Really buffering climate change

53 comments on “Really buffering climate change ”

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1. Anon 1

   14 January 2018 at 10:36 pm

   Pfft, earthquake insurance doesn’t pay out anyway, why trust the government with /another/ disaster fund? ACC’s a rip off too. Insurance is a scam. You can stick mandatory where the sun don’t shine, I wouldn’t trust the government – whomever is in power – with my /farts/.
   • One Anonymous Bloke 1.1

     15 January 2018 at 7:21 am

     You realise that Lprent’s proposal wouldn’t have you paying the government a cent, eh.
     • Anon 1.1.1

       15 January 2018 at 11:15 am

       EQC is mamdatory with house insurence, is supposed to cover natural disaster, and goes to the government. Lprents proposal is the same thing but goes to private insurers.. so basically privitisation. Either way, mandatory ain’t right.
2. Sanctuary 2

   15 January 2018 at 7:03 am

   I quite like the idea of signalling the cost of climate change via insurance premiums.

   The big fly in the ointment for the reinsurance market – and something the Economist article (rather complacently IMHO) hasn’t considered is how gracefully the reinsurance industry will degrade under growing claims. That is, what will happens when climate change disasters DO impact heavily on the ability of private reinsurance market to make a profit?

   Rather than a graceful degrading via slowly rising premiums the more likely outcome in any capitalist model is sudden withdrawl from the market of the insurance companies. In this situation, the state will be left as the payer/insurer of last resort anyway, unless it wants to stand by and watch as regions and cities fail to recover from a disaster.

   So we might as well get the state involved early and build up an ACC type organisation that’ll drive good decisions via a compulsory insurance levy.
   • greywarshark 2.1

     15 January 2018 at 10:53 am

     Sanctuary
     +100
     We have heard of companies with big fairly static financial pools which withhold money gained from investment until they see something they consider worth buying out. There is no reason that the insurance companies would not follow the same pattern, as long as the value of their balances remains stable, it may be better to hold with no risk, than spend or invest in something that will definitely depreciate.
     Even the darlings of the financial market, the tech companies, are fighting to remain viable and can get competed out of their high place of star rating, in a couple of years.

     What we need is more inflation.! Inflation eats away at stored money and it goes down in value. At present we have queer inflation measures. There is the official one the CPI, and then there is the one involving the biggest expenditure most will make in their lifetime, housing, which is mostly excluded and is roaring away pumped regularly by government action. Yet wage and benefit rises are measured against the CPI. This is a very skewed approach to understanding our economic condition that helps the gummint wot makes the laws and deemed regulations and appoints the right-minded! well-schooled people into the vital positions to pull the levers of management.

     (But such people are really needed to be employed to press the buttons on the ground in Hawaii where a nuclear scare left the country pantless, or also when trading on the stockmarket so they don’t buy up $millions of trading bills of some sort in a mistake that cost a bank big from a moment of madness.)
   • Anon 2.2

     15 January 2018 at 11:17 am

     You EQC, which already exists?
   • Ed1 2.3

     15 January 2018 at 3:20 pm

     Why would the reinsurance industry “degrade”? – there seems to be profit in reinsurance – “since the yields on alternative capital are poised to rise because of growth in reinsurance premiums.” Christchurch will have had am impact on premiums around the world, but as most people here are aware premiums genreally were lifted fairly quickly, and have only recently declined slightly. The companies that withdrew (or went broke) had too high a concentration in the areas most affected by claims, and/or not enough reinsurance. It would be possible to rely on insurance instead of regulation, but that just feeds overseas shareholders profits from a captive market. There is a point to building regulations and the approval process for new builds / alterations, and to the approval process that requires certain standards to be shown to be met. England has compulsory 3rd party car insurance – there is still competition, but its biggest effect is to encourage young drivers to buy low powered vehicles – insurance can cost as much as the vehicle. The electricity market in NZ is effectively compulsory for most people, although the ever-climbing prices are encouraging the use of solar power. Electricity providers have little control over product costs, hence the emphasis on cold-calling to get people to switch – choosing which escalator to take them ever-upwards but as sufficiently varying rates as to be able to pretend there are market forces working, while actually paying for the administrative costs of client churn.

