[Plura-list] Insurance companies are making climate risk worse

Tue Nov 28 07:15:02 EST 2023

Read today's issue online at: https://pluralistic.net/2023/11/28/re-re-reinsurance/

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Tomorrow (November 29), I'm at NYC's Strand Books with my novel The Lost Cause, a solarpunk tale of hope and danger that Rebecca Solnit called "completely delightful."

https://www.eventbrite.com/e/cory-doctorow-the-lost-cause-tickets-734958008187

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Today's links

* Insurance companies are making climate risk worse: How to break the climate insurance doom-loop.

* Hey look at this: Delights to delectate.

* This day in history: 2008, 2013, 2018, 2022

* Colophon: Recent publications, upcoming/recent appearances, current writing projects, current reading

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🫙 Insurance companies are making climate risk worse

Conservatives may deride the "reality-based community" as a drag on progress and commercial expansion, but even the most noxious pump-and-dump capitalism is supposed to remain tethered to reality by two unbreakable fetters: auditing and insurance:

https://en.wikipedia.org/wiki/Reality-based_community

No matter how much you value profit over ethics or human thriving, you still need honest books - even if you never show those books to the taxman or the marks. Even an outright scammer needs to know what's coming in and what's going out so they don't get caught in a liquidity trap (that is, "broke"), or overleveraged ("broke," again) exposed to market changes (you guessed it: "broke").

Unfortunately for capitalism, auditing is on its deathbed. The market is sewn up by the wildly corrupt and conflicted Big Four accounting firms that are the very definition of too big to fail/too big to jail. They keep cooking books on behalf of management to the detriment of investors. These double-entry fabrications conceal rot in giant, structurally important firms until they implode spectacularly and suddenly, leaving workers, suppliers, customers and investors in a state of utter higgeldy-piggeldy:

https://pluralistic.net/2022/11/29/great-andersens-ghost/#mene-mene-bezzle

In helping corporations defraud institutional investors, auditors are facilitating mass scale millionaire-on-billionaire violence, and while that may seem like the kind of fight where you're happy to see either party lose, there are inevitably a lot of noncombatants in the blast radius. Since the Enron collapse, the entire accounting sector has turned to quicksand, which is a big deal, given that it's what industrial capitalism's foundations are anchored to. There's a reason my last novel was a thriller about forensic accounting and Big Tech:

https://us.macmillan.com/books/9781250865847/red-team-blues

But accounting isn't the only bedrock that's been reduced to slurry here in capitalism's end-times. The insurance sector is meant to be an unshakably rational enterprise, imposing discipline on the rest of the economy. Sure, your company can do something stupid and reckless, but the insurance bill will be *stonking*, sufficient to consume the expected additional profits.

But the crash of 2008 made it clear that the largest insurance companies in the world were capable of the same wishful thinking, motivated reasoning, and short-termism that they were supposed to prevent in every other business. Without AIG - one of the largest insurers in the world - there would have been no Great Financial Crisis. The company knowingly underwrote hundreds of billions of dollars in junk bonds dressed up as AAA debt, and required a $180b bailour.

Still, many of us have nursed an ember of hope that the insurance sector would spur Big Finance and its pocket governments into taking the climate emergency seriously. When rising seas and wildfires and zoonotic plagues and famines and rolling refugee crises make cities, businesses, and homes uninsurable risks, then insurers will stop writing policies and the doom will become undeniable. Money talks, bullshit walks.

But while insurers have begun to withdraw from the most climate-endangered places (or crank up premiums), the net effect is to *decrease* climate resilience and increase risk, creating a "climate risk doom loop" that Advait Arun lays out brilliantly for *Phenomenal World*:

https://www.phenomenalworld.org/analysis/the-doom-loop/

Part of the problem is political: as people move into high-risk areas (flood-prone coastal cities, fire-threatened urban-wildlife interfaces), politicians are pulling out all the stops to keep insurers from disinvesting in these high-risk zones. They're loosening insurance regs, subsidizing policies, and imposing "disaster risk fees" on everyone in the region.

But the insurance companies themselves are simply not responding aggressively enough to the rising risk. Climate risk is correlated, after all: when everyone in a region is at flood risk, then everyone will be making a claim on the insurance company when the waters come. The insurance trick of spreading risk only works if the risks to everyone in that spread aren't correlated.

