That would be true if the risks were stable over time, which has usually been the case with weather related claims. However if there was reason to believe that claims would be increasing over time, and the companies didn’t set their rates accordingly, they would be left with inadequate reserves to deal with unexpectedly large claims. I don’t think it would be sound business to be purely reactive to a changing environment.
People are very bad judges of risk, and if the insurance companies based their premiums only on what people thought the risks were, they might go out of business. In fact people’s perception of risk depends on availability, which is how available the idea is to them, and thus their perception of risk is proportional to news coverage, not actual risk. That’s why people think murder happens more often than suicide.
Driving the hearse up to the back door increases the availability of the image of death, which sells more policies - but it does not change the price of a policy. Or do you have a cite for that?
I live in the Bay Area, and we have a real earthquake threat, The insurance companies don’t have to lie about that, and we get small quakes often enough that the idea is pretty available. And earthquake insurance is fairly expensive. But not because people will buy it - very few people do. It is because that is the premium the risk commands.
Ok, then I will assume for the sake of argument that the threat of serious man-caused global warming (CAGW) has been wildly exaggerated. (Which I actually believe.)
Is this claim based simply on the statements of prominent people in the insurance industry? Or is it based on actions? If it’s the former, I would counsel skepticism. After all, people and corporations have been known to lie about their beliefs. If it’s the latter, then what actions are you basing this on?
The most obvious reason is to justify rate increases. Duh. (Probably political correctness is a factor too.)
Here’s a challenge for you: Show me a few insurance companies who have publicly announced that as a result of CAGW, they expect substantially fewer claims based on damage from snow, ice, and pipe-freezing and are therefore okay with a rate cut.
So driving the hearse up to the back door increases the perception of risk. And that increased perception of risk causes people to buy more policies for a dollar each. But for some reason it doesn’t allow the insurance company to sell any policies at all for $1.01. Even though demand increases, price remains totally inelastic.
That doesn’t make any sense at all.
Anyway, to answer your question, yes there are endless cites for this phenomenon.
“The demand for insurance should depend not on the premium per se but on persons’ (perceived) mortality rate relative to the premium. The primary source of price variation would then be variation in premiums not matched by variations in (perceived) risk. Demand might also change if premiums and mortality rates experience equal proportional changes, because of lifetime income or wealth effects.”
Pauly, M.V. et al 2003.“Price Elasticity of Demand for Term Life Insurance and Adverse Selection” NBER Working Paper 9925
There’s nothing special about this phenomenon. It’s basic supply and demand. If a person believes they are at a higher risk of needing insurance, they will naturally be prepared to pay more to purchase insurance. If a person is prepared to pay more to purchase insurance, the seller can charge more for insurance. And vice versa of course. If a person thinks they have a low risk of needing for insurance, they will be priced out of the market very early.
Insurance is no different to any other goods in this regard. If advertisers can increase demand for their product, they can then naturally charge more for the product.
Why would they expect that? As I understand it, CAGW is entirely consistent with increased damage from snow, ice, pipe-freezing, and the rest. As was cited, blizzards are already lumped in with the “other heavy weather that hit the country in 2011.”
(Note also that 2011 – as in “the extraordinary losses last year” – was actually colder than 2010; we could be in for year after year after year of even cooler temperatures, with any number of pipes freezing amidst record-breaking cold, and the CAGW crowd would claim their predictions had come true, and they’d be right: colder winters are entirely consistent with their predictions, as are colder summers, as is increased snowfall, as is decreased snowfall.)
But if one (or only a few) company (/ies) accurately gauges the risk, and all the others don’t, then this competition will just drive accurate estimation out of business. Then, since insurance is too big to fail—they’ve got to replace these people’s homes! You aren’t against homes are you?—we’ll just bail out the shoddy businesses.
So much for learning..
As the data shows 2011 was a la nina year, only by looking at the few recent years is that one can say that there was cooling, as shown before, concentrating just on the recent years is a very well known tactic of very dishonest researchers and misguided deniers.
The fact remains, the overall temperature of the la nina 2011 year remained higher than the warmest years from the previous decades, the only exception being the year the el nino year of 1998 but if one just ignores the concept of an outlier then denialists are happy.
What can not be ignored is that for all that talk of a cooling trend the reality is that 2011 was the warmest la nina on record.
As for the matter at hand, I forgot to link to the recent bit of news that show how premiums are rising in big part because of this.
I’m merely guiding off that line the OP quoted, about how the “insurers in the United States experienced an extraordinary estimated $44 billion in losses last year”. Insofar as the article in question is concentrating on “last year” it makes sense to do likewise.
I don’t know why that article led off with a brisk “Coming off a year of record-setting $1 billion-plus natural disasters,” when setting up the line about “last year.” If you feel it’s a well-known tactic of the dishonest and the misguided to so concentrate, I suggest you take it up with whoever wrote the piece; I merely respond in kind.