     ACC and EQC can be and have in the past been well managed, but the Nat-led government consistently tried to reduce costs by reducing (statutory) benefits; health insurance companies do the same by changing terms and conditions as well as premiums. An insurance basis for regulation wil not cover the costs of “downstream” activities – for example Christchurch probably needs greater water treatment costs than it used to due to the actions of farmers higher up the water basin.
     • Sanctuary 2.3.1

       15 January 2018 at 6:11 pm

       “…Why would the reinsurance industry “degrade”? – there seems to be profit in reinsurance…”

       I was speculating that the increasing incidence of climate related disasters means, ultimately, there will come a point in time where the world’s disaster insurance industry is no longer profitable.

       At that point, something akin to the GFC may occur as the result of a string of disasters – the entire system will simply cease to operate as brokers and reinsurers simply stop bidding on the insurance borses. In other words, the failure of the insurance industry is likely to be one day BAU, next day insurance catastrophe.

       The government, as the insurer of last resort, would then be forced to pick up the tab.
3. Ad 3

   15 January 2018 at 8:54 am

   Motu did a quick summary of New Zealand’s institutions relevant to housing insurance and climate change, here:

   http://motu.nz/assets/Documents/our-work/environment-and-resources/climate-change-impacts/Insurance-Housing-and-Climate-Adaptation2.pdf

   This note covers:
   – residential property insurance
   – EQC
   – issues with pricing climate-change sensitive insurance
   – estimating sea level risk,
   – a note on reinsurance, and
   – a bunch of references for further study.

   More a note than a proper paper, but it’s local.

   I liked this paper for the Harvard Business Review on how the insurance industry can prepare us for climate change:

   https://hbr.org/2017/08/how-the-insurance-industry-can-push-us-to-prepare-for-climate-change
4. Bill 4

   15 January 2018 at 9:30 am

   I can’t quite see how this pans out Lynn.

   Insurers may well be “farming out” risk in much the same way as a small bookie will lay off a large bet to a bigger bookie ‘just in case’. And that works, but only up to a point that stays with the financial limits of the larger bookie

   Compulsory insurance and rising rates are going to hammer the poor. And many people already go without insurance because of the ongoing financial drain.

   I can foresee insurance (or some types) only applying to an ever richer cohort of society while the rest of us (I’ll most definitely be among that “us”) are left to the protection of hands clasped tight or whatever.

   And how does the whole thing translate into the physical world anyway? There’s a point in being reimbursed for a house, a road, a rail link, a pipe network or power distribution system when the need for rebuilds or repairs far outstrips our capacity to repair and rebuild?
   • Ad 4.1

     15 January 2018 at 10:04 am

     Compulsory insurance and rising premiums generally hammer property owners more directly. That’s the appropriate signal and the appropriate place to put the weight.

     That may also hammer renters in marginal properties by putting them up, which again is a blunt and necessary signal: move.

     Ratcheting up the premiums on coastal and floodplain property also has a fast effect on property values, which is the bluntest non-state way to shift owners away from danger.
     • Bill 4.1.1

       15 January 2018 at 10:17 am

       Yeah, I get all that.

       But move to where? And rebuild how? NZ’s infrastructure’s already creaking because of political neglect. And the remedies are set out on long time scales – time scales that likely take us well into a period of (not) dealing with unprecedented climate related damage.

       Insurance only works when things can be “put back”, no?
       • Ad 4.1.1.1

         15 January 2018 at 11:50 am

         No. It also works to replace elsewhere, depending on the policy.
         • Bill 4.1.1.1.1

           15 January 2018 at 12:06 pm

           Put back, replaced – here, there or elsewhere – whatever. The point is that when climate related damage hits, there will be no putting back or replacing because we’ll lack the capacity to put back or replace.

           Even the woeful under-estimate of climate damage reckoned to be coming down the pipe-line, contained in the recent (formerly suppressed) climate report, is way beyond the coping capacity of NZ in terms of logistics.
     • Anon 4.1.2

       15 January 2018 at 11:24 am

       Dangerous propeties are already worth nothing, anyone who could afford to move – especially in chch – has already done so, or in the case of the rich already owns a safer property. So all you’ll do is punish people who can’t afford to leave anyway.
       • Ad 4.1.2.1

         15 January 2018 at 11:43 am

         It’s going to be a permanent cycle of “punishment’ then.
         Firth of Thames communities got a strong signal two weeks ago.
         Bay of Plenty are fully in the frame.
         Those is other low-lying areas are all going to make harder and harder choices.
     • Anon 4.1.3

       15 January 2018 at 11:28 am

       And how is it appropiate to punish people who aren’t part of the problem, and can’t do anything about it?
       • Ad 4.1.3.1

         15 January 2018 at 11:44 am

         Climate change is not fair.
         Insurance is not fair.
         Insurance simply reallocates risk.