Perversely, insurance companies are heavily invested in fossil fuel companies, these being reliable money-spinners where an insurer can park and grow your premiums, on the assumption that most of the people in the risk pool won't file claims at the same time. But those same fossil-fuel assets produce the very correlated risk that could bring down the whole system.

The system is in trouble. US claims from "natural disasters" are topping $100b/year - up from $4.6b in 2000. Home insurance premiums are up (21%!), but it's not enough, especially in drowning Florida and Texas (which is also both roasting and freezing):

https://grist.org/economics/as-climate-risks-mount-the-insurance-safety-net-is-collapsing/

Insurers who put premiums up to cover this new risk run into a paradox: the higher premiums get, the more risk-tolerant customers get. When flood insurance is cheap, lots of homeowners will stump up for it and create a big, uncorrelated risk-pool. When premiums skyrocket, the only people who buy flood policies are homeowners who are *dead* certain their house is gonna get flooded out and *soon*. Now you have a risk pool consisting solely of highly correlated, high risk homes. The technical term for this in the insurance trade is: "bad."

But it gets worse: people who decide not to buy policies as prices go up may be doing their own "motivated reasoning" and "mispricing their risk." That is, they may decide, "If I can't afford to move, and I can't afford to sell my house because it's in a flood-zone, and I can't afford insurance, I guess that means I'm going to live here and be uninsured and hope for the best."

This is also bad. The amount of uninsured losses from US climate disaster "dwarfs" insured losses:

https://www.reuters.com/business/environment/hurricanes-floods-bring-120-billion-insurance-losses-2022-2023-01-09/

Here's the doom-loop in a nutshell:

>  As carbon emissions continue to accumulate, more people are put at risk of climate disaster, while the damages from those disasters intensifies. Vulnerability will drive disinvestment, which in turn exacerbates vulnerability.

Also: the browner and poorer you are, the worse you have it: you are impacted "first and worst":

https://www.climaterealityproject.org/frontline-fenceline-communities

As Arun writes, "Tinkering with insurance markets will not solve their real issues—we must patch the gaping holes in the financial system itself." We have to end the loop that sees the poorest places least insured, and the loss of insurance leading to abandonment by people with money and agency, which zeroes out the budget for climate remediation and resiliency where it is most needed.

The insurance sector is part of the finance industry, and it is disinvesting in climate-endagered places and instead doubling down on its bets on fossil fuels. We can't rely on the insurance sector to discipline other industries by generating "price signals" about the true underlying climate risk. And insurance doesn't just invest in fossil fuels - they're also a major buyer of municipal and state bonds, which means they're part of the "bond vigilante" investors whose decisions constrain the ability of cities to raise and spend money for climate remediation.

When American cities, territories and regions can't float bonds, they historically get taken over and handed to an unelected "control board" who represents distant creditors, not citizens. This is especially true when the people who live in those places are Black or brown - think Puerto Rico or Detroit or Flint. These control board administrators make creditors whole by tearing the people apart.

This is the real doom loop: insurers pull out of poor places threatened by climate disasters. They invest in the fossil fuels that worsen those disasters. They join with bond vigilantes to force disinvestment from infrastructure maintenance and resiliency in those places. Then, the next climate disaster creates *more* uninsured losses. Lather, rinse, repeat.

Finance and insurance are betting heavily on climate risk modeling - not to avert this crisis, but to ensure that their finances remain intact though it. What's more, it won't work. As climate effects get bigger, they get less predictable - and harder to avoid. The point of insurance is spreading risk, not reducing it. We shouldn't and can't rely on insurance creating price-signals to reduce our climate risk.

But the climate doom-loop can be put in reverse - not by market spending, but by *public* spending. As Arun writes, we need to create "a global investment architecture that is safe for spending":

https://tanjasail.wordpress.com/2023/10/06/a-world-safe-for-spending/

Public investment in emissions reduction and resiliency *can* offset climate risk, by reducing future global warming and by making places better prepared to endure the weather and other events that are locked in by past emissions. A just transition will "loosen liquidity constraints on investment in communities made vulnerable by the financial system."

