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Insurance Against Global Warming

There are still plenty of people who don’t believe that global warming is real...
June 2, 2014

There are still plenty of people who don’t believe that global warming is real. But generally, skeptics are not found among insurance companies. The insurance industry profits from predicting and offering products to protect against all kinds of risk. For the past several years, the industry has been studying that possible risk. Now, we are starting to hear discussions about a role for the insurance industry.

Robert Shiller, Sterling Professor of Economics at Yale, recently wrote an op-ed arguing that “global warming needs to be addressed by the private institutions of risk management, such as insurance and securitization. They have deep experience in smoothing out disasters’ effects by sharing them among large numbers of people.” He says governments should provide insurance companies with incentives to cover this risk, pointing out shorter-term products, such as catastrophe risk bonds, are already being used successfully to cope with hurricane risks.

Meanwhile, Farmers Insurance has brought a lawsuit against dozens of municipalities in the greater Chicago area alleging they should have better prepared their stormwater storage, because they knew climate change in the past 40 years has brought rains of “greater volume, greater intensity and greater duration than pre-1970 rainfall.” Farmers Insurance declined to comment in detail about the case because it is currently pending.

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