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by David James

Insurance has historically been conducted as a dispassionate numbers game of pricing risk. Sound actuarial estimates are critical. If the projections of adverse events are accurate, the insurance companies will record sound financial returns. If the unexpected happens and calculations are out, the sector comes under pressure.

Insurance allows a person, business, or corporation to manage the unexpected – fire, flood, car accident, being sued. Insurance companies accept that claims will be made by some, and cover the cost of claims from the premiums paid by those who don’t make claims.

To further spread their risk, insurance companies rely on reinsurers. There are about 50 top global reinsurers, like Lloyds of London and QBE Insurance. If an insurance company faces major payouts, as from the recent California fires, it will make claims on its reinsurer. If the reinsurer faces big claims, then it will increase future premiums.

In the past, insurance companies paid little attention to political ideologies and fashions. But they are increasingly being drawn into that maelstrom. In effect, they are being forced into underwriting political agendas, mostly from the left, that are threatening their performance, and perhaps viability.

Environmentalism

The first, and biggest political agenda is so-called “climate change”. This has been presented as a scientifically proven fact requiring urgent attention, but it is far more about politics.

Yves Smith, founder of the website Naked Capitalism, expresses the prevailing view in an article headlined, “How climate denial is fuelling a U.S. homeowners insurance crisis and risking a 2008-style financial meltdown”. Smith writes: “Insurers have been well aware of how climate change is set to make insurance unaffordable in many markets, yet have chosen to stay mum out of reluctance to have the fossil-fuel industry target them.” Reinsurers have also heavily subscribed to this narrative.

Smith attributes the Los Angeles fires to climate change, not to humans settling in high fire-risk areas prone to the deadly, hot, dry Santa Ana winds, and to poor forest management. She darkly points to the fact that January was the hottest on record. (It is never mentioned that records have only been reliable since the 1970s, when satellites first began to measure the temperature of the oceans, which account for two-thirds of the Earth’s surface.)

Yet at the same time, the National Oceanic and Atmospheric Administration (NOAA) found that U.S. temperatures were the coldest in 37 years. The vague term “climate change” is used when the warming data does not match. This is the kind of absurdity the insurance industry is underwriting. “Global warming” is used when the data does match. Such selectivity and twisting of the story is what happens in politics, not insurance.

Meanwhile, the political push towards zero carbon is posing more immediate problems than threats of ill-defined climatic changes in the future. One of those is the incidence of fires caused by lithium-ion batteries, especially e-bikes.

The Australian Government has done product recalls on “over 89,000 products because of concerns around battery fires”, according to Mark Smith of the Victorian Waste Management Association.

Insurance companies are encountering unanticipated costs, such as the compulsory recall of faulty LG solar storage batteries, which can cause house fires. If those houses are insured, the insurer will pay the cost.

Fires caused by lithium-ion batteries are occurring in Victorian factories, and surging in South Australia.

The politics of decarbonisation is also creating anomalies. Solar farms can get insurance, but farmers living next to solar farms are concerned that they may not get adequate cover because of the risk of a farm fire spreading to the solar farm, causing damage which may mount to several hundred million dollars.

Transgenderism

Second, insurance companies are being drawn into gender-fluid ideology medicine. Insurance companies have, probably unwittingly, backed the politics of transgenderism by providing insurance to doctors, psychiatrists, hospitals and health clinics involved in providing puberty blockers, sex-change hormones and surgeries.

On the one hand, those who fully transition need costly, ongoing, life­long medical care, while increasingly, those who detransition are suing those responsible for their damaged bodies. In the United States, Donald Trump is making it easier for damaged children to sue for damages.

Third, the push for legalising many damaging drugs, including so-called “medical cannabis”, is also leaving insurance companies open to claims from two directions. There are health costs of people damaged by the drugs and claims from people they cause harm to, while health professionals prescribing medical cannabis may face damages claims due to the damaging effects of “medical cannabis”.

As these problems accumulate, it raises the possibility that insurance companies will have to do more than just price the risk of accidents, unexpected crimes or natural crises. They may have to start pricing ideological risk, especially when it comes from the left wing of the political spectrum.

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Republished with thanks to News Weekly.