Austerity is a bad investment strategy. Failure to maintain and improve infrastructure doesn't just shift costs into the future, it increases those costs far in excess of any rational discount based on the time value of money. Public institutions should discipline markets, not the other way around. Don't give Wall Street a veto over our climate spending. A National Investment Authority could subordinate markets to human thriving:

https://democracyjournal.org/arguments/industrial-policy-requires-public-not-just-private-equity/

Insurance need not be pitted against human survival. Saving the cities and regions whose bonds are held by insurance companies is *good for those companies*: "Breaking the climate risk doom loop is the best disaster insurance policy money can buy."

I found Arun's work to be especially bracing because of the book I'm touring now, *The Lost Cause*, a solarpunk novel set in a world in which vast public investment is being made to address the climate emergency that is everywhere and all at once:

https://us.macmillan.com/books/9781250865939/the-lost-cause

There is something profoundly hopeful about the belief that we can do something about these foreseeable disasters - rather than remaining frozen in place until the disaster is upon us and it's too late. As Rebecca Solnit says, inhabiting this place in your imagination is "Completely delightful. Neither utopian nor dystopian, it portrays life in SoCal in a future woven from our successes (Green New Deal!), failures (climate chaos anyway), and unresolved conflicts (old MAGA dudes). I loved it."

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🫙 Hey look at this

* Portal - 1987 - MS-DOS Game Reviews https://www.youtube.com/watch?v=3URO-5pCMyw (h/t Salim Fadhley)

* Draft Digital Replica Bill Risks Living Performers’ Rights over AI-Generated Replacements https://rightofpublicityroadmap.com/news_commentary/draft-digital-replica-bill-risks-living-performers-rights-over-ai-generated-replacements/

* The Case For A Technology Aware Lobby Correspondent https://hackaday.com/2023/11/17/the-case-for-a-technology-aware-lobby-correspondent/

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🫙 This day in history

#15yrsago Canada’s Internet is crap https://web.archive.org/web/20081207154815/https://www.cbc.ca/searchengine/blog/2008/11/is_canada_becoming_a_digital_g.html

#10yrsago Brainwashed: Neuroscience vs neurobollocks https://memex.craphound.com/2013/11/28/brainwashed-neuroscience-vs-neurobollocks/

#10yrsago Florida sheriff arrests mayor on drug charges: “This isn’t Toronto” https://www.onlineathens.com/story/news/state/2013/11/26/florida-mayor-arrested-drug-charges/15549584007/

#10yrsago Pope blasts capitalism https://www.washingtonpost.com/news/wonk/wp/2013/11/26/pope-francis-has-a-few-thoughts-about-the-global-economy-we-added-these-13-charts/

#10yrsago Venn menu https://memex.craphound.com/2013/11/28/venn-menu/

#5yrsago Probing a mysterious network of dropshippers, evangelicals, crapgadgets, and semi-vacant Manhattan department stores https://www.nytimes.com/interactive/2018/11/27/style/what-is-inside-this-internet-rabbit-hole.html

#5yrsago Houston’s “inchworm bandits” create performance art while robbing restaurants on their bellies https://www.loweringthebar.net/2018/11/inchworm-bandits-are-either-idiots-or-comedy-geniuses.html

#5yrsago Dutch church holds 27 days of round-the-clock services to protect immigrant family from deportation https://qz.com/1470153/a-dutch-church-is-holding-non-stop-services-for-a-refugee-family

#5yrsago Comcast cranks up extra charges on cable bills, again, even for people who signed contracts promising a lower rate https://arstechnica.com/tech-policy/2018/11/comcasts-controversial-tv-and-sports-fees-rise-again-hit-18-25-a-month/

#5yrsago Prince’s entire catalog of obscure, hard-to-find music videos, collected and annotated https://www.anildash.com/2018/11/28/every-single-video-prince-ever-made/

#5yrsago Before Youtube nukes annotations, take one last look at these amazing, creative projects that showed how much annotations could do https://waxy.org/2018/11/a-tribute-to-youtube-annotations/

#5yrsago Labour report on executive pay proposes giving customers a vote on compensation, ending share-based compensation for execs https://web.archive.org/web/20181129113350/visar.csustan.edu/aaba/LabourExecutiveRemunerationReview2018.pdf

#5yrsago Toronto 2033: science fiction writers imagine the city of the future https://web.archive.org/web/20190306140656/https://toronto2033.com/

#1yrago How monopoly enshittified Amazon https://pluralistic.net/2022/11/28/enshittification/#relentless-payola

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🫙 Colophon

Today's top sources: Naked Capitalism (https://www.nakedcapitalism.com/).

