Wednesday, May 25, 2016

The Evolution and Extinction of Affordable Insurance

I. Background

The word "catastrophe" has both individual or local scope as well as having widespread scope: "any misfortune, mishap, or failure; fiasco; a sudden and widespread disaster" - (Dictionary).

The Damaged Global Climate System is a catastrophe (The Damaged Global Climate System, 2, 3, 4, 5).

A global catastrophe that is giving rise to endless offspring: local weather catastrophes (All Weather Is Local - 2).

The individual or family who loses all their material goods they have, from clothing, cars, home, or worse -their lives, suffers a catastrophe.

So do those engulfed in a widespread destruction brought on by a Katrina or a Sandy.

II. Traditional Insurance Remedy

Civilization has developed a technique we call "insurance" that can mitigate the impact on those who suffer a personal catastrophe, and who have insurance:
Benjamin Franklin founded America’s oldest, continuously active insurance company in 1752. Franklin and several prominent business associates established the Philadelphia Contributorship for the Insurance of Houses from Loss by Fire. The Contributorship, as is now its common reference, was a proactive insurance carrier refusing to provide coverage to houses and other structures that were not constructed according to strict building standards. During the British occupation of Philadelphia in 1777, the Contributorship hired a chimney sweep to maintain the chimneys of insured houses that were still occupied by the insureds.

Lloyd’s of London had its start in a coffee shop. Although the first informal gatherings of shippers and investors around 1688 were not intended to produce an insurance mechanism, Edward Lloyd’s coffeehouse on London’s Tower Street witnessed the first days of what was to become the world’s best known insurance underwriting society. Financial protection contracts initially emanating from Lloyd’s coffeehouse were dedicated to ships and their cargo.
(Insurance Journal, emphasis added). The embryonic intentions of the concept of insurance was based on a community "good Samaritan" spirit of "let's all chip in a little to help a lot, those in great need and distress."

The good intention of the insurance concept is not immune from financial catastrophe itself:
The theoretical foundation of ruin theory, known as the Cramér–Lundberg model (or classical compound-Poisson risk model, classical risk process or Poisson risk process) was introduced in 1903 by the Swedish actuary Filip Lundberg.Lundberg's work was republished in the 1930s by Harald Cramér.

The model describes an insurance company who experiences two opposing cash flows: incoming cash premiums and outgoing claims. Premiums arrive a constant rate c > 0 from customers and claims arrive according to a Poisson process with intensity λ and are independent and identically distributed non-negative random variables with distribution F and mean μ (they form a compound Poisson process) ... The central object of the model is to investigate the probability that the insurer's surplus level eventually falls below zero (making the firm bankrupt).
(Ruin Theory, emphasis added). Like any business or household for that matter, income and outgo must at least be equal for the venture to be economically viable.

In an undamaged climate system that is plausible, but as The Damaged Global Climate System overpopulates the globe with catastrophes, the picture gets more and more iffy.

This is not local to any one country or company, so a more comprehensive remedy was developed.

III. The 'Russian Doll' Layers Around Insurance

Thus, there are international "reinsurance companies" that provide insurance to insurance companies:
Mission & Vision

Geoscientists at Munich Re have been analysing the effects of climate change on the insurance industry ... a risk of change has resulted in the portfolios of Munich Re and its clients ... we have developed a comprehensive strategy whereby we identify and assess the risks and reflect them in our business processes ... Our mission describes how we identify and address the changes resulting from climate change. It also underlines our resolve to treat the challenges and opportunities arising from climate change as a long-term, strategic topic.


The vision outlines our responses as a leading reinsurer to the challenges thrown up by climate change. We believe it is important to place a strong emphasis on managing climate change, rather than simply responding passively to it.

Munich Re continuously adjusts its business model to new risks based on the latest scientific findings on climate change.

Climate change is changing our world for ever. Only if we manage to anticipate these changes appropriately, and align our business model correctly to the changing world around us, will we be able to deal effectively with the risks from climate change ...