         Fairness just isn’t a useful framing here.
   • lprent 4.2

     15 January 2018 at 12:21 pm

     The point is that It is a cost on property in the short term for a medium term problem – increasing levels of extreme weather. As we all know, property owners including banks are risk averse.

     what I am interested in is to create a political lobby on current time who are interested in mitigating their own costs rather than simply passing the problem and costs down the generations.

     Incidentally I don’t know about anyone else. but the holders of my mortgage are really interested in me holding an insurance policy.
5. Greg 5

   15 January 2018 at 11:39 am

   I can see a time when costal property owners are going to demand the the government buy them out the question is at what cost I would argue after last week’s storm costal property is worthless if you want live on the coast the risk is the property owners not the tax payer
   • Anon 5.1

     15 January 2018 at 11:47 am

     And what are you going to do with people who already can’t afford to leave their coastal property? Tent cities in CBDs?
     • One Anonymous Bloke 5.1.1

       15 January 2018 at 11:50 am

       That’s what the National Party would do, except they’d use water-cannons on the tents. There are other options.
     • Greg 5.1.2

       15 January 2018 at 12:17 pm

       There mostly national party voters anyway so it’s no loss
       • Anon 5.1.2.1

         15 January 2018 at 1:49 pm

         They will be now that’s for sure, good to know the left cares exactly as much as the right.
       • Gristle 5.1.2.2

         15 January 2018 at 8:23 pm

         Hi Greg,

         The point is that as at-risk housing is identified and marked down in value, the people likely to occupy it in the future are the less wealthy, the working class. So your comment about them being national voters is not relevant.
     • lprent 5.1.3

       15 January 2018 at 12:25 pm

       Aside from my qualms about people living in perilous living places geologically. I suspect that it would cause a cost incentive toward preemptive mitigation
       • Anon 5.1.3.1

         15 January 2018 at 1:51 pm

         How exactly? Again, it means moving into a tent in the CBD.
         • Sam 5.1.3.1.1

           15 January 2018 at 3:43 pm

           … Well… It’s the Warren Buffet style of investing… I mean what do you think insurance companies do with all those premiums? Put it in a vault and mutter mhuahahaha… No. It gets reinvested in to mutual funds and venture capital and other high low yield investments. Doing things like grow the fund by investing in growth industry. And I believe the young mans idea is to pump those funds into mitigating climate change which just so happens to have the greatest potential to grow of any industry…

           You know this stuff shouldn’t need to be said. If New Zealand’s brain power was sufficiently harnessed… If
         • greywarshark 5.1.3.1.2

           15 January 2018 at 4:21 pm

           It’s people like you Anon, asking questions, thinking out problems and gathering some mass of informed citizens together that could make things happen that are not at present. So think it out with intelligent friends and locals, have some evening meetings with a beer afterwards or coffee, and get your brain working. Too much of last century and almost 2 decades of this have gone by under the representative political model. What is needed now in the new century is Participatory Democracy.

           We need this. We didn’t get effective, responsive government with the representative style.
           https://en.wikipedia.org/wiki/Participatory_democracy

           Then there is the grassroots townhall meetings system favoured by some Eastern USA states and here is a link relating to the Swiss ones.
           https://www.swissinfo.ch/eng/directdemocracy/mike-mueller_-town-hall-meetings-are-the-archetype-of-democracy-/43771760

           swissinfo.ch: Do you like the fact that the local politicians talk directly to the citizens during these town hall meetings?

           M.M.: Basically, yes. It’s good that the politicians are forced to justify their moves directly to their communities and that politics and the administration are closer to the people. Germany’s administration, for example, is far away from its people and treats them badly and derogatorily. I have worked in Germany myself. Letters from German tax offices do not have a spark of decency!

