Climate Risk, Not Climate Change

The September 5, 2011 issue of Bloomberg Business has an interesting cover story on the insurance industry - - The God Clause by Brendan Greeley.  The following is important for engineers:

The business of insurers and reinsurers rests on balancing a risk between two extremes.  If the risk isn't probable enough, or the potential loss isn't expensive enough, there's no reason for anyone to buy insurance for it.  If it's too probable and the loss too expensive, the premium will be unaffordable.  This is bad for both the insured and the insurer.  So the insurance industry has an interest in what it calls "loss mitigation."  It encourages potential customers to keep their property from being destroyed  in the first place.  If Swiss Re is trying to affect the behavior of the property owners it underwrites, it's sending a signal: Some behavior is so risky that it's hard to price.  Keep it up, and you'll have no insurance and we'll have no business.  That's bad for everyone.

To that end, Swiss Re has started speaking about climate risk, not climate change.  That the climate is changing has been established in the eyes of the industry.  "For a long time," says Bresch, [in charge of sustainability and risk management for Swiss Re] "people thought we only needed to do detailed modeling to truly understand in a specific region how the climate will change.  You can do that forever."  In many places, he says, climate change is only part of the story.  The other part is economic development.  In other words, we're building in the wrong places in the wrong way, so wrong that what we build often isn't even insurable.  In an interview published by Swiss Re, Wolf Dombrowsky, of the Disaster Research Center at Kiel University in Germany, points out that it's wrong to say that a natural disaster destroyed something: the destruction was not nature's fault but our own.