Posts Tagged ‘Insurance’

Why insurance companies love alarmism

March 5, 2014

A fundamental for all insurance companies is that their profits are highest when perceived risk is higher than actual risk. There is a double benefit when the perceived risk can be hyped by alarmism  – whether about hurricanes or earthquakes or epidemics. The greater the alarmist meme, the higher the premiums that can be charged for the perceived risk. It is not surprising therefore that there is no insurance company which will publish a report – any report – about decreasing risks. It’s bad for business. But any alarmist report helps put up premiums for no increased risk. It is why many of them (and Munich Re comes easily to mind) employ many academics to produce alarmist reports. They find new risks to be alarmist about so that new insurance products can be invented.

And as Warren Buffet points out climate change alarmism has simply made hurricane insurance more profitable, driving up premiums without increasing risk”.

CNSNews: Any climate alarmist will tell you that climate change is increasing extreme weather events, but liberal billionaire Warren Buffett easily destroyed that argument.

Buffett told CNBC March 3, that extreme weather events haven’t increased due to climate change, saying that weather events are consistent with how they were 30-50 years ago. Buffett, who is heavily invested in various insurance markets, said that climate change alarmism has simply made hurricane insurance more profitable, driving up premiums without increasing risk

Buffett said the supposed increase in extreme weather “hasn’t been true so far, Joe. We always think it’s cold. We always think it’s cold in Omaha. But, it was cold in Omaha 50 years ago.”

CNBC’s Becky Quick asked Buffett on March 3’s “Squawk Box” if extreme weather events have increased, affecting insurance markets. Buffett responded that “the effects of climate change, if any, have not affected our – they have not affected the insurance market.”

Specifically, Buffett rejected claims that hurricanes have increased due to climate change, citing his experience in hurricane insurance. He said “we’ve been remarkably free of hurricanes in the United States in the last five years.” He added “If you are writing hurricane insurance, it has been all profit.”

Buffett compared the climate to previous decades, dismissing claims that weather events have been more unusual. He said “I think that the public has the impression that because there has been so much talk about climate, that events of the last 10 years, from an insured standpoint on climate, have been unusual. The answer is, they haven’t.”

 

Munich Re: Natural catastrophe and weather related deaths in 2012 were less than one-tenth of the 10-year average

January 5, 2013

Alarmism and fostering a fear of future events where the actual risk is well below the perceived risk is the stock-in-trade of insurance companies. A simple case of boosting revenues (premiums from perceived risks)  for any given cost (actual risk). It is inevitable that while statistics of past events from insurance companies are detailed and accurate any forecast from an insurance company will (must) exaggerate risks. There is no business if perception of risk is low.

When it comes to weather and global warming fears Munich Re is among the more strident of the alarmists. A fear of coming catastrophes by drought or too much rain or floods or rising sea levels are all actively promoted as new insurance products are touted.

Munich Re has just issued a press release about the statistics of natural and weather related catstrophes showing that costs for 2012 were below average and lives lost were well below average. Needless to say the headline is spun to help sell more insurance:

Overall, losses were significantly lower in 2012 than in the previous year, ….. 

Some 9,500 people lost their lives in natural catastrophes last year compared with the ten-year average of 106,000. The relatively small number of fatalities was due to the fact that, in 2012, few severe natural catastrophes occurred in emerging and developing countries, where natural catastrophes tend to have far more devastating consequences in terms of human lives.

Prof. Peter Höppe, Head of Munich Re’s Geo Risks Research then adds his spin to try and ensure Munich Re’s business for the future:

 “It is not possible, of course, to attribute individual events to climate change, each theoretically being possible in isolation. However, numerous studies assume a rise in summer drought periods in North America in the future and an increasing probability of severe cyclones relatively far north along the US East Coast in the long term. The rise in sea level caused by climate change will further increase the risk of storm surge. And, with no apparent prospect of progress in international climate negotiations like those held recently in Doha, adaptation to such hazards using suitable protective measures is absolutely essential.”

Insurance Companies and alarmism

February 24, 2012

Insurance companies are in the business of making perceived risks seem much larger than actual risk. Their profits are directly impacted by increasing the risk perceptions of  the party seeking insurance. It is not surprising that they exaggerate the dangers of whatever is being insured against. To be “alarmist” for an insurance company is just good marketing. However much of their marketing and publicity is presented under the cloak of “scientific research”. Any report from an insurance company about future risks and purporting to be an “objective” or “scientific” study needs to be discounted and taken with a very large shovel of salt. Yet, the media often swallow such publicity and merely reproduce their reports with little effort to see through the conflicts of interest.

I have posted earlier about Munich Re and their attempts to suggest that global warming will increase the frequency of natural disasters.  Anything to increase the perceptions of risk.

Now JunkScience reports on the case of Kerry Emanuel and his alarmist positions and his connections to Insurance companies:

 Based on a request for investigation from JunkScience.com, Nature has forced MIT’s Kerry Emanuel to disclose his employment with insurance companies as a conflict of interest.

In the Feb. 14 Nature Climate Change study “Physically based assessment of hurricane surge threat under climate change,” of which Emanuel is a co-author, the “Additional Interests” section disclosed:

The authors declare no competing financial interests. However, in the interests of transparency we confirm that one of us, Kerry Emanuel, is on the boards of two property and casualty companies: Homesite and Bunker Hill, and also on the board of the AlphaCat Fund, an investment fund dealing with re-insurance transactions. In all three cases, Dr Emanuel receives fixed fees but owns no stocks or shares. Dr Emanuel does not stand to make any personal financial gain through these directorships as a consequence of the reported findings.

There was obvious reluctance in the disclosure from the wording (“no competing financial interests” even though insurance companies are gaming global warming alarmism) to the fact that, despite our asking, we had to find out about the disclosure on our own initiative — i.e., after our initial exchange with Nature, the journal editors stopped communicating with us.

JunkScience also reported that the Consumer Federation of America says in a new report:

…. Although insurers have become adept at shifting the cost of catastrophe losses to others, they still use catastrophic weather events to advocate for measures that would shift risk even more, such as higher rates, or putting more policyholders in pools or created taxpayer-supported entities. Thus, many consumers exposed to catastrophe weather risk are also vulnerable to insurer attempts to unjustifiably increase rates or hollow out coverage…

Why Munich Re’s report on natural catastrophes in 2010 is alarmist and self-serving

January 4, 2011

Munich Re – like all insurance companies – is in the business of alarmism. The insurance business relies on the total risk perceived by all the buyers of insurance products being significantly higher than the actual risk that materialises. The bigger this difference the greater the insurance company’s profits.

In a new press release Munich Re presents its overall picture of natural catastrophes in 2010.

Several major catastrophes in 2010 resulted in substantial losses and an exceptionally high number of fatalities. The overall picture last year was dominated by an accumulation of severe earthquakes to an extent seldom experienced in recent decades.

The facts are not in doubt but Munich Re’s opinionated conclusion and the introduction of global warming into the same breath as earthquakes and extreme weather is intellectually bankrupt and blatantly self-serving:

The high number of weather-related natural catastrophes and record temperatures both globally and in different regions of the world provide further indications of advancing climate change.

Munich Re’s business is best served if the perception of risk is very high, the actual risk is much lower than than that perceived and more and more people take to insuring these exaggerated risks. Munich Re – as other insurance companies – have become expert at taking real data, blending it with unjustified opinions and then applying a totally bogus “pondus” to exaggerating the perceived risk.

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