Climate Risk and Insurance

2024-02016

https://www.nytimes.com/2024/02/14/climate/wildfire-climate-change-urban-firestorm.html

“Fires Are the Sum of Our Choices” is an excellent title!  And the discussion of those choices is good too.  And it leads Wallace-Wels to a very good bottom line: 

“Instead, we’re living in a timeline in which large gaps have opened up between the climate we anticipated and the one we are confronted with, between the infrastructure we built on the basis of those expectations and the world we might have engineered and between the standards for safety and preparedness we once had and the ones we are now revising and haphazardly improvising in the face of rising threats.”

The weak point in the analysis is consideration of economic incentives that lie behind those choices and create the gaps. 

The incentive to emit CO2 without taking account of climate change harm is well understood by economists.  Politicians and “environmentalists” still have some catching up to do.

My sense is that cost benefit analysis is starting to be applied to forest management, implying there will be much more controlled burning in the future and less “suppression.”

Perhaps the biggest gap is in the incentives to build vulnerable structures in risky areas.  [This applies a much to hurricane-prone shores and river flood plains as to the wilderness-urban interface.]  It is unrealistic to expect individual property developers to take the risks into account.  Institutionally, this is better handled by insurance companies using the best climate and weather models to assess risks and good assessments of vulnerability of structures and any mitigating infrastructure in setting hazard insurance premia.

[Standard bleg:  Although my style is know-it-all-ism, I do sometime entertain the thought that, here and there, I might be mistaken on some minor detail.  I would welcome comments on these views.]