Environmentalists should embrace the markets

I like the outdoors as much as the granola-eating types, but get a bit aggravated when I see folks pounding the tables over it. It is a product of short-term thinking. It takes decades to create climate change, but moments for markets to react. And markets do react.

Lumber, oil and other commodities whose harvesting affect the climate are already hovering around historical highs. Top-end costs drive down demand, and the harvesting shifts gears. But that is usually not enough.

Insurance industry, enter stage left.

The rash of hurricanes that hit land this year caused more that $200 billion in losses, and the property and casualty market is going to be reeling for years to come. How are they going to catch up? By raising premiums through the roof, that’s how.

Longer term thinking, enter stage right, and here’s how it could pan out:

1) Insurance industry raises premiums
2) Average Americans start screaming
3) Government provides a patch by setting some type of “casualty fund”
4) More storms hit, “casualty fund” gets drained
5) Government institutes across the board contribution increases to shore up fund (like they did in Florida this last year)
6) Average Americans continue screaming
7) More storms hit, “casualty fund” gets drained
8) Government gives up
9) Insurers raise rates 10X or more
10) Average Americans can no longer afford insurance
11) Politicians get blamed
12) Someone wakes up
13) Environmental policy change ensues

Yes, it sounds like it would take a while, and nobody on this planet is particularly patient. Fortunately for your impending anxiety attack, that very scenario is what many insurers are already thinking about. Insurers are not just pointing out the risk to the average American either – they are targeting industries – and holding the captains’ feet to the fire.

Raise a CEO’s D&O insurance rates though the roof because his company doesn’t have an environmental impact policy, and I guarantee you things will change.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.