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bjbjVwVw JEFFREY BROWN: And next, we continue our coverage on the impact of superstorm Sandy
-- tonight, lessons being learned and how insurers are preparing for the future. NewsHour
economics correspondent Paul Solman has the story. It's part of his ongoing reporting
Making Sense of financial news. PAUL SOLMAN: Manhattan's totally unprepared South Street
Seaport sustained some portion of the $50 billion in losses from Sandy, only $20 billion
or so insured, a shock to most folks, but not to the insurance industry. ROBERT HARTWIG,
Insurance Information Institute: Unfortunately, these are not "once in a blue moon" events
any more. PAUL SOLMAN: Bob Hartwig of the Insurance Information Institute at Red, his
favorite local eating hole, a real hole now, even its inventory down the drain. ROBERT
HARTWIG: We are seeing an increased frequency in the number of natural disasters, roughly
tripled or quadrupled since 1980, and the costs have doubled, tripled and quadrupled
as well. PAUL SOLMAN: So, is extreme weather here to stay? And if so, have insurers priced
the new level of risk into their policies? No, says Mindy Lubber, president of Ceres,
an environmental advocacy group. And she blames the new risk on global warming. MINDY LUBBER,
Ceres: Climate change is our new normal. We're seeing more increased storms everywhere, all
across the country. It is costing us tens and tens of billions of dollars, $32 billion
to the insurance sector last year. But last year, when we surveyed 88 insurance companies
and asked them, do you have climate policies in place, are you acting on climate, 11 out
of 88 companies had a plan to address climate risks to their bottom line. PAUL SOLMAN: The
rest didn't. So, what is the industry's comeback? ROBERT HARTWIG: All insurance companies are
paying very careful attention to the variability and the volatility in the climate. You can
have a big debate about what the cause of that is. But insurers use all the information
at their disposal in order to ascertain the risk, measure that risk in a very scientific
manner, and then assign a price to that risk. PAUL SOLMAN: A higher price, presumably, to
compensate for the greater risk. But for most primary insurers, the weather risk has now
become so high, they have simply stopped writing flood insurance. So, government had to step
in and is now on the hook for more than a trillion dollars in potential damages. Re-insurers,
however, are still in the game too. ERIC SMITH, Swiss Re Americas: There's very few things
that you could ask me about that we don't already re-insure. PAUL SOLMAN: Eric Smith
heads the Americas division of Swiss Re. ERIC SMITH: Re-insurance is about all forms of
risk, whether it's health, or life, or your home, or your property. The math behind it
works the most effectively if you can spread the risk around the globe in all sorts of
different forms. PAUL SOLMAN: Primary insurance companies buy their own insurance, re-insurance,
from huge firms like Swiss Re, which, because of their size, can afford the fullest data,
plug in into the most sophisticated risk models. And doing just that, Swiss Re actually warned
us of an East Coast storm like Sandy back in 2006. After Hurricane Katrina, Swiss Re's
head of catastrophe perils, Andy Castaldi, worried aloud about warming seas and more
violent storms in the Gulf, but, he told us: ANDREW CASTALDI, Swiss Re: I'm also concerned
about the New York Bay and Long Island that would be inundated by a flood due to a Category
3 storm. A storm surge could completely flood the airport at JFK. And 13 feet of seawater
is not out of -- or up to 17 feet is not out of the question. PAUL SOLMAN: We interviewed
Castaldi again last week, after Sandy. So the blue is Sandy's storm surge. ANDY CASTALDI:
That's right. That's the footprint of the storm surge that was produced by the superstorm
Sandy. As you can see, in the center of the screen is John F. Kennedy Airport. And now
I'm going to toggle back to the coastal flood map that we had prior to the storm, and you
can see just about the same areas as the Sandy footprint we knew was exposed to a storm surge.
PAUL SOLMAN: Six years ago, you said that you thought that climate change was a major
factor in recent storm activity. Do you think that more today? ANDY CASTALDI: I can't really
attribute Sandy to climate change. It could be within the normal variability of these
types of storms, but I do know that climate change is occurring. And it is starting to
exaggerate some of the hazards. Most notably in this area is sea level rise. And as the
sea level rises, it stands to reason that the next storm will produce a larger storm
surge, just because it has more water and the water is higher than ever before. PAUL
SOLMAN: And because more people and property at risk. We were at the long-ago-named Water
Street, for example, from here to the East River these days, landfill. ERIC SMITH: For
most of the time these storms came through, no one lived here, or very few people lived
here. Now we have millions of people concentrated in -- for instance, in the New York area.
We have tons of infrastructure. We have important business assets that are exposed, and that's
what's different. PAUL SOLMAN: Yes, says Mindy Lubber, and therefore insurance companies
should raise their premiums to signal the rising dangers. MINDY LUBBER: Insurance companies
could also impact all of our behavior by the way they price products. They might say the
following. If you are going to build a building, and you want us to insure it, you have got
to build it in a way that it's prepared to deal with storm damage or climate-related
risk. PAUL SOLMAN: So we put the question to Castaldi of Swiss Re, a European firm known
as a climate change leader. Is climate change in this model you're showing us? ANDY CASTALDI:
The way we build our models is that they're based on historical data. We typically focus
on the last 100 years because the data was better. If these storms are becoming more
frequent and more severe, they get incorporated into our models. PAUL SOLMAN: But Lubber thinks
that's not enough. MINDY LUBBER: The insurance industry often develops prices and risk models
based on what happened last year and the year before. And obviously we have some good data
from the last couple of years. But they also have to look at what science is telling us,
that we're going to see consistent storms happening more and more all across the country
and the world and more intensely. PAUL SOLMAN: To Castaldi, however, that would be premature.
ANDY CASTALDI: We do believe climate change is a real threat, a real risk to us, but,
at this point in time, there's not enough conclusive scientific evidence to really encourage
us to make those type of changes. PAUL SOLMAN: Even so, Swiss Re has been especially vocal
about the threat of climate change. Eric Smith explained why primary insurers aren't doing
as much on the issue as re-insurers like Swiss Re. ERIC SMITH: Climate change is still a
bit of a controversial issue, especially in the U.S. And, you know, they are a business
that serves consumers. They serve millions of consumers, so they have to be very sensitive
to public opinion. And public opinion is still a little bit split. So, with climate change,
how quickly will it happen? And how accurate -- how accurate can we be with the change
each year over year? And I think most people would argue that it's going to be more subtle.
And so for an insurance company to try to factor that in and charge people, that would
be a hard position to justify. PAUL SOLMAN: A hard position, perhaps. But if climate change
is causing more extreme weather, as most experts think, it's a position that even the most
skeptical of insurance companies may be taking soon enough. urn:schemas-microsoft-com:office:smarttags
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country-region urn:schemas-microsoft-com:office:smarttags place JEFFREY BROWN: And next, we continue
our coverage on the impact of superstorm Sandy -- tonight, lessons being learned and how
insurers are preparing for the future Normal Microsoft Office Word JEFFREY BROWN: And next,
we continue our coverage on the impact of superstorm Sandy -- tonight, lessons being
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