Insurance for Climate Disasters

Nobel-prize winning economist Robert Schiller has a New York Times op-ed about the need for insurance against risks of climate change.  Speaking of the latest U.S. climate assessment, he writes:

After discussing how to mitigate the coming dangers, the report says, “Commercially available mechanisms such as insurance can also play a role in providing protection against losses due to climate change.” That sentence should have been in big, bold letters and underlined.

That’s because of the substantial risk that efforts to stop global warming will fail. The implications are staggering, and we must encourage private innovation and government support to insure against the devastating financial losses that will result.

He then discusses various innovative mechanisms that might help insure against some of the extreme events that may be associated with climate change”

We have a crucial need to bring innovation to our risk-management institutions. We need to make them flexible, to clarify their long-term international legal status, to develop mechanisms and indexes that can be the basis of long-term risk management contracts and to educate the public about them. Most important, we need concrete action now to build a mechanism that will provide real help for the victims of climate-change disasters.

Those who are tempted to dismiss Schiller’s views should bear in mind that he was one of the few who anticipated the collapse of the housing bubble, which nearly brought down the economy.  An awful lot of scientists and economists agree with him that we have a critical need to bring innovation to our risk-management institutions.

Schiller is thinking about the problem of insuring against local catastrophes — hurricanes, floods, heat waves, and the like.  But there is also a risk of widespread global disaster, if we hit a serious tipping point. We don’t know whether this will happen.  But it is only prudent to take reasonable precautions.  That’s the strongest argument for reducing carbon emissions.  If we don’t reduce emissions stringently, we might get lucky.  Or maybe not.

Reader Comments

4 Replies to “Insurance for Climate Disasters”

  1. I fully agree and I love your site, but you really gotta get a better proofreader.

  2. Dan said;

    “….If we don’t reduce emissions stringently, we might get luck and suffer only moderate harm from climate change….”

    There is no hard conclusive scientific proof that regulating carbon dioxide emissions would have any measurable effect on reducing the global atmospheric temperature. It is reckless and irresponsible for governments to adopt such a strategy. We cannot afford to squander precious public resources on unproven and highly speculative political gimmicks to regulate carbon dioxide. Regulation of carbon dioxide is the fundamental hoax which exposed the fraud in climate hysteria. The State of California craves this crapola, so let it be plundered accordingly and serve as a warning to others.

  3. Is it time to let crash the Titanic ?
    I fully agree with you Dan, and with Mrs. Figueroa when she says that for the time being, mitigation of climate change should still the first priority of any adaptation policy (even though there is a real need to also prepare the adaptation).
    I think we are at a moment where, unfortunately, many start thinking we should let the Titanic continue its course to hit the iceberg (and prepare to be among the first to get a place in the save boats…) even though we know that, with a lot of goodwill and efforts, we can still change the course of the oceanic. Even if we don’t, we know that every effort we do to change that course will at least help reduce the gravity of the damages and casualties…


  4. The big problem with Schiller’s framework lies in the definition of an insurable event, i.e. how would we know that any particular occurrence happened because of climate change? If your house burns down, then it seems quite appropriate for fire insurance. Ditto with flood insurance. But how you specify climate insurance? I should quickly say that this problem hardly means that insurance won’t work, but it will require some heavy intellectual lifting, and in the absence of sanity on the Right, it will make it hard to develop a political consensus of how it should work.

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About Dan

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

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