BY JOHN RIDGWAY
The effects of climate change are here.McKinsey & Company
Climate change has got the insurance industry worried. Or, more to the point, they are worried that they might fail to capitalise upon the panic created by the UN. It is for that reason that the United States Senate Committee on the Budget recently held a hearing titled ‘Risky Business: How Climate Change is Changing Insurance Markets’.
This proved to be the perfect opportunity for key sector representatives to impress upon the US government just how important restructuring the insurance markets will be to meet the challenge.
Or was it the government doing the pressing?
It’s difficult to tell sometimes, when so many like-minded people get into a room to debate an issue. Whatever the case, there was much talk of the ‘searchlight of science’ and how clever and switched-on the insurance boffins were.
The only fly in the ointment was the presence of Dr Judith Curry, who had turned up to offer some balance to the proceedings – only to provide the perfect foil for a showboating senator with an axe to grind.
More of this later, but first I want to say a few words regarding that scientific searchlight. And for such a purpose I will focus on Hurricane Sandy and the damage it wreaked on New York city. If there was ever a case in point to justify the insurance industry’s concerns, then surely that was it. Well, let us see.
So what’s going down in the Big Apple?
If there is anything guaranteed to give insurance companies a sleepless night it is the thought of setting the premiums too low for expensive real estate located on the climate hazard frontline. It is not surprising, therefore, that Senator Whitehouse opened the hearing (actually 34mins into the transmission) with the following remark:
As we have heard and will hear again, sea-level rise and wildfire risk can upset property markets so profoundly as to cause systemic economic damage across the whole economy.
A rising sea-level is of particular concern because coastal properties are at most risk from the damages resulting from storm surge, and it is part of the climate change orthodoxy that such dangers are destined to increase as the ice caps melt and the oceans thermally expand.
Eager to demonstrate how this is already a problem causing massive financial loss, the insurance companies have made repeated references to Hurricane Sandy, and the damage it inflicted on New York.
It seems the perfect example by which to inform the restructuring of the insurance market in the light of climate change.
For example, take the following case study included in a Lloyd’s white paper on catastrophe modelling. Predictably, the authors were keen to highlight the extent of the damage and the role of sea-level rise (my emphasis):
Sandy caused an estimated $20-25 billion of insured losses mostly in New York and New Jersey largely arising from flooding due to the storm surge associated with what was a relatively low wind speed, albeit a large storm. Much has been made of the fact that Sandy made landfall near high tide and the anomalous, but by no means unexpected, path taken by the storm when it interacted with a second low pressure system – Hall and Sobel estimated a 700 year return period for Superstorm Sandy’s track. The contribution of sea-level change has however only recently been highlighted.
So what of that sea-level rise?
Superstorm Sandy broke 16 historical tide records along the east coast and Sweet et al. (2013) have estimated a one-to-two third decrease in the return period of a Sandy level event recurrence between 1950 and 2012 due to global sea-level rise (thermal expansion and ice melt), ocean circulation variation and subsidence.
The approximately 20 centimetres of sea-level rise at the Battery since the 1950s, with all other factors remaining constant, increased Sandy’s ground-up surge losses by 30% in New York alone. Further increases in sea-level in this region would non-linearly increase the loss potential from similar storms.
Well that all seems very clear cut. The sea-level at the Battery has increased 20cm since 1950 and that massively increased the damages due to storm surge. The sea-level is rising due to climate change and it is only going to get worse.
Except for one little detail.
I seem to remember someone saying “…due to global sea-level rise (thermal expansion and ice melt), ocean circulation variation and subsidence”. Given the potential for contributing to the local sea-level rise, and hence damage caused, one might have expected Lloyd’s to have a lot more to say regarding the extent to which subsidence contributed.
But on that subject the white paper remained strangely silent. So I had to do my own sleuthing.
What I discovered was very easy to find and so I have to assume the same information is readily obtainable by the boffins at Lloyd’s using their scientific searchlight.
