25 January 2010

Der Spiegel on IPCC and Disasters

Today, Der Spiegel in Germany has a lengthy article on the troubled IPCC. it includes a lengthy section on disasters and climate change. The original is auf Deutsche, so the excerpt below is courtesy Google translate, after the first sentence, the original German is followed by the translated English:
Roger Pielke, a leading expert in this field, criticized: "The allegations made in the IPCC report were not only wrong, but they are on a scientific basis, which simply does not exist."

Vertreter der Versicherungsbranche sehen das ganz anders - aber genau das ist für den Weltklimarat ein zusätzliches Problem.

Representatives of the insurance industry see things very differently - but that's an additional problem for the IPCC.

Rückversicherer, etwa die Münchner Rück, berechnen aufgrund von Risiken ihre Prämien; bei Geschäftsabschlüssen kann sich da eine Zunahme von Naturkatastrophen auszahlen.

Reinsurers, such as Munich Re, calculated on the basis of their risk premiums, may, when business deals are there to pay an increase of natural disasters.

"Wir sehen in unseren Datenbanken deutliche Belege für einen Zusammenhang zwischen Klimawandel und der Zunahme von Naturkatastrophen", bestätigt Ernst Rauch, Leiter des "Corporate Climate Centre" der Münchner Rück.

"We see in our databases significant evidence of a link between climate change and the increase in natural disasters," says Ernst Rauch, Head of the Corporate Climate Center of Munich Re.

Im Gegensatz zu Wissenschaftlern könne man auch nicht warten, bis alle Zweifel beseitigt seien.

Unlike scientists, they could not wait until all doubts are removed.

"Wir sind ein Wirtschaftsbetrieb, der heute handeln muss", sagt Rauch.

"We are a [for profit] company that needs to act now," says Rauch.

Im Übrigen sei sein Konzern mit den Aussagen des IPCC-Berichts "höchst zufrieden".

In addition, his group had the approach of the IPCC report "extremely satisfied".

Kein Wunder: Als Quelle für die warnenden IPCC-Prognosen dient auch ein Buch der Münchner Rück aus dem Jahr 2005.

No wonder: As a source for the warning IPCC projections is also a book of the Munich Re Group in 2005.

I don't think that it helps the IPCC when a company, even one as respected as Munich Re, explains that the needs of marketing quest for profits means that they cannot wait for the same certainties that science requires for proof. This is tantamount to admitting that the scientific case is not there. The decision to act in a certain way is a different issue than evaluating knowledge claims. Making educated guesses and taking risks is of course a fine approach to business and advocacy, especially when such guesses and risks are aligned with business and other interests. However, it is not a good way to operate a leading scientific assessment, which probably should adhere to conventional standards of scientific practice.

Munich Re seems to imply that precaution means shaping the knowledge to fit a desired course of action. Precaution actually means acting in the face of irreducible uncertainties. Turning precaution on its head can corrupt scientific advisory processes, when uncertainty is misrepresented as certainty.

It is worth noting that Munich Re has done some excellent scientific work on this subject which has been published in the peer reviewed literature. Like the rest of the peer reviewed literature on this subject, none of this work shows evidence for a link between increasing greenhouse gases and the rising costs of disasters.

23 comments:

Craig said...

Munich Re is not alone. Check out Swiss Re: http://www.swissre.com/pws/about%20us/knowledge_expertise/top%20topics/climate%20change/climate%20change.html

rjtklein said...

Wirtschaftsbetrieb ≠ marketing company.

It's better translated as 'private company' or 'for-profit enterprise'. 'Wirtschaft' refers to being profit-oriented, not to marketing.

Malcolm said...

An example of using the precautionary principle to generate profits.

Climate science-business now is about the money - be it carbon trading, carbon taxes, insurance premiums, research funds, government funding, charity funding, private donations, public donations, etc, etc.

The eco-business model is based on a few becoming rich and powerful at the expense of the increasingly disenfranchised many.

UAN said...

"The decision to act in a certain way is a different issue than evaluating knowledge claims. Making educated guesses and taking risks is of course a fine approach to business and advocacy, especially when such guesses and risks are aligned with business and other interests. However, it is not a good way to operate a leading scientific assessment...Turning precaution on its head can corrupt scientific advisory processes, when uncertainty is misrepresented as certainty."

One of the clearest articulations of what the whole ongoing (AGW) debate boils down to once all the noise is removed. Thanks!

Geckko said...

I think you are being to critical on the "marketing" point. What they are clearly saying (not heled by robotic translations of Google) is that if they wait for claimte events to decimate their balance sheet before they increase premiums they will be out of business.

Their actions are rational, but do not betray whether they are using the Dangerous Climate Change Hypothesis cynically as a way of generating "super profits", or are simply acting reasonably on their shareholders' behalf to generate "normal economic profits" on the basis of the "consenus" that climate change will be dangerous and costly.