For that reason, we do not want to concern ourselves solely with risks that are already well known today. Instead, alongside natural climate variations, we integrate anthropogenic climate effects into our business processes on the levels of risk measurement, business development and asset management. We keep a close watch on all of the different fields that are influenced by climate change and that could have a substantial impact on the financial services and insurance industries.
(Munich RE, Climate Change). The climate changes brought about by civilization's damage to the ancient pristine global climate system are a growing threat to the insurance industry, in all of its layered manifestations:
... there is evidence that, as a result of warming, events associated with severe windstorms, such as thunderstorms, hail and cloudbursts, have become more frequent in parts of the USA, southwest Germany and other regions. The number of very severe tropical cyclones is also increasing. One direct result of warming is an increase in heat waves such as that experienced in Russia this summer. There are also indications of a higher incidence of atmospheric conditions causing air mass formation on the north side of the Alps and low-lying mountain ranges, a phenomenon which can result in floods. Heavy rain and flash floods are affecting not only people living close to rivers but also those who live well away from traditionally flood-prone areas. Although climate change can no longer be halted, even with the help of very ambitious schemes, it can still be curbed.
(Munich RE, Press release). Now, a few years later, some of the institutions of civilization that provide mitigation in local and widespread catastrophe scenarios are facing catastrophe themselves:
"They lose sleep every time it rains really hard because they know they're going to get flooded basements," says Jason Thistlethwaite, a University of Waterloo professor who studies the insurance industry, about people in the business.

Thistlethwaite says the same thing happened when the news of the damage in Fort McMurray, Alta., came through, "as soon as they heard that 1,600 structures number."

With all those buildings burned, what the insurance industry expects to be Canada's most costly natural disaster is going to affect Canadians, and not just in higher rates
(CBC). These threats are real and present dangers in more ways than one:
"The surge that's scheduled to hit the American coastline Wednesday isn't coming from a hurricane, but it could still leave a feeling of helplessness in its wake.

Flood insurance rates are set to skyrocket when a new bill goes into effect on April 1. Known as the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), it's going to drive the prices of flood insurance plans through the roof for residents of all U.S. coastlines.

How much could they increase? In some areas where flood maps show maximum risk, premiums that were previously $500 could be raised to as much as $20,000 a year or more, according to estimates released in 2013.

"My insurance is more than my mortgage," said Nancy Loft-Powers, a resident of Deerfield Beach, Florida, who told the Washington Post that her premium will be raised from the $7,500 she already pays annually. "I live by the beach in an old neighborhood. I pay [too much] insurance for a crap house that’s not great." (Flood Insurance Rates To Increase, emphasis added)

"McLaughlins’ flood insurance renewal came with a whopping rate hike of $21,000. McLaughlin said he’s convinced FEMA intentionally kept consumers and real estate and mortgage companies in the dark about the rate increases.

The astronomical increase also took McLaughlin’s mortgage holder by surprise. An oversight of this magnitude tends to expose lenders to more risk because homeowners likely can’t afford to pay for the new policies." ($24,000 Insurance Policy, emphasis added).

"Congress ordered a rate increase because the National Flood Insurance Program (NFIP) managed by the Federal Emergency Management Agency is $24 billion in debt. It reached that historic amount because revenue from the discounted premiums could not cover payments on flood claims, particularly after two devastating hurricanes, Katrina and Sandy, on the Gulf and Atlantic coasts.
Rising sea levels from climate change make coastal living even more dangerous, conservationists say. And the flood-insurance program that went into the red paying flood claims is deep in debt to a U.S. treasury funded by taxpayers, advocates say
." (Rising Waters, Flood Debt, emphasis added)
(You Are Here - 5). You may have thought that because you are inland the sea level rise problem would not impact you.

IV. The Final Russian Doll Is The Taxpayer

One day climate change deniers will wonder why they have to pay for something that is merely a hoax: "the flood-insurance program that went into the red paying flood claims is deep in debt to a U.S. treasury funded by taxpayers" (last quote Section III, emphasis added).

Perhaps they will become open to making a Russian Doll out of those causing this "hoax" which is taxing their wallet or purse (Oilfluenza, Affluenza, and Disgorgement).

