Effects of Climate Change on Insurance Rates - Part 1: Earthquake and Hurricane

Introduction

We undertook to investigate the science and data on the following question.

What is the effect of climate change on the likelihood and impact of insurable loss of earthquake and hurricane?

The perils of flood and wildfire will be investigated in a later op ed.

Literature Survey

We reviewed the academic papers offered by Google Scholar to the search phrase “Effects on Earthquake or Hurricane Risk of Climate Change and Extreme Weather”. These papers were gleaned and the most data-based or insightful papers were reviewed in detail. These references are set forth at the end of this op ed.

Here is what was gleaned.

Effects on Earthquake Risk

The papers on earthquake and climate change that were reviewed, unsurprisingly, provided no data or evidence whatsoever correlating earthquake risk with either climate change or extreme weather.

The articles reviewed were more concerned with human risk perceptions about various events, e.g. conflicting perceptions about earthquakes vs. extreme weather vs. nuclear energy.

Clearly, climate change has no effect on earthquake risk.

Effects on Hurricane Risk

Pielke concludes that insufficient data has been gathered to prove that hurricane intensity or frequency are correlated to global warming and climate change (Pielke et al., 2005).

Emmanuel concludes that “theory and modelling predict that hurricane intensity should increase with increasing global mean temperatures, but work on the detection of trends in hurricane activity has focused mostly on their frequency and shows no trend” (Emanuel, 2005).

Anthes reviewed multiple articles (including Pielke et al.) and concluded that the articles are “misleading and incomplete” because they omit aspects such as rainfall, sea level rise, storm surge, etc. (Anthes, 2006).

A paper published by the International Monetary Fund theorizes that hurricane intensity should increase with global warming over the next 75 years because of warming oceans (Acevedo, 2016). This theory is based upon strong correlation between sea surface temperatures and hurricane intensities in the past thirty years.

Mendelsohn predicts that damage resulting from hurricanes will increase from now to the year 2100. This increase was calculated by using economic growth rates (Mendelsohn, 2012) along with hurricane forecasts. The various intensity models used to predict tropical storm strength showed large inconsistencies between them (some increasing and others decreasing). Given the random scatter of predictions, there were no trustworthy conclusions on hurricane frequency or intensity.

Analysis of Hurricane Data

We ourselves examined the U.S. hurricane data from the National Oceanic and Atmospheric Administration (NOAA) which is presented it in the following table.

Table 1: Number of hurricanes by Saffir-Simpson Category to strike mainland U.S. each decade

The NOAA noted that: "The number and intensities of U.S. hurricane is underestimated before 1901 because of the sparsely populated U.S. coastline, particularly along part of Florida, Louisiana, and Texas. However, the values are likely complete and accurate from 1901 onward."

The data (NOAA) from 1901-2020 are graphed below.

The above graphs show the annual number of US hurricanes appears to decrease: slightly downward-sloping linear regression lines for all but category 5 hurricanes. There have been only four Cat 5 U.S. hurricanes, so the regression trend for Cat 5 hurricanes lacks confidence, but is nevertheless gradually increasing.

All things considered, there is no clear evidence based upon the NOAA data that either the frequency or intensity of hurricanes impacting the U.S. is increasing.

Implication for Insurance Rates

Clearly, earthquake insurance rates are (as they should be) unaffected by climate change.

Since hurricane insurance is normally renewed once a year, in theory, hurricane insurance rates should be based upon only the next year’s hurricane risk.

On that basis, hurricane insurance rates in the short term should not be affected by climate change risk. If hurricane insurance rates are affected, they should, again in theory, be going down.

References

Acevedo, S. (2016). Gone with the wind: estimating hurricane climate change costs in the Caribbean. IMF Working Paper.

Anthes, R., Corell, R., Holland, G., Hurrell, J., MacCracken, M., & Trenberth, K. (2006). Hurricanes and global warming – potential linkages and consequences. American Meteorological Society.

Bian, Q., Han, Z., Veuthey, J., & Ma, B. (2021). Risk perceptions of nuclear energy, climate change, and earthquakes: how are they correlated and differentiated by ideologies? Climate Risk Management. Science Direct. https://doi.org/10.1016/j.crm.2021.100297

Emanuel, K. (2005). Increasing destructiveness of tropical cyclones over the past 30 years. Nature Publishing Group, Vol 436. doi:10.1038/nature03906

Gray, B., Long, M., Gill, D., Dunlap, R., & Straub, A. (2017). Politics, climate change, and earthquakes: public perceptions of oil and gas impacts in Oklahoma.

Mendelsohn, R., Emanuel, K., Chonabayashi, S., & Bakkensen, L. (2012). The impact of climate change on global tropical cyclone damage. Nature climate change. Macmillan Publishers Limited. doi: 10.1038/NCLIMATE1357

Pielke, R., Landsea, C., Mayfield, M., Laver, J., & Pasch, R. (2005). Hurricanes and global warming. American Meteorological Society.

Pielke, R. (2005). White paper prepared for workshop on climate change and disaster losses: understanding and attribution trends and projections. University of Colorado.

Walter, M. (2010). Earthquakes and weatherquakes: mathematics and climate change. University of Colorado.