higher. But as more evidence comes out against the consensus and in light of Climategate, insurance companies are beginning to fight back:


‘A major trade group for the insurance industry is warning that it is “exceedingly risky” for companies to blindly accept scientific conclusions around climate change, given the “serious questions” around the extent to which humans cause atmospheric warming.’

‘The assertion was made in a letter (pdf) to insurance regulators, who will administer the nation’s first mandatory climate requirements on corporations in May. Large insurers will have to answer about a dozen questions related to the preparations they are taking to safeguard themselves from climatic hazards.’

‘The National Association of Mutual Insurance Companies believes that the new regulation leaves little room for companies to cast doubt on widely accepted assumptions about global warming. Insurers are hamstrung to provide answers that dovetail with the perception of key regulators who believe climate change threatens the industry’s financial strength, said Robert Detlefsen, the group’s vice president of policy.””

Joel Ario, a state insurance commissioner in Pennsylvania, said, “The insurers are perhaps the one group that is more concerned about climate change than the environmentalists. If climate change does pose the risk that environmentalists say it does, then guess who’s going to bear that risk on their business? It will be the insurers.”

Even if climate change doesn’t pose the risk that the Al Gores of the world pose it to be, and there’s plenty of reasons for that to be the case, it’s already taking its toll on the insurance industry and the business landscape in general. Regulatory uncertainty on energy policy, among other things, is preventing businesses from making long term decisions, expanding growth and creating jobs.

What can increase risk for investors and businesses? Bill Beach, Director of the Center for Data Analysis at The Heritage Foundation answers, “Many factors, of course, but public policy commonly looms largest. For example, tax increases, especially on capital, increase the cost of capital and lower investment returns. When investors are uncertain about whether taxes will increase or stay the same, they can still act as though taxes have risen if they judge the risk of an increase to be nearly equal to an actual increase. And rising uncertainty can have the effect of driving down investments in riskier undertakings.”

Nothing says tax increase like a national energy tax imposed through a cap and trade system or the Environmental Protection Agency’s proposed global warming regulations. Even an energy bill that doesn’t include cap and trade but imposes a renewable portfolio standard that mandates a certain percentage of our electricity come from renewable sources as well as additional subsidies and tax credits for renewable energy change the way businesses invest in energy and distort the market in a way that directs capital away from its most efficient use.

Even without passing energy legislation, the threat of doing so is having real consequences today and preventing our economy from recovering faster than it could be.

‘Nick Loris writes for Heritage’