           It’s different in Switzerland, and I like it. Public offices are very helpful and quick. I once managed to obtain a form from a Swiss public office within ten minutes by mail. The German theatre director, for whom I got it, was so surprised that he was convinced that I had some sort of family relationship with the Swiss office. But all I did was ring the official in charge of my affairs

           So put your energies into going for better informed relationships with local government for a start, and see if you can work that up so we can finally get through to central government, and perhaps we can get rid of the time-servers faster. We might even put a limit on the number of times that pollies can serve, and end the comfortable sinecure of someone who just keeps smiling at the right people to get the right number of electorate votes.

           Something here that you could get your teeth into, if they aren’t false ones.
           • cleangreen 5.1.3.1.2.1

             16 January 2018 at 12:26 am

             100% greywarshark,

             Our young are our future and we need to help them finally to get ‘engaged’ as we oldies have tried for decades and our voice is diminishing so while we can we must help the young to pick up the candle and run with it.

             United we stand divided we fall.
             • greywarshark …

               16 January 2018 at 10:35 am

               cleangreen
               Yes, pleasure to read your stuff. Of course I don’t agree with you all the time. Feel free to give me your opinions when you feel they need some tidying up!
   • Macro 5.2

     15 January 2018 at 12:25 pm

     To a large extent the Govt is responsible when property owners suffer because of extreme weather events that are increasing in frequency and severity due to AGW. Govts have known about AGW since at least 1988 when Dr James Hansen briefed the US Senate, and the majority of Govts formed the United Nations Framework Convention on Climate Change (UNFCCC) in 1992, which led into the Kyoto Protocol in 1997. All these international agreements are supposedly where Governments commit to dealing with increasing GHG emissions. Of course – quick as a flash – all these commitments were kicked down the road – reports were sat on – and nothing happened. Unfortunately, the politicians who were irresponsible in their inaction are mostly gone – leaving the impending disasters to later generations. Nevertheless the inaction of Government does not excuse them from carrying much of the blame. Stronger policies in the past and better education could well have prevented the poor decision making of local governments (who rely in central govt for advice) developers and buyers from investing in coastal property.
     The inaction of Nick Smith for instance – who sat on a report for over a year – which highlighted that impending SLR will be far greater than the previous predictions of 2005, is just one example – and he (if anyone) should be held culpable for properties being build now based on projected SLR of Tonkin and Taylor Reports before 2016.
6. Paul Campbell 6

   15 January 2018 at 11:45 am

   why don’t we treat climate change insurance in a similar manner as ACC, except that this case we ding the largest carbon emitters with the largest fees to – that way some of the externalities of the processes come home to bite …. want to burn coal or gas to make electricity? you have to pay for the long term costs up front
   • Anon 6.1

     15 January 2018 at 11:50 am

     Why don’t we just go carbon tax?
     • Paul Campbell 6.1.1

       15 January 2018 at 9:41 pm

       yes but let’s set it based on perceived consequences – for example “we’re going to tax carbon use to pay for it’s costs, we’ll use the money to buy out beachfront property at today’s valuations inflation adjusted, to built dykes and levees to protect low lying residential areas, to provide mitigation to flood risks, etc etc ….”
       • Pat 6.1.1.1

         15 January 2018 at 10:18 pm

         Couple of reports worth reading and applying some simple arithmetic to…

         “Housing is a major capital asset with a replacement value of approximately $150 billion (in 2001 NZ dollars).
         The value of non-residential buildings is smaller but still significant at approximately $70 billion. This is
         followed by civil engineering structure (roads, bridges, other transport faculties, water/sewage/waste disposal,
         Telecom and energy infrastructure) at $50 billion. …”

         http://www.cmnzl.co.nz/assets/sm/2245/61/008-BENGTSSONJonas.pdf

         “How much money is involved?
         After Negotiated Greenhouse Agreements are accounted for, the carbon tax is expected to raise approximately $360M per year. The details of how the Government will recycle this revenue back into the economy will be announced as part of the business tax package in the 2005 Budget.”

