Insurance companies are making climate risk worse
Tomorrow (November 29), I'm at NYC's Strand Books with my novel The Lost Cause, a solarpunk tale of hope and danger that Rebecca Solnit called "completely delightful."
Conservatives may deride the "reality-based community" as a drag on progress and commercial expansion, but even the most noxious pump-and-dump capitalism is supposed to remain tethered to reality by two unbreakable fetters: auditing and insurance:
https://en.wikipedia.org/wiki/Reality-based_community
No matter how much you value profit over ethics or human thriving, you still need honest books – even if you never show those books to the taxman or the marks. Even an outright scammer needs to know what's coming in and what's going out so they don't get caught in a liquidity trap (that is, "broke"), or overleveraged ("broke," again) exposed to market changes (you guessed it: "broke").
Unfortunately for capitalism, auditing is on its deathbed. The market is sewn up by the wildly corrupt and conflicted Big Four accounting firms that are the very definition of too big to fail/too big to jail. They keep cooking books on behalf of management to the detriment of investors. These double-entry fabrications conceal rot in giant, structurally important firms until they implode spectacularly and suddenly, leaving workers, suppliers, customers and investors in a state of utter higgeldy-piggeldy:
https://pluralistic.net/2022/11/29/great-andersens-ghost/#mene-mene-bezzle
In helping corporations defraud institutional investors, auditors are facilitating mass scale millionaire-on-billionaire violence, and while that may seem like the kind of fight where you're happy to see either party lose, there are inevitably a lot of noncombatants in the blast radius. Since the Enron collapse, the entire accounting sector has turned to quicksand, which is a big deal, given that it's what industrial capitalism's foundations are anchored to. There's a reason my last novel was a thriller about forensic accounting and Big Tech:
https://us.macmillan.com/books/9781250865847/red-team-blues
But accounting isn't the only bedrock that's been reduced to slurry here in capitalism's end-times. The insurance sector is meant to be an unshakably rational enterprise, imposing discipline on the rest of the economy. Sure, your company can do something stupid and reckless, but the insurance bill will be stonking, sufficient to consume the expected additional profits.
But the crash of 2008 made it clear that the largest insurance companies in the world were capable of the same wishful thinking, motivated reasoning, and short-termism that they were supposed to prevent in every other business. Without AIG – one of the largest insurers in the world – there would have been no Great Financial Crisis. The company knowingly underwrote hundreds of billions of dollars in junk bonds dressed up as AAA debt, and required a $180b bailout.
Still, many of us have nursed an ember of hope that the insurance sector would spur Big Finance and its pocket governments into taking the climate emergency seriously. When rising seas and wildfires and zoonotic plagues and famines and rolling refugee crises make cities, businesses, and homes uninsurable risks, then insurers will stop writing policies and the doom will become undeniable. Money talks, bullshit walks.
But while insurers have begun to withdraw from the most climate-endangered places (or crank up premiums), the net effect is to decrease climate resilience and increase risk, creating a "climate risk doom loop" that Advait Arun lays out brilliantly for Phenomenal World:
https://www.phenomenalworld.org/analysis/the-doom-loop/
Part of the problem is political: as people move into high-risk areas (flood-prone coastal cities, fire-threatened urban-wildlife interfaces), politicians are pulling out all the stops to keep insurers from disinvesting in these high-risk zones. They're loosening insurance regs, subsidizing policies, and imposing "disaster risk fees" on everyone in the region.
But the insurance companies themselves are simply not responding aggressively enough to the rising risk. Climate risk is correlated, after all: when everyone in a region is at flood risk, then everyone will be making a claim on the insurance company when the waters come. The insurance trick of spreading risk only works if the risks to everyone in that spread aren't correlated.
Perversely, insurance companies are heavily invested in fossil fuel companies, these being reliable money-spinners where an insurer can park and grow your premiums, on the assumption that most of the people in the risk pool won't file claims at the same time. But those same fossil-fuel assets produce the very correlated risk that could bring down the whole system.
The system is in trouble. US claims from "natural disasters" are topping $100b/year – up from $4.6b in 2000. Home insurance premiums are up (21%!), but it's not enough, especially in drowning Florida and Texas (which is also both roasting and freezing):
https://grist.org/economics/as-climate-risks-mount-the-insurance-safety-net-is-collapsing/
Insurers who put premiums up to cover this new risk run into a paradox: the higher premiums get, the more risk-tolerant customers get. When flood insurance is cheap, lots of homeowners will stump up for it and create a big, uncorrelated risk-pool. When premiums skyrocket, the only people who buy flood policies are homeowners who are dead certain their house is gonna get flooded out and soon. Now you have a risk pool consisting solely of highly correlated, high risk homes. The technical term for this in the insurance trade is: "bad."