Two years after Sandy, according to the Journal of Ocean Engineering Science, the relevant numbers were as follows:
In the New York City area, the likely absolute SLR [since 1950] is about 0.7 to 1.0 mm/yr., the likely relative sea-level acceleration is about +0.008 mm/yr², the likely subsidence is about -2.151 to -3.076 mm/yr., and the likely relative SLR is about -2.851 to -4.076 mm/yr.
That means that of the relative rise in sea-level since 1950, about 75% had been due to subsidence and only 25% due to other factors. And just to cast further doubt on the narrative of New York drowning under melting ice caps, the journal adds the following:
Although the climate models predict that rising CO2 levels should cause an accelerated sea-level rise, the sea level measurements show that, thus far, there has been no detectable acceleration in the rate of sea-level rise.
The bottom line is that what is going down in the Big Apple is the ground, largely due to the sheer weight of the civil infrastructure built upon it, combined with the excessive extraction of water from its aquifer and the fact that much of New York was built upon landfill.
Yes it is only going to get worse, but the prospects of global sea level rise becoming the greatest contributor to Manhattan Island’s demise are still a long way off. And that’s the science that Lloyd’s et al seem to have downplayed when wringing their hands over Hurricane Sandy.
I appreciate that this is only one example of misdirection by the insurance industry, but it is a very significant one.
Hurricane Sandy is a poster boy for that industry and has been used repeatedly to help justify a massive restructuring of the insurance market.
The storm surge did indeed result in damage losses that were 30% greater than would have been the case without the last 70 years of rising sea-levels. But this rise was largely due to a subsidence that is destined to continue. If you are going to restructure your market, you need to focus upon that fact, alongside the increasing habit of building new developments in flood plains and along the coast.
Back to the hearing
An insurer’s profits lie in the gap falling between rhetoric and reality.
Consequently, although an understanding of the reality is essential, so is the support of any rhetoric that helps widen the gap.
For that reason alone, Dr Curry was always going to struggle to get her message across at a hearing designed to legitimise ‘changing insurance markets’. She happened to be the most qualified person in the room to advise on the science, but that was no good to anyone when her advice failed to align with business objectives.
Yes, she made it perfectly clear that the drive to restructure the market was premised upon the entirely implausible RCP8.5.
Yes, she made it perfectly clear that the data pointing to a dangerous acceleration of sea-level rise simply doesn’t exist (acceleration has been predicted but the rise so far remains relatively steady and slow with no unequivocal correlation with anthropogenic warming).
And yes, she made it clear that the science behind extreme weather event attribution provides a somewhat shaky foundation upon which to build a catastrophe model.
But none of that was going to go down well.
It is therefore no surprise whatsoever that the chair of the hearing dedicated the closing moments (starting at 1hr 57mins into the transmission) to the delivery of a well-rehearsed ambush designed to discredit Dr Curry as an expert witness. And I’m afraid to say it worked very well.
Dr Curry, seemingly unprepared for the onslaught, either lacked the oratory craft to counter the senator’s grandstanding, or was just too polite to join in.
Whatever the case, the internet now has plenty of out-of-context material to offer under headings along the lines of ‘Denier roasted/slammed/owned/destroyed by senator’. You can read Dr Curry’s own measured and reasoned response to the experience on her own website, but I am afraid the damage is already done. The real searchlight of science was put out by the catapult of politics.
Lloyd’s had offered up Hurricane Sandy as a case study in a whitepaper dedicated to climate change impact, when it would had been much more appropriate to include it in a whitepaper dedicated to subsidence. It is true that subsidence was mentioned, but only as an afterthought, suggesting it played only a minor role.
The reality was quite different.
This worries me because it calls into question the idea that the insurance industry is approaching the challenge of climate change objectively and with only its clients’ interests at heart.
But it doesn’t surprise me any more than Dr Curry’s treatment at the congressional hearing did.
When it comes to such hearings, science may be talking but money talks a whole lot louder.
As in all matters of risk and adventure, the question that should always be on everyone’s lips is, ‘cui bono?’
Footnote: The image used for this article is one of Dr Judith Curry providing testimony at a previous congressional hearing. Also, contrary to my article’s subtitle, the relevant hearing was attended by Dr Curry remotely. In contrast, everyone else travelled to Washington to register in person their concerns for the climate change caused by travel.
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