V. It Will Get Worse

Some scientists think that the relocation of ice sheets into the oceans and the subsequent relocation of the ice sheet melt water to new locations around the world can become a trigger for some earthquakes and volcano eruptions (Is A New Age Of Pressure Upon Us?, 2, 3, 4, 5, 6, 7, 8).

Currently 40 volcanoes are erupting (Volcanoes Erupting).

The earthquakes can cause tsunamis which lead to insurance hell (Fukushima fuel cores have ‘molten-through’ containment vessels — Location of molten fuels is unknown).

A hell which has to be blamed on God in cases where "an act of God" is not included in insurance policies (Act of God) because it is "Deigenic climate change" (Weekend Rebel Science Excursion - 39).

In any event, the direction this is headed is toward the extinction of insurance as we know it; simply because it can overwhelm remedies that were designed in a past age which had an undamaged global climate system (Groundhog Day & The Climate of Fear).

VI. Conclusion

We simply have to leave Oil-Qaeda's drugs in the ground (Hypersensitive Exxon bans Guardian from AGM).

But we won't (The Extinction of Robust Sea Ports - 6).

We have overdosed on hopium as a treatment for Oilfluenza.

A highway is already where it ends, and where it begins.

Lyrics here.


  1. Thanks for corroborating my intuition on this topic for years now. When entire towns get wiped off the face of the Earth by tornados or an earthquake turns a city to rubble, how is there possibly enough money and/or resources to continue rebuilding time after time? As we saw with Sandy, the political people delay the process for as long as possible while the "insured" suffer. This will become the standard operating procedure for insurance companies too (delay or severe curtailment of payments or complete the denial of coverage) as climate change effects ramp up. On the other hand, there are now factors that no one considered plausible at the time - like a perpetual drought shutting off the water to entire regions - for which there is no "insurance." Raging fires like Fort Mac Murray will test these premises and we'll get an idea how it will be, going forward.

    Great analysis, Dredd. It's all going to become moot once economic collapse meets converging global environmental catastrophe. Everyone will be on their own, and it won't end well.


    1. Top article Dredd!
      Great obs Tom!

      It's not just the insurance for 'property' that we need to worry about. Claims for 'total and permanent disability' insurances which can pay lumps sums or 'income protection plans' which pay a percentage of work related income are rising but fast from mental health issues.

      Modern life is plenty stressful indeed but when awareness of what WILL happen wrt climactic change and SLC and not 'might' happen accelerates, I fully anticipate a corresponding emotional collapse which is already beginning to 'bud out' according to those in the mental health professions.

      I was able to speak to an actuary from a global French player in Fin services and they were modeling the withdrawal of these products as the potential claim scenarios (unless stemmed) would not make commercial sense.

      Insurance- It IS about the money!

  2. Robert Scribbler's latest:

    Tottering Totten and the Coming Multi-Meter Sea Level Rise

    A new scientific study has found that the Totten Glacier is fundamentally unstable and could significantly contribute to a possible multi-meter sea level rise this Century under mid-range and worst case warming scenarios.

    We’re Locking in 120-190 Feet of Sea Level Rise Long Term

    [That's gonna be problematic.]


    1. I was pleased to see him list thermal expansion last in the list of SLC major factors.

      That is the reality, it is the lowest contributor for the past 100 years and for the next 100 yrs.

      I also liked his mentioning, at the same time, that Greenland would also be contributing concurrently to SLC (the Arctic and Antarctic do not take turns).

      He is leaving the silly millimeter global average SLR gloss apparatus, it would seem.

      He may also influence others to WARN, as the law requires.

      Even though the paper he cites to is overly conservative as to future timelines, at least it points out the old myth of a forever stable E. Antarctica.

      Remember "Why Sea Level Rise May Be The Greatest Threat To Civilization - 3".

      And don't forget the ghost-water, the shadow of melt-water (The Ghost-Water Constant, 2, 3, 4, 5, 6, 7).

  3. "ExxonMobil CEO: ending oil production 'not acceptable for humanity'" (Link)