But it gets worse: people who decide not to buy policies as prices go up may be doing their own "motivated reasoning" and "mispricing their risk." That is, they may decide, "If I can't afford to move, and I can't afford to sell my house because it's in a flood-zone, and I can't afford insurance, I guess that means I'm going to live here and be uninsured and hope for the best."
This is also bad. The amount of uninsured losses from US climate disaster "dwarfs" insured losses:
https://www.reuters.com/business/environment/hurricanes-floods-bring-120-billion-insurance-losses-2022-2023-01-09/
Here's the doom-loop in a nutshell:
As carbon emissions continue to accumulate, more people are put at risk of climate disaster, while the damages from those disasters intensifies. Vulnerability will drive disinvestment, which in turn exacerbates vulnerability.
Also: the browner and poorer you are, the worse you have it: you are impacted "first and worst":
https://www.climaterealityproject.org/frontline-fenceline-communities
As Arun writes, "Tinkering with insurance markets will not solve their real issues—we must patch the gaping holes in the financial system itself." We have to end the loop that sees the poorest places least insured, and the loss of insurance leading to abandonment by people with money and agency, which zeroes out the budget for climate remediation and resiliency where it is most needed.
The insurance sector is part of the finance industry, and it is disinvesting in climate-endagered places and instead doubling down on its bets on fossil fuels. We can't rely on the insurance sector to discipline other industries by generating "price signals" about the true underlying climate risk. And insurance doesn't just invest in fossil fuels – they're also a major buyer of municipal and state bonds, which means they're part of the "bond vigilante" investors whose decisions constrain the ability of cities to raise and spend money for climate remediation.
When American cities, territories and regions can't float bonds, they historically get taken over and handed to an unelected "control board" who represents distant creditors, not citizens. This is especially true when the people who live in those places are Black or brown – think Puerto Rico or Detroit or Flint. These control board administrators make creditors whole by tearing the people apart.
This is the real doom loop: insurers pull out of poor places threatened by climate disasters. They invest in the fossil fuels that worsen those disasters. They join with bond vigilantes to force disinvestment from infrastructure maintenance and resiliency in those places. Then, the next climate disaster creates more uninsured losses. Lather, rinse, repeat.
Finance and insurance are betting heavily on climate risk modeling – not to avert this crisis, but to ensure that their finances remain intact though it. What's more, it won't work. As climate effects get bigger, they get less predictable – and harder to avoid. The point of insurance is spreading risk, not reducing it. We shouldn't and can't rely on insurance creating price-signals to reduce our climate risk.
But the climate doom-loop can be put in reverse – not by market spending, but by public spending. As Arun writes, we need to create "a global investment architecture that is safe for spending":
https://tanjasail.wordpress.com/2023/10/06/a-world-safe-for-spending/
Public investment in emissions reduction and resiliency can offset climate risk, by reducing future global warming and by making places better prepared to endure the weather and other events that are locked in by past emissions. A just transition will "loosen liquidity constraints on investment in communities made vulnerable by the financial system."
Austerity is a bad investment strategy. Failure to maintain and improve infrastructure doesn't just shift costs into the future, it increases those costs far in excess of any rational discount based on the time value of money. Public institutions should discipline markets, not the other way around. Don't give Wall Street a veto over our climate spending. A National Investment Authority could subordinate markets to human thriving:
https://democracyjournal.org/arguments/industrial-policy-requires-public-not-just-private-equity/
Insurance need not be pitted against human survival. Saving the cities and regions whose bonds are held by insurance companies is good for those companies: "Breaking the climate risk doom loop is the best disaster insurance policy money can buy."
I found Arun's work to be especially bracing because of the book I'm touring now, The Lost Cause, a solarpunk novel set in a world in which vast public investment is being made to address the climate emergency that is everywhere and all at once:
https://us.macmillan.com/books/9781250865939/the-lost-cause
There is something profoundly hopeful about the belief that we can do something about these foreseeable disasters – rather than remaining frozen in place until the disaster is upon us and it's too late. As Rebecca Solnit says, inhabiting this place in your imagination is "Completely delightful. Neither utopian nor dystopian, it portrays life in SoCal in a future woven from our successes (Green New Deal!), failures (climate chaos anyway), and unresolved conflicts (old MAGA dudes). I loved it."