Roger Pielke, Jr. said...

-2-Richard

I suspected as much, thanks and I have updated the translation.

Fred said...

Well go figure . . for profit companies riding the wave of global warming hysteria to charge higher rates and make more profit.

Who woulda thunk it! People scared into expecting more disasters byt AGW hysteria and companies echoing the hysteria to charge higher premiums.

What is the world coming to?

Richard Tol said...

@Geckko
Not quite. There is asymmetric information. The reinsurance companies know much more about the actual risk than anyone else. There are only a few reinsurance companies. Reinsurance contracts are renewed annually.

Reinsurance companies are exposed to weather-related disasters and should keep a close eye on weather and climate. There is no reason to increase premiums today for increased risks in 2035. There is a clear case against exaggerating risks to demand higher premiums.

Ben Pile said...

Richard, would you mind expanding on "There is a clear case against exaggerating risks to demand higher premiums."?

Perhaps the comparison is poor, but if that were true, why would my bank/credit card company try to sell me insurance on credit - which is well now to be largely pointless, and is increasingly regarded as a scam?

Does the insurance firm not have an interest in the perception of risk being greater than the person seeking to protect themselves is actually exposed to?

bernie said...

Richard Tol:
I do not think so. The companies have to find the value price and they have to use a trial and error basis. A company will price a risk, float that pricing - competitors may follow that price or price lower. With a small numbers of players, all the players may create an equilibrium price that is very close to the initial price - which may or may not in the short run reflect the actual costs. They collectively may use their asymmetric knowledge to extract additional profit from their customers.

MIKE said...

Fox News has picked up on the Times story.

Craig said...

@Richard Tol-

Yes there is a reason to increase premiums with a view to losses in the future. Investment income to help cushion premium increases to come.

itisi69 said...

Actually a "Wirtschaft" can be translated as a business but also a pub ;)

Richard Tol said...

@Bernie/Ben
If there is asymmetric information between buyer and seller (e.g., because it takes specialist knowledge to understand the product), there is a case for government intervention -- preferably in the form of information provision. This is common practice.

The reinsurance market is an international market, and unregulated in this sense. Insurance markets are regulated, but insurance companies are typically allowed to pass on the costs of reinsurance to the insured.

There is no independent agency that verifies the risks as quoted by reinsurers -- unlike food, medicine, cars, what have you.

@Craig
Contracts are renewed annually. Future risks are not covered by current policies, and should be not be priced.

Willi K said...

Look at this videos (german):

http://www.youtube.com/watch?v=GOCIPW6jK9M

and here:
http://www.youtube.com/watch?v=NM5iJjd7jSA

There are many more mistakes and bugs in the "Clima(Junk)Science"

Geckko said...

@ Richard.

To claim that Reinsurance Co's know more about economics risks of climate change than other market participants is amazing hyperbole even for you.

This is not a problem of assymetric information. You appear to pull some possibly loosely related area of microeconomic literature and tthink that makes some sort of coherent point. It doesn't. We are not selling lemons here.

There is massive potential for rent seeking behaviour here - and it doesn't even require tacit collusion - merely herd behaviour in expectatons formations.

Roger Pielke, Jr. said...

What this conversation misses about Munich Re is that they are also invested in renewable energy. The practice of reinsurance has just a little to do with their interests here.

Craig said...

@Richard Tol-

There are many variants of reinsurance. Some treaties are written on a continuous basis. Both past last history and projected become part of the equation and the negotiation.

Craig said...

As to Munich Re's involvement with the financial sector's response to perceived climate change there is this: http://www.munichre.com/en/ts/climate_change_and_insurance/strategy_and_policy/climate_principles/default.aspx

Regarding The Climate Group that Munich Re has joined, here are their guiding principles: http://www.theclimategroup.org/our-members/our-member-principles/

Harrywr2 said...

#12

"Yes there is a reason to increase premiums with a view to losses in the future. Investment income to help cushion premium increases to come."

You hit the nail on head. Premiums + Investment Income must exceed future projected loss.

If your investment income goes down then the premiums must go up.

So if something like 'the stock market' or 'mortgage backed securities' or as Roger pointed out, 'renewable energy' goes down...then premiums go up.

rajpe said...

Ya gotta love it.

IPCC spreads fear of GW/disasters linkage.
Munich Re uses that fear to jump rates/profits.
Warmists use higher rates to "prove" IPCC right
IPCC spreads more fear...

Munich Re makes a killing. IPCC gets tax money.

EliRabett said...

Richard Tol is correct, if nothing else the reinsurance companies know what their exposure is and that is an important determinant of their rates.

BTW, he has a paper which spotted another misprint error, which, again, as it turned out was just a misprint, however, again there is no errata that I have been able to find.

Mark B. said...

The article is now posted in English:

http://www.spiegel.de/international/world/0,1518,674087,00.html

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