         http://taxpolicy.ird.govt.nz/news/2005-05-04-carbon-tax-policy-detailed

         Time …..
7. Pat 7

   15 January 2018 at 12:26 pm

   “RMS isn’t alone. In June, the Geneva Association, an insurance industry research group, released a report (PDF) outlining evidence of climate change and describing the new challenges insurance companies will face as it progresses. “In the non-stationary environment caused by ocean warming, traditional approaches, which are solely based on analyzing historical data, increasingly fail to estimate today’s hazard probabilities,” it stated. “A paradigm shift from historic to predictive risk assessment methods is necessary.”
   Read more: https://www.smithsonianmag.com/science-nature/how-the-insurance-industry-is-dealing-with-climate-change-52218/#oS8FpWXSYz2rXUEU.99

   Its a model that will be unable to cope with a significantly increased claim ratio….as the premiums rise and the excesses increase the pool to spread the risk will decrease….never mind the (in)capacity to replace….the same issues arise with a fully public model (i,e ACC)

   As has been foreshadowed by the response to the ChCh quakes there will be an inequitable response as long as any response is possible …then SFA
   • Pat 7.1

     15 January 2018 at 12:48 pm

     “It’s not an insurer’s job to signal long-term risks to policy-holders, Grafton says. That kind of planning is up to property owners and their banks. “Let’s not look to the entity that is underwriting for the next 12 months to solve the problem, because it isn’t our problem to solve,” he says. “Insurance has never been for the life of a house, it is always renewed on an annual basis.”

     https://www.newsroom.co.nz/2018/01/14/74263/the-risks-of-living-near-the-ocean

     A timely article at Newsroom
     • lprent 7.1.1

       15 January 2018 at 12:56 pm

       This is a signal from legislation to insurers and property owners
       • Pat 7.1.1.1

         15 January 2018 at 1:08 pm

         id suggest it is more a signal from the insurance industry to politicians via the voting public
       • Gristle 7.1.1.2

         15 January 2018 at 8:40 pm

         Do you think that it time for legislation to be enacted that removes the ability of land owners etc to sue the LA’s for effects caused to them by sea level rise, storms etc.

         At the same time new developments have to provide evidence of survivability (to xyz standard) for a defined period, eg 100 years. Houses are required to be designed and built with a minimum 50 year life. Surely the access and land of a new build should have some sort of similar requirement that goes back to the developer.
         • Draco T Bastard 7.1.1.2.1

           15 January 2018 at 8:56 pm

           Do you think that it time for legislation to be enacted that removes the ability of land owners etc to sue the LA’s for effects caused to them by sea level rise, storms etc.

           Yes. They took the risk knowing that the land could become inundated.
         • Macro 7.1.1.2.2

           15 January 2018 at 9:18 pm

           Surely the access and land of a new build should have some sort of similar requirement that goes back to the developer.

           Essentially it does.
           Developers however will rely on reports that look at the lower levels of risk rather than the higher levels and argue on these risk factors that a development meeting those requirements should go ahead. Having completed the development they will then hope to pass the risk on to unsuspecting buyers as quickly as possible. It’s the buyers risk now. Had they undertaken due diligence they probably would not buy. But then the information is difficult to access – and can even be withheld.
           see: https://www.newsroom.co.nz/2017/12/11/67390/drowning-dreams-72-new-houses-on-man-made-canals
           In particular the exchange with Gloria Humphries.
           • Pat 7.1.1.2.2.1

             15 January 2018 at 9:34 pm

             ultimately any development requires TA approval…however even should liability sit with the developer a simple winding up of the company removes the possibility of remedy for affected parties
   • greywarshark 7.2

     15 January 2018 at 1:01 pm

     Pat
     You make good point. SFA is what I am afraid of. Someone further up the comments talks about politicians sliding nasty reports to their bottom drawers rather than act on them while they are in power. They get their emoluments and gongs and off they go, leaving the increasing difficulties for someone else.

     The pollies in NZ announced solemnly that they had to make ACC fully paid up in the present to match future liabilities for long term clients. Then they play around with it and decrease its availability, so get the money, then run for touch pushing off the clients who don’t match the exact criteria set.

     But acting now for the future in other areas of importance particularly relating to climate change and disasters, where people are likely to be even needier. – that’s a different matter. We need to have a Disaster Fund started, alongside keeping the Superannuation Fund alive.