Currently writing:

* A Little Brother short story about DIY insulin PLANNING

* Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. FORTHCOMING TOR BOOKS JAN 2025

* The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. FORTHCOMING TOR BOOKS FEB 2024

* Vigilant, Little Brother short story about remote invigilation. FORTHCOMING ON TOR.COM

* Spill, a Little Brother short story about pipeline protests. FORTHCOMING ON TOR.COM

Latest podcast: Moral Hazard (from Communications Breakdown) https://craphound.com/stories/2023/11/12/moral-hazard-from-communications-breakdown/

Upcoming appearances:

* The Lost Cause at The Strand (NYC), Nov 29
https://www.eventbrite.com/e/cory-doctorow-the-lost-cause-tickets-734958008187

* The Lost Cause at Flyleaf Books (Chapel Hill), Dec 5
https://www.flyleafbooks.com/doctorow-2023

Recent appearances:

* Digital Markets Act; Interoperability; Entrenchment; Copyright; "What-About-Ism" (Digital Markets Research Hub)
https://www.youtube.com/watch?v=Xm23pO5_WKM

* Science fiction for a dystopian present (Institute of Art and Ideas)
https://iai.tv/video/science-fiction-for-a-dystopian-present-cory-doctorow?_auid=2020

*  Pushing back on unconstrained capitalism (Changelog)
https://changelog.com/podcast/565

Latest books:

* "The Lost Cause:" a solarpunk novel of hope in the climate emergency, Tor Books (US), Head of Zeus (UK), November 2023 (http://lost-cause.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3007/Pre-Order_Signed_Copies%3A_The_Lost_Cause_HB.html#/)

* "The Internet Con": A nonfiction book about interoperability and Big Tech (Verso) September 2023 (http://seizethemeansofcomputation.org). Signed copies at Book Soup (https://www.booksoup.com/book/9781804291245).

* "Red Team Blues": "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books http://redteamblues.com. Signed copies at Dark Delicacies (US): and Forbidden Planet (UK): https://forbiddenplanet.com/385004-red-team-blues-signed-edition-hardcover/.

* "Chokepoint Capitalism: How to Beat Big Tech, Tame Big Content, and Get Artists Paid, with Rebecca Giblin", on how to unrig the markets for creative labor, Beacon Press/Scribe 2022 https://chokepointcapitalism.com

* "Attack Surface": The third Little Brother novel, a standalone technothriller for adults. The *Washington Post* called it "a political cyberthriller, vigorous, bold and savvy about the limits of revolution and resistance." Order signed, personalized copies from Dark Delicacies https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html

* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59?sk=f6cd10e54e20a07d4c6d0f3ac011af6b) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)

* "Little Brother/Homeland": A reissue omnibus edition with a new introduction by Edward Snowden: https://us.macmillan.com/books/9781250774583; personalized/signed copies here: https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html

* "Poesy the Monster Slayer" a picture book about monsters, bedtime, gender, and kicking ass. Order here: https://us.macmillan.com/books/9781626723627. Get a personalized, signed copy here: https://www.darkdel.com/store/p2682/Corey_Doctorow%3A_Poesy_the_Monster_Slayer_HB.html#/.

Upcoming books:

* The Bezzle: a sequel to "Red Team Blues," about prison-tech and other grifts, Tor Books, February 2024

* Picks and Shovels: a sequel to "Red Team Blues," about the heroic era of the PC, Tor Books, February 2025

* Unauthorized Bread: a graphic novel adapted from my novella about refugees, toasters and DRM, FirstSecond, 2025

This work - excluding any serialized fiction - is licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to pluralistic.net.

https://creativecommons.org/licenses/by/4.0/

Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.

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"*When life gives you SARS, you make sarsaparilla*" -Joey "Accordion Guy" DeVilla
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