by Judith Curry
The Hearing on “Risky Business: How Climate Change is Changing Insurance Markets” starts at 10 a.m.
You can watch the Hearing at [link].
My written testimony can be downloaded at [Curry Testimony Senate Budget 2023].
Here are my verbal remarks:
Insurance markets are influenced by our perceptions of climate risk. Referring to climate change as a “crisis” is at odds with professional judgments of climate risk.
The so-called “climate crisis” isn’t what it used to be. In 2013 in the IPCC Fifth Assessment Report, the extreme emissions scenario RCP8.5 was regarded as a business-as-usual scenario. With expected warming of 4 to 5 degrees Centigrade by 2100. Now, there is general acceptance that this extreme scenario is implausible. The value of baseline warming currently used by the UN Conference of Parties has been reduced by half, to 2.5 degrees by 2100. This is an additional 1.3 degrees above current temperatures.
It’s difficult to overstate the importance of the shift in expectations for extreme weather events that is associated with rejection of this extreme scenario. Rejecting this extreme scenario has rendered obsolete much of the climate impacts literature and assessments of the past decade, that have focused on this scenario.
Landfalling hurricanes incur the greatest property and casualty losses among extreme weather events.
Recent international assessment reports have low confidence that there have been detectable changes in the long-term record of hurricane activity, beyond natural variability.
The insurance industry’s perception of a substantial future increase in U.S. hurricane damage is enforced by three recent reports from the insurance sector. These reports infer misleadingly high damages by 2050, by using the implausible extreme emissions scenario. They also assume substantial increases in the number of major hurricanes, which is at odds with recent assessment reports. Further, these reports neglect the major modes of multi-decadal natural variability. These have had a dominant influence on Atlantic hurricanes in the historical record.
Implausibly high projections of U.S. landfalling hurricanes by 2050 result in inappropriate notions of insurability, inappropriate pricing of insurance, and misguided confidence levels of investors.
Not only have we been misled about the amount of warming to expect and its impacts. We have also badly mischaracterized the nature of the risk from climate change.
We have conflated the slow incremental risk from warming, with the emergency risk associated with extreme weather events that have little to do with warming. This mistaken conflation of risks is driving the stated urgency for emissions reductions and the rapid transition of our energy systems.
A key element in insurance losses from extreme weather events is the reliability of the electric utilities system. Extended power outages contribute to loss of life. During extreme cold events, outages can result in substantial property damage from burst water pipes. This is what happened as a result of the extreme cold event in Texas last year.
The worst winter problems are associated with continental-scale high pressure systems, which produce very cold temperatures and weak winds over most of the U.S. Now, many coal and nuclear power plants have shut down. A lack of onsite fuel storage contributed to the Texas outage and the recent Christmas blackouts in areas served by the Tennessee Valley Authority.
Near-term risks are associated with the rapid transition of electric utility systems to wind and solar. We can reduce the transition risk by reducing the urgency of the transition to be commensurate with the slow incremental risk from emissions. This would allow time for incorporating newer technologies that do not reduce electric power reliability.
Climate change and its perceived threats provide an opportunity to broaden the relevance of the insurance sector to climate risk mitigation. Adaptation provides new opportunities to underwrite climate-exposed risk. Insurance companies can help prevent customers from incurring damage. They can also work with the public sector to improve building standards and land use policies.
Climate variability and change, with the attendant extreme weather events, is best regarded as an ongoing predicament. This will require continuing adaptation by communities and businesses plus mechanisms to share and transfer financial risk.
JC note: I will post additional comments on the Hearing after it is finished.