EDITORIAL: Insurers too gung-ho on global warming

OUR OPINION: RATE MODELS OVERSTATE CLIMATE CHANGE’S CURRENT EFFECTS

Miami Herald–July 10, 2008

Granted, it took more than two strikes, but the state of Florida appears to have finally learned its lesson when it comes to dealing with windstorm insurers and the catastrophe models they use to determine rates.

For too long, thanks to the Florida Legislature, insurance companies based rates on industry-made models that were suspect for lack of independent formulation and always tilted toward the insurers’ view, not consumers’.

But Florida has wised up. A new law prevents insurers from using catastrophic models not approved by the state. So where other states’ insurance regulators are beginning to challenge the methodology of models that inevitably reflect the insurers’ perspective, Florida’s insurance regulators are more in control of the process. Chalk up one for beleaguered Florida homeowners.

This regulatory control is becoming more important because, according to a recent Wall Street Journal article, insurance companies are relying more on computerized catastrophe models that take into account scientific theories on global warming. This includes theories that have yet to be fully tested.

The issue is not whether global warming is or isn’t a real threat. It is. But how much of a threat remains unknown, and the answer could be highly dependent on how soon worldwide efforts succeed in curbing the emissions that cause global warming.

The most commonly held theory is that rising Earth temperatures will naturally warm up the oceans. Since hurricanes often strengthen when they hit warmer water, scientists have said that global warming could increase the number and intensity of hurricanes.

At the same time, most scientists agree that warming temperatures haven’t yet had a noticeable effect on hurricane seasons. Other data hint that warmer waters combined with other changes could actually reduce the number of storms.

Confusing? Yes, but these are early days yet for global warming research on a large scale.

Excuse to increase rates

Yet many insurers are treating global warming like an existing phenomenon in ways that crank up the risk on their catastrophic models. The higher risk, of course, means an excuse to increase insurance rates. This is happening all along the Eastern Seaboard and the Gulf Coast.

It’s too early to know what all the effects of Florida’s control of catastrophic models will be — but surely it will at least limit insurers to sticking to what is actually happening, not what is predicted to happen, on the global-warming front.