Who said anything about ignoring it? I merely note that your predictions would have proven exactly as true had 2011 been the coolest la nina on record, just as they’ll remain true whether we’re in for cooler years or warmer ones; you’re free to congratulate yourself on accuracy in either case. That’s why I took issue with brazil84’s point: increased damages from snow and ice are, of course, also entirely consistent with your predictions.
Nah, your tactic now is to tell others that scientists are doing a “heads we win, tails deniers lose” maneuver, even that is not accurate at all and your sources once again come loud and clear when you use boiler denier plate say so’s like “CAGW crowd”. Just keeping you honest there.
Your accustion is inaccurate, as I’d be the first to step up and defend you against such a “heads we win, tails deniers lose” accusation; you’ve predicted at least a tenth of a degree per decade rise in temperature, which is an entirely falsifiable claim; heads you’ll win in 2017, but tails you’ll lose.
Meh, that still keeps the idea that colder global years would be expected (Tails you lose) you still said that “we could be in for year after year after year of even cooler temperatures, with any number of pipes freezing amidst record-breaking cold, and the CAGW crowd would claim their predictions had come true”. Nope, in reality harsher winters are predicted (due to more water vapor in the atmosphere), once again global temperatures are likely to increase 3 degrees with a doubling of CO2 and one can still expect cold and harsher winters, but not cooler than the averages of before.
They are; if we get “colder global years”, you’re entirely free to claim your prediction has proven 100% accurate. Unless you’re now changing your prediction?
Also true. At least, it was when I wrote it; in this latest post, you’re apparently now introducing a completely new claim: “one can still expect cold and harsher winters, but not cooler than the averages of before.” By all means, specify: what, exactly, would prove your latest claim false? One winter of X temperature? Two in a row? Three of 'em? Name your terms and I’ll likewise proclaim this new prediction from the rooftops if someone ever accuses you of a Heads I Win Tails You Lose approach.
And that is the “tails, deniers lose” argument that you are assigning to climate researchers, indeed you did say it.
Meh, not the subject of the thread, it is enough to point out that this point has already been shown not to be based on the facts, nor the point was made by experts and researchers, The cold year you pointed out is not cooler than the other la nina years.
Indeed, while some things are relevant to falsifying their predictions, others aren’t. Good heavens, man, if I predict an American will win the gold medal in boxing at the next Olympics, surely it’d be mere accuracy for you to point out that my prediction remains 100% correct regardless of who wins the decathlon? (I likewise can’t imagine calling that a heads-I-win-tails-you-lose accusation, so long as you of course grant that I’m making an entirely heads-I-win-tails-I-lose prediction about boxing.)
You’re the one who first brought up this all-new all-different prediction; since you now refuse to offer specifics – claiming it’s not the subject of the thread – I can’t help but wish you hadn’t mentioned it to begin with, since, y’know, it’s apparently not the subject of the thread; start a new thread if you like, or PM me.
Just to clarify one point, there is essentially no private flood insurance in the US, and homeowner’s policies almost universally exempt flood damage from coverage. Flood insurance is only available through a federal program called the National Flood Insurance Program; it is administered by private insurers under contracts with FEMA, while FEMA generates all pricing and covers all claims. The NFIP prices flood insurance below actuarial standards (which is why private industry doesn’t offer it), because too much desirable coastal property would otherwise be unaffordable.
Of course TOWP had to avoid the la nina point, not surprised.
Anyhow, getting back to subject:
And you’re of course ignoring the points my latest reply.
But in a show of good faith – or to highlight the difference between us, it’s your choice – I’ll now address the point you mentioned; I’d ignored it because it struck me as irrelevant, but I’ll now explain why I thought it was irrelevant. As per the OP, the “extraordinary” losses and “record-setting” disasters in 2011 supposedly reflect global warming; I therefore wasn’t concerned with why 2011 was colder than 2010, but merely wished to note that 2011 was colder than 2010.
I likewise wasn’t concerned with why coming years may, in turn, be colder than 2011; I merely noted that they may well be – in light of brazil84’s point about whether insurers are predicting a decrease in damage from ice and snow.
That’s probably so, but perhaps a better question to ask is where the odds lie. Because that’s what underwriters care about.
So, assuming for the sake of argument that the CAGW hypothesis is correct, how should insurers adjust their rates to take into account the change in probability of damage from snow, ice, pipes freezing, etc.? Lower? Higher? Same?
Just saying, it is not showing the whole picture that allows misleading statements to remain in a discussion. One has to look at the big picture to see that not mentioning the fact that colder la nina years have actually increased in temperature is an important fact to consider.
And sticking to the subject, la nina years generally causes more weather damage to the USA than its flip side, the better known El Niño. World wide there is an increase on the number of events.
There is a big difference between demand varying with price and availability - which I certainly don’t doubt - and the amount charged varying with demand. Underwriting is all about making a fairly steady return based on premiums exceeding payments. There are segments which do this - like car rental insurance - but do you have any cites where life insurance or home insurance premiums change?