I think we were discussing the 'consensus' on this thread. Others commented that any such consensus was weak. I wonder how you account for the insurance world deciding that climate change is going to be expensive and adjusting their calculations accordingly? And why is the US military so concerned about climate change?

You answered your own question Missy. I've worked in insurance and know how rating works. The whole idea of marketing insurance is to make people think there's a higher risk of something happening than there actually is, in order to get them to cough up premiums for something. If the actual risk was as high as perceived risk, then insurance companies would go out of business.

Insurance works by a very simple formula

Profit = ( ScaredPeople x Premium ) - ( ActualChance x ScaredPeople x CostPerClaim )

Since insurance companies can do very little to affect the Actual Chance of something happening, their only way to increase profit to to make more Scared People pay higher Premiums.

Climate Change is a fantastic opportunity for them to do this.

Conspiracy is one explanation and I can see it would appeal to readers here. But I imagine an insurance co can go out of business not just by underpricing risk but also by overpricing risk and losing market share. It is a competitive business. If some insurance companies are really deliberately mis-pricing risk, there is a grand opportunity for a competitor to undercut them and take their market. If you are in insurance you stand to make a fortune by insuring all those in the US who have lost cover after recent events.

As communists seem to be rare here, I don't suppose you really see anything wrong with having a profitable insurance industry. A 30% increase in profits is not necessarily a big deal. It could mean a rise from 1% to 1.3% or from 3% to 4%. If it were from 30% to 40% it might be of more concern.

You suggest that all insurers use the same model to gauge risk. Maybe that is because there is a consensus about those risks. Like I said if they really are mis-pricing risk then there is a golden opportunity for someone to clean up insuring beach-side homes in Miami and New York.

Missy - "But I imagine...."

There's your problem in a nutshell.

" I wonder how you account for the insurance world deciding that climate change is going to be expensive and adjusting their calculations accordingly?"

Here's how.

http://rogerpielkejr.blogspot.co.uk/2010/11/82-billion-prediction.html

Your (12:39, Martin A) doubling/halving seems a rather arbitrary imagining - why not double sales and 3/4 profit per sale (it is not so obviously 'silly' I suppose)? Even so, it might be justified if greater market share were the objective. But setting the optimal price is a general problem for any business - and the cost of what is being sold is usually known. Insurance is surely different as the costs only become apparent in the future. An actuary can doubtless calculate likely costs based upon historical probabilities, but if you believe that the probabilities have changed you need another way to calculate future liabilities. In that case using some sort of climate model makes sense, and as designing your own model may not be a practical option, you can use the industry-standard model. And the model tells you that your liabilities are going to increase.

However, your or James' insurance company is at liberty to say, "significant climate change is unproven and we think the probabilities are unchanged". You then have a cost advantage, as you _know_ you can make a profit at lower prices. You can ignore the invalid model and undercut competitors' prices. By how much, I don't know, nor how that would change market share or profit. But if you can now insure people whom other companies will not touch, you have a market all to yourself.

Read all about it:

http://www.fema.gov/national-flood-insurance-program

Less fun than imagining though.

Missy,

Undercutting on unrelated insurances (e.g. car insurance) works because if you get time to adjust your ratios so that you are turning over a nice profit for the number of claims. Because claims are unrelated in time and space, you have breathing space for tweaking your prices.

The problem with undercutting your competitors on climate-related insurances is that when the unexpected happens, it happens over a wide area to lots of people. You go bust. Or at best, your reseller (yes, insurance companies are themselves underwritten by BIGGER insurance companies) bumps your premiums next year and you can no long afford to price low.

James, you suggested that any consensus among insurance types about climate change was just a marketing ploy to to scare customers into paying higher premiums. Your implication, or so I thought, was that there is no real increase in risk - that future risk probabilities match historical ones. In other words if premiums were correct, there is no real need to raise them.

Now you say that if your company undercut competitors by not raising prices (on the grounds that risks have not changed) or by insuring people who had been denied insurance (on spurious grounds, because there is no increased risk) you would loose your shirt if/when those risks turn out to be real. But you think there has been no increase in risks, so that cannot happen if prices were correct in the first place. Which way is it?

