UC Berkeley UC Berkeley Electronic Theses and Dissertations Title Insuring climate change? Science, fear, and value in reinsurance markets Permalink https://escholarship.org/uc/item/9xq5t401 Author Johnson, Leigh Taylor Publication Date 2011 Peer reviewed|Thesis/dissertation eScholarship.org Powered by the California Digital Library University of California Insuring climate change? Science, fear, and value in reinsurance markets by Leigh Taylor Johnson A dissertation submitted in partial satisfaction of the requirements for the degree of Doctor of Philosophy in Geography in the Graduate Division of the University of California, Berkeley Committee in charge: Professor Michael Watts, Chair Professor John Chiang Professor Charis Thompson Professor Richard Walker Spring 2011 Insuring climate change? Science, fear, and value in reinsurance markets © 2011 Leigh Johnson Abstract Insuring climate change? Science, fear, and value in reinsurance markets by Leigh Taylor Johnson Doctor of Philosophy in Geography University of California, Berkeley Professor Michael Watts, Chair The planet’s changing climatology poses epistemological and practical problems for insurance institutions underwriting weather or property risks: models based on meticulously calculated empirical event frequencies will not project risk in a changing climate system. Seeking to explain the unprecedented scale of recent insured losses, media pieces regularly articulate a narrative that links climate change to an immanently insecure future. This logic has prompted some scholars to place climate change in a new category of risks generated by industrial society that are fundamentally incalculable and uninsurable. This dissertation challenges the epistemological assumptions and empirical validity of the “uninsurability hypothesis” using the case study of (re)insurance and catastrophe modeling for North Atlantic tropical cyclones. In so doing, it turns a critical eye on the depoliticized discourse of climate change emergency. The research analyzes the development of insurance institutions and definitions of climate change risk over time, applying the theory that risks are reconstructed phenomenon of multiple contingency which always embody contested classificatory and causal stories. Research included over forty extended interviews with academic, regulatory, and private sector employees; observation at thirteen industry, academic, and regulatory conferences; and qualitative and quantitative analysis of corporate and regulatory documents and datasets. The findings trace new constellations of science, value, and fear that are emerging within the (re)insurance industry as it attempts to assess and manage climate risks and secure new paths to accumulation. Three major themes emerge. First, the dynamics of climate change are being integrated into circuits of insurance and financial capital. The perception of climate risk may buoy the (re)industry’s business prospects in the short term by reproducing uncertainty and allowing firms to exclude certain risks from all-perils coverage and repackage them into new products. Climate risks may be incorporated into the central contradictory dynamic of the catastrophe reinsurance market, which requires the continual recurrence of catastrophic losses and devaluation in order to sustain pricing and accumulation in the long term. Meanwhile, investment capital is accessing new risk premiums from the insurance sector through catastrophe bonds, the market for which demonstrates a strategic and selective attempt to capture “returns on place” by finance capital, rather than an “escape” from uninsurable places on the part of (re)insurers. 1 Second, within both the industry and scientific community, the question of how climate change is influencing catastrophic losses or will do so in the future is far from settled, despite its representation as a closed “matter of fact”. Furthermore, most (re)insurers do not currently account for climate change in their daily underwriting and pricing, and often cite the possibility of compensating for climate effects through future annual adjustments to prices and policies. This apparent contradiction between discourse and practice is the result of a complex set of institutional, political, and economic factors rather than a systematic attempt to deceive the public or exaggerate risks. Third, privatized economies of science – and particularly probabilistic catastrophe models – are central tools for climate risk management through (re)insurance markets. The expertise of PhD- credentialed scientists is increasingly used in industry contexts to publicize climate change risks, legitimate moves towards five-year forward-looking catastrophe models, and to commodify climate risks into financial exposures and assets. These findings draw our attention the (re)insurance industry’s dependence on the perpetual multiplication of fear and value via technocientific risk identification, and suggest the profound limitations of attempts to manage climate risks and anxieties through market mechanisms. 