Tag Archives: insurance

“fastest growing suburbs” vs. climate havens

A research group at University of Illinois makes population projections for US cities (suburbs? municipalities? this is a little unclear from the article) through 2100, and the top 40 hits are in the metro areas outside Phoenix, Dallas, Houston, Austin, Oklahoma City, Miami, Tampa, Orlando, Riverside (greater greater Los Angeles), Salt Lake City, Las Vegas, Denver, Boise, Fargo. These would seem to be heat, drought, flood, and fire prone areas, so this does not square with the idea that disaster-driven insurance rate increases will force mass population movements out of these areas.

Part of the answer to the insurance paradox is that political pressure causes states to set up “high risk pools” initially intended to assist small numbers of highly vulnerable homeowners, and the scope of these tends to creep up over time. This has particularly happened in Florida, although Florida has taken steps to move people out of their program recently. Another piece of the puzzle is that a big factor in private insurance rates is not disasters but credit scores, and this “mutes the market signals”. I tend to think that insurance companies, evil or at least amoral as they are, know what they are doing in terms of the math, and credit scores must be highly correlated with claims and losses. They also probably have no reason to take a long term view because they can drop policies any time they want as conditions worsen. Mortgage companies might have something to say about this, but remember that they are implicitly government subsidized for the most part.

bond ratings and climate change

Even if the U.S. federal government officially doesn’t believe in climate change, the municipal bond industry officially does believe in climate change.

In a report to its clients Tuesday, Moody’s Investors Service Inc. explained how it incorporates climate change into its credit ratings for state and local bonds. If cities and states don’t deal with risks from surging seas or intense storms, they are at greater risk of default…

In its report, Moody’s lists six indicators it uses “to assess the exposure and overall susceptibility of U.S. states to the physical effects of climate change.” They include the share of economic activity that comes from coastal areas, hurricane and extreme-weather damage as a share of the economy, and the share of homes in a flood plain…

Bloomberg News reported in May that towns and counties were able to secure AAA ratings despite their risks of flooding and other destruction from storms, which are likely to be more frequent and intense because of climate change. If repeated storms and floods are likely to send property values — and tax revenue — sinking while spending on sea walls, storm drains or flood-resistant buildings goes up, investors say bond buyers should be warned.

The Bank of England on Climate Change

The Bank of England believes in climate change.

“The far-sighted amongst you are anticipating broader global impacts on property, migration and political stability, as well as food and water security.”

But he said because the cost would fall on future generations there was little impetus on the current one to fix it: “In other words, once climate change becomes a defining issue for financial stability, it may already be too late.”