The other part of my question also remains unanswered: why is the US military worried about climate change?

@Missy

The US military was worried about global cooling in the 1970s. I expect they worry about whatever the government tells them to worry about.

Why would you regard the US military as an authority on the climate?

But Missy, the risks are Bayesian. When you insure people against (for example) massive storm damage, you can be sure that it will only happen once per hundred years. There is still a finite chance of it happening in year 1 of that 100 years, putting you out of business. FSA regulations (and other regulatory authorities in other countries) do not allow you to offer insurance unless you have the reserves to cover the potential claims. This means that clever insurance companies cannot offer cut-price deals that may indeed cost in over the full 100 year life cycle but leaves them running at a loss in the early years.

For insurers, there is an actuarial difference between an event which has a distribution over time (e.g car crashes) and one which doesn't (e.g. super-storm)

Your argument that insurers must be taking climate change seriously otherwise some of them would keep their prices low because they know climate change isn't going to increase risk is spurious, because pricing is always a crap-shoot for insurers anyway. There WILL be insurers who undercut others - this undercut usually comes out of the margin that the smaller insurer charges on top of their reseller insurance premium. Some companies cut it really thin to get on top of the aggregator website, trying for volume. It has always been this way - the industry still turns a profit.

As for the argument that because the military are interested it must be real is also spurious. The military also spent many years and a lot of money looking into UFOs and psychic telepathy too. This is what the military does - look at every possible danger, whether tenable or not.

Missy, for insurance companies and climate read Roger Pielke or as he suggests chapter 4 of the IPCC's SREX report.

http://rogerpielkejr.blogspot.co.uk/2012/03/handy-bullshit-button-on-disasters-and.html

My own take -

Even if you ignore the fact insurance companies have a vested interest in promoting catastrophe, it's impossible to use insurance costs as a measure of climate. Too many other things are changing at the same time to extract actual weather events from the mix. In the past a flood victim may have washed stuff down and continued to use it or a leak damaged carpet might have been confined to just one room. Now entire household carpets are replaced because they match though out and everything water damaged is ditched. Even personal items are now sent to expensive restorers where in the past they would have been classed as having no intrinsic value and left to the owner to slvage or not. People certainly wouldn't have had the quantity and value of possessions that they have now. Even decoration is much more expensive than it was. There may be weird price inflations like a house with cavity wall insulation needing longer to dry out than one without. Add in the cost of claim inflation where people get back better than they've lost and they add up to an endless spiralling of costs.

There's also the effect of increased property and infrastructure building. Even if you ignore those things built on flood plains, you have to consider the extra strain placed on old services like sewers by more connections and more hard landscape. ie a house that never flooded before may be impacted, not because there is more rain but because more runoff has been directed towards the property.

Insurance companies can't foretell where new problems will develop and it's easier for them to blame AGW than explain complex drainage problems or try and work out what customers will do.

For all your justifications, I find it hard to imagine that insurance companies would really prepared to ignore the competitive advantage they could have from ignoring climate change if they really don't believe in it.

Did senior military commanders ever declare UFOs or global cooling the greatest anticipated threat to the US, as has happened with climate change?

And banks wouldn't fiddle the Libor, and oil and supermarket price fixing never happened either? If there's lots of money to be made acting as a team rather than competitors, then deliberate or accidental tuning goes on. Brand loyalty also helps maintain the higher prices and other companies won't undercut by much.

The military aren't endowed with any more scientific smarts than the rest of society. They follow where consensus leads. It doesn't validate the consensus any more than stampeding animals validates jumping off cliffs.

Much of the insurance industry can hardly be described as a free market; much of it is mandated. You'll never get a mortgage without insurance, and you could end up in prison as a consequence of driving an uninsured car.

All of these arguments come down to "the consensus must be true because a lot of people believe it".
That's fine if you want to be one of the sheeple, Missy. At one time a lot of people believed in a lot of things, the reality of which were in no way affected by the headcount of people believing in them.

The military also have a vested interest in CAGW being right. How better to justify a robust army than to warn against threats of salivating climate refugees? Personally that argument would make me merge the army and the border authorities but I suppose it's probably illegal to water board immigrants to see if their need is genuine persecution or economic ;-)