Climate change futures: health, ecological and economic dimensions

Crop and Timber Insurance: Crop insurance and reinsurance is provided by a mix of public and private mechanisms.The US government program covers 350 commodities through 22 specific insurance programs andassumes about US $40 billion in insured values. The public crop insurance system already tends to pay out morein losses than it collects in premiums, and rising losses would more deeply erode the system’s viability, especiallyin a political environment in which increased taxes (which ultimately finance the system) are not politically desirable.As an example for a single crop in a single country, Rosenzweig et al. (2002) estimate a doubling of currentcorn losses to US $3 billion/year under intermediate (30-year) climate change.The current structural expansion of the program to include more and more perishable products as well as livestockincreases the vulnerability of the sector to extreme weather events.In our business scenarios, losses continue to rise, prices of government-provided insurance are increased,deductibles increased, and payout limits are reduced in most areas, and completely eliminated in others (forexample, for drought-prone crops). One consequence for the insurance sector is that administrative fees it currentlyreceives for delivering the government insurance are lost. Furthermore, the resulting contraction in the agriculturalsector reduces the number and size of firms seeking other insurance products (for example, property and workers’compensation). A more minor line of coverage, losses for “standing timber insurance,” increases due to the combinationof wildfire and insect-related damages.118 | APPENDICESMore than 5 billion board feet of timber had been lost to spruce beetles as of 1999. 6 In an assessment of therisks in California, wildfire-related losses are predicted to double on average (and increase up to fourfold in someareas). Superinfestations continue to be a problem leading to multiple losses, ranging from timber to property tothe health consequences of increased airborne particulates from wildfires.LIABILITY INSURANCE DYNAMICSCorporate Liability: Liability risks can manifest under climate change as a result of responses of various parties tothe perceived threat (Allen and Lord 2004). For example, Attorneys General from NY, CA, CT, ME, NJ, RI, andVT are suing utilities to force 3% annual reduction of GHG emissions over 10 years. State Treasurers from CA,CT, ME, NM, NY, OR and VT called for disclosure of financial risks of global warming in securities filings(Skinner 2004). Environmental groups and cities have brought suits against US federal agencies for supportingfossil fuel export projects without assessing their impacts on global climate (ABI 2004). In our scenarios, this trendaccelerates in the early part of the 21 st century.Environmental Liability: Extreme weather events can lead to a rise in local pollution episodes, triggering environmentalliability insurance claims. Following the Mississippi River floods of 1993 there was extensive pollutedwater runoff from pig farms, affecting drinking water supplies. Hurricanes Katrina and Rita led to massive contaminationwith petrochemicals, pesticides, heavy metals and microorganisms.LIFE-HEALTH INSURANCE DYNAMICSRemarkably, the insured costs associated with health and loss of life from natural disasters are not known ortracked by the industry. Charts such as figure 1.5 exclude such information. This is largely because the losses are6According to Holsten et al. (1999): “The spruce beetle, Dendroctonus rufipennis, Kirby, is the most significant natural mortality agent ofmature spruce. Outbreaks of this beetle have caused extensive spruce mortality from Alaska to Arizona and have occurred in every forestwith substantial spruce stands. Spruce beetle damage results in the loss of 333 to 500 million board feet of spruce saw timber annually.More than 2.3 million acres of spruce forests have been infested in Alaska in seven years [1992-1999] an estimated 30 million trees werekilled per year at the peak of the outbreak. In the 1990s, spruce beetle outbreaks in Utah infested more than 122,000 acres and killedmore than 3,000,000 spruce trees. In the past 25 years, outbreaks have resulted in estimated losses of more than 25 million board feet inMontana, 31 million in Idaho, over 100 million in Arizona, 2 billion in Alaska, and 3 billion in British Columbia.”