     And put some of it into training people to recognise problems, how to manage survival, how to cope when a lifetime’s housing investment is swept away and people are told there is no way they can be reimbursed for it, and will have to settle for a plain dwelling of a simple sort and count themselves lucky if they are near their preferred location with amenities available.
     • Pat 7.2.1

       15 January 2018 at 1:31 pm

       I have some sympathy for those politicians (cant believe i said that)….as was demonstrated recently in ChCh (and similarly Kapiti I believe) any attempt by TAs to send the correct message re risk is met with organised challenge (often legal) by property owners concerned about property values….in many instances i suspect to enable an onsell of the risk….it is a problem I see no solution to, as an equitable solution is political suicide so I suspect we will muddle along and as time goes by more and more will gradually lose any equity they once had and carry the cost, there will be some noise made ( and those with the means will make use of the courts, not necessarily successfully) but the majority will just thank their lucky stars its not them….there is ample precedent
       • greywarshark 7.2.1.1

         15 January 2018 at 1:36 pm

         Yep Pat – they’ll muddle along – there is ample precedent…
8. Macro 8

   15 January 2018 at 1:06 pm

   Interesting post Lynn. Ive been following Re Insurance and their work wrt to CC for a number of years now and have always found them to be realistic as to the escalating costs and to the continued probability for Insurance to continue to pick up the pieces. I commented on another tread on this here:
   They said then

   Adaptation through adequate sea defences and the management of the residual risk is essential. While the insurance industry is an important contributor to the absorption of volatile risk, it cannot address the challenges of climate change alone: To tackle this, a public-private partnership will be indispensable. Beyond traditional insurance, Swiss Re can contribute through alternative forms of risk transfer to absorb highly volatile losses.

   my bold
9. eco maori 9

   15 January 2018 at 1:30 pm

   I see Iprents point the insurance on coastal/vonlrable properties will cost so much that any capital gains made by the investment will be spent on insurance. In his theory the insurance company will lobby the state to stop the building on flood prone land and lobby the state to charge for the cost of carbon emissions. I don’t like state insurance they keep moving the goal post on the people.

   national have committed a major sin against the 99% buy ignoreing climate advice they had over the last 9 years this tells me that shonky key did not give a shit. I worked for the biggest houseing site development company in Tauranga we just filled in creaks compacted it down the priscription requirements that did not acount for rising sea leaves this is a catastrophe waiting to happen the septic system cannot keep up with all the new houses and noor can the water system. It’s all our retired people who have brought these houses a lot with the water table 4 feet blow the concrete floors they will be stuffed when it floods how many other sites are like this I thought that in flood prone houses you used piles that are more suitable for flood prone problems and if need be you put it on a truck and move the houses try putting a house with a concrete floor on a truck it you used long piles ramed in about 4 metres this compact and stablelise the site never seen any of that type of houses been built. I seen the council man he looked a bit shady these people don’t care who is burn by there shoddy regulations this problem needs to be urgently remedy. Ka kite ano
10. jcuknz 10

    15 January 2018 at 5:38 pm

    For those who suggest it does not matter as it is the rich pricks who own houses … do not forget the rich pricks who want to preserve their saving in rental properties in the suggested climate will again put up the cost of renting …. so it affects everybody owner or renter or using a tent in the town square.

    Once again I have reason to thank my lucky stars I have probably under fifteen more years to live … but then I think of my son and his child. I fully own my house which is ten metres above SHWM … but access is barely above SHWM in both directions. So it is a serious problem for me, and for years I have worried about the foolish council permiting building and renovating properties within the reach of the sea. Dykes are not an answer because the water level normally is just cm below those properties and simply swells up with the sea.
11. Richard@Downsouth 11

    15 January 2018 at 5:50 pm

    Yesterday was the hottest temperature on record in Invercargill… 32.3c

    Not that hot for some people, but pretty damned hot for down here…
    • Pat 11.1

      16 January 2018 at 7:28 pm

      and today was a record in Dunedin….but hey, CC is a con
12. cleangreen 12

    16 January 2018 at 12:33 am

    Excellent article iprent.

    Keep the iron to the fire.

    Labour coalition needs to hear our combined ‘call to arms’ to tackle ‘climate change’
    and set about to ‘arrest the advance of effects’ of our ‘nuclear moment’ the PM Jacinda Ardern said is the number one issue of our time.’

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