2 For J, CJ, and L – My three pirates i Table of Contents CHAPTER 1: Introduction 1 Figures 1.1-1.2 CHAPTER 2: Property insurance in modern capitalism 15 1. The historical development of property insurance within capitalism 2. The contemporary landscape of insurance 3. “You need a Cat”: Cyclicity and the contradiction of insurance security Figures 2.1-2.6 CHAPTER 3: Climate change risks in insured landscapes: Evidence, narratives, and debate 31 1. Distinguishing concepts 2. Narratives of detection and attribution 3. The emergence and consolidation of industry narratives 4. Uncertainty and preemption Figures 3.1-3.6 CHAPTER 4: Climate change and the limits of concern in insurance 52 1. Everyday practice and the limits of concern 2. Reconciling public and private stories 3. Making markets: The multiplication of fear and value CHAPTER 5: Insurance-linked securitization of catastrophe risk 68 1. Escaping from place through the capital markets? 2. Making insurance investment-worthy 3. The search for “zero beta” 4. Spatial encumbrances and relational ties 5. “Writing to securitize” climate risks? Figures 5.1-5.7 CHAPTER 6: Governing risk pools through catastrophe models 89 1. Private Science to Create Responsible Citizens? 2. The moving window: forward-looking models and the rule of experts 3. The model of the world becomes the world of the model 4. Disciplining the risky homeowner 5. The hazards of politics by other means Figures and Tables 6.1-6.4 Conclusion: The conservation of uncertainty and limits of fear and value 103 Appendices 107 References 109 ii Acknowledgements Any traveler on a seven-year journey incurs a great many debts. At Berkeley, mine have most profoundly accrued to Michael Watts, Dick Walker, John Chiang, and Charis Thompson, the members of my committee who generously shared their time, resources, and charisma to steer me through safely. Kurt Cuffey, Natalia Vonnegut, Nathan Sayre, and Rob Rhew were also helpful hands on deck at numerous points along the way. The proprietary nature of my research subject made me particularly dependent upon and indebted to the great many climate scientists and professionals within the (re)insurance industry who took time out of their busy schedules to share their experiences and insights, often with extremely valuable candor. In order to protect the identity of some interviewees who wished to remain anonymous, I have made the decision not to identify any informants by name in the dissertation, even if they granted permission to be identified. My debt to all of them is tremendous and must, as is the case for so much academic research, remain unspoken and unpaid. Thanks are due to the following companies, organizations, and professional associations: Swiss Re Willis Renaissance Re Guy Carpenter Axis Guy Carpenter Securities Aspen Re Leadenhall Capital Partners Partner Re Trading Risk Liberty Standard & Poor’s Hiscox National Association of Insurance Allianz Commissioners Munich Re Florida Office of Insurance Regulation Risk Management Solutions Reinsurance Association of America Eqecat American Meteorological Society Aon Benfield This project benefited from the financial support of the National Science Foundation and the Society for Women Geographers. This material is based upon work supported by the National Science Foundation under Grant No. 0928711 and an NSF Graduate Research Fellowship from 2006-2009. Many brilliant minds provided guidance and encouragement along the way, including: Bob Meister and the graduate students in his two 2010 seminars on Rethinking Capitalism at UCSC, Iain Boal, Ananya Roy, Chris Kobrak, Robin Pearson, Niels Viggo Haueter, Rudolf Frei, Dwight Jaffee, and Evan Mills. Geographers have been typically insightful and generous: James McCarthy, Geoff Mann, Scott Prudham, David Demeritt, Gail Hollander, Rod Newman, Morgan Robertson, and Nik Heynen have all pointed me in useful directions and lent me determination to carry on. iii I have benefitted tremendously from the friendship and guidance of wonderfully kind fellow students. In the Geography Department at Berkeley: Rebecca Lave, Sandy Brown, Seth Lunine, Jenny Cooper, Rachel Brahinsky, Judy Han, Chris Niedt, Jason Moore, my trusty office mates John Lindenbaum, Tim Rowe, and Dyuti Sengupta, and historian Sarah Hines. In Santa Cruz: Costanza Rampini and Claire Le Gall. In London, I must thank Kerry Holden for her friendship and hospitality, and Sam Randalls and James Porter for their consistent intellectual