bjbjVwVw JEFFREY BROWN: And next, we continue
our coverage on the impact of superstorm Sandy
-- tonight, lessons being learned and how
insurers are preparing for the future.
NewsHour economics correspondent Paul Solman
has the story.
It's part of his ongoing reporting Making
Sense of financial news.
PAUL SOLMAN: Manhattan's totally unprepared
South Street Seaport sustained some portion
of the $50 billion in losses from Sandy, only
$20 billion or so insured, a shock to most
folks, but not to the insurance industry.
ROBERT HARTWIG, Insurance Information Institute:
Unfortunately, these are not "once in a blue
moon" events any more.
PAUL SOLMAN: Bob Hartwig of the Insurance
Information Institute at Red, his favorite
local eating hole, a real hole now, even its
inventory down the drain.
ROBERT HARTWIG: We are seeing an increased
frequency in the number of natural disasters,
roughly tripled or quadrupled since 1980,
and the costs have doubled, tripled and quadrupled
as well.
PAUL SOLMAN: So, is extreme weather here to
stay?
And if so, have insurers priced the new level
of risk into their policies?
No, says Mindy Lubber, president of Ceres,
an environmental advocacy group.
And she blames the new risk on global warming.
MINDY LUBBER, Ceres: Climate change is our
new normal.
We're seeing more increased storms everywhere,
all across the country.
It is costing us tens and tens of billions
of dollars, $32 billion to the insurance sector
last year.
But last year, when we surveyed 88 insurance
companies and asked them, do you have climate
policies in place, are you acting on climate,
11 out of 88 companies had a plan to address
climate risks to their bottom line.
PAUL SOLMAN: The rest didn't.
So, what is the industry's comeback?
ROBERT HARTWIG: All insurance companies are
paying very careful attention to the variability
and the volatility in the climate.
You can have a big debate about what the cause
of that is.
But insurers use all the information at their
disposal in order to ascertain the risk, measure
that risk in a very scientific manner, and
then assign a price to that risk.
PAUL SOLMAN: A higher price, presumably, to
compensate for the greater risk.
But for most primary insurers, the weather
risk has now become so high, they have simply
stopped writing flood insurance.
So, government had to step in and is now on
the hook for more than a trillion dollars
in potential damages.
Re-insurers, however, are still in the game
too.
ERIC SMITH, Swiss Re Americas: There's very
few things that you could ask me about that
we don't already re-insure.
PAUL SOLMAN: Eric Smith heads the Americas
division of Swiss Re.
ERIC SMITH: Re-insurance is about all forms
of risk, whether it's health, or life, or
your home, or your property.
The math behind it works the most effectively
if you can spread the risk around the globe
in all sorts of different forms.
PAUL SOLMAN: Primary insurance companies buy
their own insurance, re-insurance, from huge
firms like Swiss Re, which, because of their
size, can afford the fullest data, plug in
into the most sophisticated risk models.
And doing just that, Swiss Re actually warned
us of an East Coast storm like Sandy back
in 2006.
After Hurricane Katrina, Swiss Re's head of
catastrophe perils, Andy Castaldi, worried
aloud about warming seas and more violent
storms in the Gulf, but, he told us: ANDREW
CASTALDI, Swiss Re: I'm also concerned about
the New York Bay and Long Island that would
be inundated by a flood due to a Category
3 storm.
A storm surge could completely flood the airport
at JFK.
And 13 feet of seawater is not out of -- or
up to 17 feet is not out of the question.
PAUL SOLMAN: We interviewed Castaldi again
last week, after Sandy.
So the blue is Sandy's storm surge.
ANDY CASTALDI: That's right.
That's the footprint of the storm surge that
was produced by the superstorm Sandy.
As you can see, in the center of the screen
is John F. Kennedy Airport.
And now I'm going to toggle back to the coastal
flood map that we had prior to the storm,
and you can see just about the same areas
as the Sandy footprint we knew was exposed
to a storm surge.
PAUL SOLMAN: Six years ago, you said that
you thought that climate change was a major
factor in recent storm activity.
Do you think that more today?
ANDY CASTALDI: I can't really attribute Sandy
to climate change.
It could be within the normal variability
of these types of storms, but I do know that
climate change is occurring.
And it is starting to exaggerate some of the
hazards.
Most notably in this area is sea level rise.
And as the sea level rises, it stands to reason
that the next storm will produce a larger
storm surge, just because it has more water
and the water is higher than ever before.
PAUL SOLMAN: And because more people and property
at risk.
We were at the long-ago-named Water Street,
for example, from here to the East River these
days, landfill.
ERIC SMITH: For most of the time these storms
came through, no one lived here, or very few
people lived here.
Now we have millions of people concentrated
in -- for instance, in the New York area.
We have tons of infrastructure.
We have important business assets that are
exposed, and that's what's different.
PAUL SOLMAN: Yes, says Mindy Lubber, and therefore
insurance companies should raise their premiums
to signal the rising dangers.
MINDY LUBBER: Insurance companies could also
impact all of our behavior by the way they
price products.
They might say the following.
If you are going to build a building, and
you want us to insure it, you have got to
build it in a way that it's prepared to deal
with storm damage or climate-related risk.
PAUL SOLMAN: So we put the question to Castaldi
of Swiss Re, a European firm known as a climate
change leader.
Is climate change in this model you're showing
us?
ANDY CASTALDI: The way we build our models
is that they're based on historical data.
We typically focus on the last 100 years because
the data was better.
If these storms are becoming more frequent
and more severe, they get incorporated into
our models.
PAUL SOLMAN: But Lubber thinks that's not
enough.
MINDY LUBBER: The insurance industry often
develops prices and risk models based on what
happened last year and the year before.
And obviously we have some good data from
the last couple of years.
But they also have to look at what science
is telling us, that we're going to see consistent
storms happening more and more all across
the country and the world and more intensely.
PAUL SOLMAN: To Castaldi, however, that would
be premature.
ANDY CASTALDI: We do believe climate change
is a real threat, a real risk to us, but,
at this point in time, there's not enough
conclusive scientific evidence to really encourage
us to make those type of changes.
PAUL SOLMAN: Even so, Swiss Re has been especially
vocal about the threat of climate change.
Eric Smith explained why primary insurers
aren't doing as much on the issue as re-insurers
like Swiss Re.
ERIC SMITH: Climate change is still a bit
of a controversial issue, especially in the
U.S.
And, you know, they are a business that serves
consumers.
They serve millions of consumers, so they
have to be very sensitive to public opinion.
And public opinion is still a little bit split.
So, with climate change, how quickly will
it happen?
And how accurate -- how accurate can we be
with the change each year over year?
And I think most people would argue that it's
going to be more subtle.
And so for an insurance company to try to
factor that in and charge people, that would
be a hard position to justify.
PAUL SOLMAN: A hard position, perhaps.
But if climate change is causing more extreme
weather, as most experts think, it's a position
that even the most skeptical of insurance
companies may be taking soon enough.
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place JEFFREY BROWN: And next, we continue
our coverage on the impact of superstorm Sandy
-- tonight, lessons being learned and how
insurers are preparing for the future Normal
Microsoft Office Word JEFFREY BROWN: And next,
we continue our coverage on the impact of
superstorm Sandy -- tonight, lessons being
learned and how insurers are preparing for
the future Title Microsoft Office Word Document
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