Maybe it's because we've seen so little sun this summer, or maybe because Josh, my lawyer friend, was stuck in upstate New York when 100 miles of interstate near Syracuse was closed due to flooding, or more likely it's because I saw Al Gore's compelling lecture/movie "An Inconvenient Truth." But as I prepare with everyone else to celebrate this July 4th, I'm feeling a little pessimistic about the weather. Call it "global warming" or just the usual climate cycles, the consequences for risk managers and property insurers are profound.
For a primer on the insurance aspects of the crisis, check out Doug Simpson's excellent blog, unintended consequences (great title for a blog!). He'll link you to some startling information about coastal property insurance. He also links to the Environmental Protection Agency (EPA), which is one government agency that at least acknowledges the possibility of global warming, rising oceans and changing weather patterns. However, the EPA posts have not been updated since 2000. Perhaps we haven't learned anything new in the past six years.
These are difficult times for insurance actuaries. Even if you predicted last year's record-breaking hurricane season, how could you have foreseen the amazing rain this spring and summer, inundating the northeast and Atlantic central states. Property damage has been nothing less than astounding. And the Gulf Coast is nowhere near fully recovered from Katrina, last year's "storm of the century."
Ah, there's the rub. Was Katrina truly an outlyer, a once in a lifetime event, or a portent of things to come? How would you price property and business disruption insurance along the gulf coast? I'm not sure whether academic programs are combining actuarial studies with climatology, but that's surely where the action is going to be for the foreseeable future. Wanted: actuarial climatologists. The only problem is that actuaries tend to predict the future by looking backwards and the scale of recent weather events appears unprecedented.
I suspect that the alarming graphs and charts in the Gore movie are still flashing in my head. Or maybe it's just the relentless cloud cover that hangs over the weekend. It brings to mind a quote from Mark Twain: "Climate is what we expect; weather is what we get." With all the recent turmoil in the weather, our expectations for climate are turned inside out. These days, climate and weather are the same: equally unpredictable. We no longer have any idea what to expect.