[Scpg] CANCUN CLIMATE CONFERENCE 2010 /Insurance companies have no doubts about global warming/MarketPlace From America Public Media

Tue Nov 30 19:50:29 PST 2010

CANCUN CLIMATE CONFERENCE 2010
Insurance companies have no doubts about global warming
http://marketplace.publicradio.org/display/web/2010/11/30/pm-insurance-companies-have-no-doubts-about-global-warming/

Insurance companies are taking into account the potential for rising 
water levels and more aggressive hurricanes when considering rates. 
Marketplace's Scott Tong reports.

EXT OF STORY

KAI RYSSDAL: The weather forecast for Cancun, Mexico, today was 
mostly sunny, 81 degrees. So if United Nations climate negotiators 
don't make any progress, at least there's always the beach. It's 
early yet in the U.N.'s two-week global warming conference; we're on 
day two of the meeting. But not much is really expected to happen by 
the end of the thing, anyway. It's a complicated business, this whole 
idea of coping with a changing climate. Because basically, you're 
changing everything -- from re-figuring the fundamentals of our 
energy supply to helping poor countries figure out how to adapt to a 
warmer world. Policymakers, so far, have mostly decided they can't 
decide what to do. So businesses have been stepping in.
Not only does Marketplace's Scott Tong get to spend two weeks in 
Cancun, reporting on the conference itself, but before he left, he 
took a little side trip to the island of Grand Bahama for this story 
about insurance and an unstable climate.

Sound of water lapping

SCOTT TONG: I know what you're thinking. But this story comes to you 
from the other side of Grand Bahama. The rocky north shore, four 
miles from the nearest rum cocktail. I checked.
The Queen's Cove area of canals and mangrove trees has taken a royal 
beating from Mother Nature. Ask resident Katherine Bellott. Her 
two-story house features a sign out front that reads "Hurricane Hole."

KATHERINE BELLOTT: It was pretty amazing...
Bellott recalls Hurricane Frances from 2004. How the storm surge put 
her house under five feet of water, how her husband tried to protect 
their family boat.

BELLOTT: He decided when he saw the hurricane coming to sink it, so 
it wouldn't fly all over the place. When the hurricane was finished 
and we came home, the boat was in the neighbor's yard.
As for the neighbor's house...

BELLOTT: The only thing we saw there was the tile floor and maybe a 
toilet. The actual house was gone.
Hurricane Jeanne followed Frances two weeks later. And together, they 
huffed and puffed and blew away the insurance companies. Every 
insurer pulled out of Queen's Cove, so now no one here has coverage 
for wind damage or floods.
Simon Young at insurance consultancy Caribbean Risk Managers says the 
area's too exposed, too low-lying.

SIMON YOUNG: Storm surge at the coast is the big issue. The general 
feeling is that it's going to get worse as the oceans warm up. The 
potential for bigger, more aggressive hurricanes increases, as well 
as sea level rise. And those two factors together increase the storm 
surge hazard.
Young says that risk is also rising on the east coast of the U.S. 
More broadly, he says for the insurance sector, the basic debate over 
climate change ended years ago.

YOUNG: Industry has accepted absolutely that climate change is real. 
There is no debate either at the management level or at the technical 
level as to whether climate change is going to have an impact on 
their industry.
The consulting firm Ernst & Young considers climate change the 
greatest strategic risk to property casualty insurance firms.
Now, these companies don't like to skip out on any neighborhood. So 
when they do, economists call it a "market signal." And the message, 
loosely translated, is, "What are you people smoking? Live here at 
your own risk." And the housing market's heard it. If you want to buy 
in Queen's Cove, you can't get insurance, so the bank won't give you 
a mortgage.
Again, resident Katherine Bellott.

BELLOTT: So a lot of people have just walked away from their homes. 
They're just left there. And then you have some people who sold for 
next to nothing.
Those who stayed are changing the way they live, since they're now on 
the hook for everything. Most new houses are built on stilts, 
literally higher ground. The walls are made of cement, roofs steel. 
And this is how adaptation to an uncertain climate happens here -- 
not because politicians or scientists saying so, but because people 
can't afford not to.
UCLA economist Matthew Kahn is the author of "Climatopolis."

MATTHEW KAHN: The first idea in economics is people pursue their own 
self-interest. And by pursuing their own ruthless self-interest -- 
moving to higher ground, rebuilding their homes to protect them in 
floodplains -- all of these strategies will reduce the suffering.
Investors are starting to hedge against Mother Nature, too. 
Shareholders and federal regulators are demanding companies disclose 
how future regulation of greenhouse gas emissions would hurt their 
bottom line.

MICHAEL GREENSTONE: They think it's inevitable that there will be 
regulation of carbon.
Economics professor Michael Greenstone at MIT says the investors are 
ahead of the policymakers.

GREENSTONE: Financial markets have an excellent way of aggregating 
information and reading the future in a much more reliable way than I 
think political pundits often do. And the reason is that money's on 
the line.
But here's the thing, these market signals can only be felt in free 
markets. As opposed to say...
Sounds from a night club -- music, shouting
Florida. At South Beach in Miami, insurance firms are screaming that 
they need to raise premiums, based on coastal risk. The state 
acknowledges rates are in some areas severely underpriced. But the 
regulators won't hike them.
Local insurance broker Alex Soto.

ALEX SOTO: We're not being allowed to charge an actuarially sound 
rate. So suppressing that artificially for political reasons in 
effect keeps the private insurance companies away.
Price controls have led national insurance firms to exit risky 
Florida. So the state of Florida has stepped in, providing cut-rate 
insurance as a kind of safety net.
But Simon Young at Caribbean Risk Managers says that distorts the 
market signal. So people don't adapt to what the industry considers 
climate risk. They keep living and keep building in harm's way.

YOUNG: The regulatory environment in the U.S. is protecting the 
consumer, they think, from paying too much. But actually it's from 
paying a fair price for the risk that they're taking. And 
unfortunately, that's led to overdevelopment or, potentially in the 
long-term, unsustainable development.
The failed market means the insurance industry can't do what it 
considers its job: To give early warning signals of risk, change, and 
potentially, disaster.
I'm Scott Tong, for Marketplace.
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