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
https://pluralistic.net/2023/11/28/re-re-reinsurance/#useless-price-signals
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Lots of people seem to find the idea of "consequences vs. insurance" really useful for thinking about activism, and I think the consequences part of the calculation can seem pretty straightforward when you're doing something that breaks a specific rule with prescribed consequences, but I also want to talk more about unprescribed consequences, i.e. potential harms that could come to you for taking any given activist action that aren't obvious and/or written on paper somewhere. I'll give you two examples:
First: Having seen the amount of furniture waste created during move-out season at my college and having discovered how low-income certain neighborhoods near my college town were, I had created a group chat hosted through GroupMe for the exchange of free and cheap furniture/home goods. We already had something similar exclusively for college students, but I wanted to create one geared towards getting items to people who might really need them in the greater community [Further context: There are a lot of services with household income cut-offs in the area, but they don't take into account a full appraisal of assets, so giving people items like beds, chairs, etc. directly can help them keep benefits they need by not pushing them over the income thresholds]. If you're not familiar with GroupMe, you can add anyone by phone number who has downloaded the app, and there are no real social media-type aspects to it - no profile pages, just an optional photo, and a username the person can change at will. Your phone number isn't even visible to other people in the chat. It's mostly geared towards making group chats between iPhone and Android users.
While pursuing this project, one of the first potential consequences (risks for me) that I thought of was personal liability. I've created a space for strangers to meet each other to exchange things. If something bad happens during one of those interactions, could someone sue me? The insurance I took against that was writing an extensive disclaimer that included tips for staying safe. The disclaimer included a bit that said that not reading it does not make it void and by using the chat to exchange goods, you are assuming all risk: that neither I nor anyone else associated with chat are responsible for something that happens during an exchange (except the other party if they were to attack or steal from you, obviously). Safety tips included things like: don't let people come right up to your house or apartment; meet in a public space to exchange things for money; if you're giving something away completely for free, leave it out on the curb or in a public location and post it in the chat after you have left the area.
Additionally, I wanted to get the word out about the chat into the lowest-income areas of the city, so I printed some fliers and went out to put them up. The lowest income neighborhoods were also the highest crime ones in that city (because poverty creates desperation), so there was risk in just being there. Random bystanders had gotten caught in the crossfire of daytime shootings before (someone literally got shot in the ass while buying ice cream in a large INDOOR food market there???), and crime tends to spike there after sundown. My insurance against getting hurt while I was out fliering was limiting the amount of time I was physically exposed and only fliering during the day, especially in areas I was really unfamiliar with. I would pull up right next to a good signpost in my car, put the tape on the poster while still in the car, hop out, stick it up, and hop back in. I put posters at a lot of bus stops in the same way - looked to make sure no buses were coming, pulled over into the bus lane, and put up a poster in the bus shelter.
My second example is attending an "abortion is healthcare" protest outside a city courthouse. The protest had all the proper permits, and it was happening in a very left-leaning city. However, that city is completely surrounded by a literal political red zone - very Republican, very Christian. Additionally, that courthouse was also the courthouse for the county, so people from the conservative region frequently come in and out of town on business. I brought a bulletproof sign to that protest because while it was incredibly small, completely legal, and I really didn't think anything bad would happen, it would only take one anti-abortion fanatic with a gun to put me and the other protesters in danger. We were right on the sidewalk next to the road. Right at a stoplight. The most convenient place ever for someone to fire on us from a car. I let the other protesters next to me know the sign was bulletproof and that they should get behind me if anything happened. You may be asking how I had a bulletproof protest sign, and the answer is this - that's a link to an article about a giant bulletproof desk calendar that's supposed to be a protective measure against workplace violence. I got one as a gift from someone and just stuck my sign to the paper front of it.
The reason I wanted to give these examples is to highlight that even while doing activism that doesn't break any rules or laws at all, you should think about the unprescribed consequences that might come to you by participating in any given activity. There's no warning that pops up when you come up with a good natured activist project that warns you that you may have personal liability for people who participate. There's no notice on the city streets that says "If you poster here, you do so at your own risk because there's a chance you may get caught in the crossfire of gun violence." There's no law that says it's okay for people to shoot you if they see you protesting and disagree with you. But those are things that might happen. I don't want to paint a rainbows and butterflies picture of activism where everything turns out okay or the risks are always pretty low because I think people should go into things knowing that you might be in a fair bit of danger while pursuing what should be an innocuous activist activity. Those dangers did not stop me, but you have to determine your own risk (consequence) tolerance and how you're going to manage that risk (insurance). Also, keep in mind, these examples illustrate that if you aren't careful, you can get into trouble because of the law (someone suing you and invoking laws about personal liability because you didn't include a proper disclaimer/safety measures) or despite it (it's illegal for someone to shoot you on the street, but they might still do it).
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