Insurability of Damage Caused by Climate Change - A Comment

Abstract

The paper by Kunreuther and Michel-Kerjan provides a powerful overview of changes in extreme weather related events. Supported by empirical evidence they show that in recent decades insurers have, more than before, been confronted with catastrophic losses resulting from weather related events (hurricanes, flooding). Moreover, they equally predict that it is very likely that these types of high damage events will occur even more in the future. One could easily cite other studies which equally predict that as a result of climate change it is likely that in the (near) future more of these extreme weather related events will lead to high losses. These studies merit two comments: 1. Even though one could argue that these estimates often relate to total losses (which are by definition much higher than the insured losses) it is likely that (as the authors rightly argue) insurers will be confronted with more losses from weather related events. Moreover, the amount of losses per incident will be higher as well. 2. Although there is of course (as many contributors to the conference mentioned) still a lot of debate among scientists on whether the predicted increase of these extreme weather events are actually the result of anthropogenic emissions, from an insurance perspective this in fact does not matter. All that matters for the insurer is that empirical evidence suggests that an increase in extreme weather events is likely to occur in the future. As the authors rightly mention, for an insurer it is not directly relevant whether this increase in extreme weather related events is the result of climate change or not. Insurers and reinsurers have already long discovered the importance of climate change for their way of doing business and have devoted various studies to this topic.