Weather-related risk is keeping insurers up at night. The bill to clean up Hurricane Sandy along the East Coast came in at a staggering $70 billion, but government and private insurers were able to cobble the funds together. However, an even more serious disaster or series of disasters could shred the social safety net, permanently ruining businesses, homes, communities and requiring military intervention.
“Today I want to talk about the weather…the type of weather that halts brokers from trading, stops trains from moving, grounds planes, shutters businesses and damages your most valuable possessions,” said insurance giant Swiss Re CEO Eric Smith Tuesday at a briefing held to kickoff Climate Week NYC, which takes place next month. The event was held at the NASDAQ, where Smith later rang the closing bell. Climate Week is organized by independent nonprofit The Climate Group.
New York City, which sustained $19 billion worth of damage, is still rebuilding 8 months after Hurricane Sandy devastated the East Coast, he said. If the storm occurred in 2055, with higher sea levels and intensity associated with climate change, the total would have been $90 billion is losses.
“Our cities, in which half the global population lives and 80% of GDP [Gross Domestic Product] comes from, are still too exposed,” said Smith.
Resiliency and preventative measures must be taken to shore up coastal properties. He pointed to the National Flood Insurance Program, which covers 90% of the US but is deeply in debt, as an example of where private insurers can step in to help provide resiliency.
By shifting mandated insurance rates from a subsidized model to one based more on actuarial principals, reinsurers can provide commercially-attractive options, he said. The idea being that instead of tax payers supporting the NFIP, individual homeowners can foot the bill through private flood insurance that could be a cheaper option if enough people sign on.
“If we can get lots of homeowners to adopt actuarial principals, we can spread the risk,” Smith said.
Representing the nonprofit American Security Project, Brigadier General (Ret) Steven Cheney made the point that climate change risk is a national security issue. Upon taking charge of the US Marine training facility at Paris Island in 1999, his processor told him, “you have a big problem and it’s hurricanes.” Soon after, Hurricane Floyd barreled into the coast forcing mass evacuations at the base.
Cheney cited several additional examples of weather events impacting national security, including how forest fires in Russia decimated wheat crops, causing a food price increase that contributed to the initial Arab Spring demonstrations. Hurricane Sandy relief was also a “huge military operation,” he said.