Ecological Economics22(1997)85–96
ANALYSIS
Climate change and the insurance industry:the cost of
increased risk and the impetus for action
Michael Tucker*
Associate Professor of Finance,Fair?eld Uni6ersity,Fair?eld,CT06430,USA
Received14May1996;accepted17October1996
Abstract
A convincing economic argument for taking action to prevent or ameliorate climate change has not developed because of both uncertainty about the degree of change and its timing.Recent costly weather-related catastrophes with consequent negative impacts on the insurance industry has made the insurance industry a potential advocate for slowing what has been identi?ed as a causal factor in climate change:emissions of greenhouse gases.However,rising costs of claims,without a longer-term trend of such catastrophic losses,will make it dif?cult to present a strong case for taking costly economic https://www.doczj.com/doc/c714866370.html,ing the Black Scholes Option Pricing Model,it is shown that increasing levels of climate variability as embedded in the anticipated variability of damage to insured assets will have an immediate economic cost that could serve to bolster the argument for more immediate action.That cost is shown to be economically justi?ed higher insurance premiums.?1997Elsevier Science B.V.
Keywords:Climate change;Insurance;Global warming;Options
From1987through1992(Table1),the prop-erty insurance industry faced claims in excess of $1billion for each of15catastrophes(Leggett, 1993a).During the previous20-year period no single catastrophe had topped the$1billion mark. Of the15catastrophic events,ten were windstorms.Of the$60billion in catastrophic payments made between1986and1994,90%were due to windstorms(Deering,1994).In seeking answers to these climatological deviations from expectations,several prominent companies have come to the conclusion that these weather anoma-lies are nothing less than the initial manifestations of global warming.Property insurers,and particu-larly large reinsurers such as Munich Re and
*Tel.:+12032544000,ext.2833;fax:+12032544105;
e-mail:tucker@fair1.fair?https://www.doczj.com/doc/c714866370.html,.
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M.Tucker/Ecological Economics22(1997)85–96 86
Swiss Re who take on the?nancial risk of excess claims in major catastrophic events,are becoming more outspoken about the dangers and immi-nence of climate change.The insurance industry with$1.4trillion in annual revenue,may be the only sizable organized economic interest group capable of countering the position of the$1.5 trillion fossil fuel industry on global warming, which calls for watchful waiting while ever more data is gathered and analyzed(Flavin,1994).In-surers’concern may prove incapable of swaying either public opinion or political will,but the economic impact of rising insurance premiums, exodus of insurance companies from high risk areas or outright bankruptcy due to accelerating weather-related claims could awaken policy mak-ers where science and traditional economic analy-sis have only proven capable of arousing at best mild concern.
The1935Conference of the International Orga-nization for Meteorology set the tone for intransi-gence towards accepting the possibility of climate change.At the conference,the1901–1935period was de?ned as the‘normal climate period’.While there were subsequent updates of the‘normal climate period’,de?ning such a period has the effect of inculcating the belief that change is out of the ordinary.With that assumption came the simplifying assurance that extremes could also be known.Once the realization of the inappropriate-ness of this hypothesis sunk in all calculations of wind and snow pressure could be inadequate,‘‘all dams and levees along coasts and rivers could be too weak,all decisions where to locate settlements could be too optimistic and all premiums calcu-lated by insurers too low’’(Swiss Re,1995).
1.Background
Property insurers are not the?rst to note a connection between industrial society and climate change.The mechanics of heat retention in the atmosphere were?rst postulated in1827by Jean Baptiste Fourier who drew an analogy between atmospheric warmth and the warming properties of a greenhouse(Oppenheimer and Boyle,1990). Some years later in1896Svante Arrhenius,the winner of the Nobel Prize for chemistry in1903,
raised the possibility of an anthropogenic green-house effect occurring as CO
2
concentrations from increased burning of fossil fuels accumulated in the atmosphere.In1938,G.D.Callendar,a British meteorologist following in the footsteps of Fourier and Arrhenius,and using data dating back to the1880s,failed in his attempt to con-vince the Royal Society that global warming was underway.
With more complete information,it is clear(see Fig.1)that Callendar was at least correct about
increasing levels of atmospheric CO
2
.Current or future climate change as a result of the buildup of
Table1
Insurance claims in excess of$1billion*
Event
Date and loca-Insured losses
(billions of1992 tion
dollars)
October1987,Un-named wind-$2.5
NW Europe storm a
The Piper Alpha
July1988,$1.4
North Sea Explosion
March1989,The Exxon Valdez$1.5
oil spill
Alaska
September1989,$5.8
Hurricane Hugo a
USA
October1989,$1.5
San Francisco
USA Earthquake
$1.5
October1989,Phillips Petroleum
USA Explosion
Windstorm Daria a
January1990,$4.6
NW Europe
$1.3
February1990,Windstorm Herta a
NW Europe
Windstorm Vivian a$3.2
February1990,
NW Europe
Windstorm$1.3
February1990,
NW Europe Wibkea a
Colorado storms a$1.0
July1990,
USA
Typhoon Mireille a$4.8
September1991,
Japan
Oakland bush?res$1.3
October1991,
USA
Hurricane Andrew a
August1992,$20.0
USA
Cyclone Iniki a$1.4
August1992,
USA
a Windstorms.
M.Tucker/Ecological Economics22(1997)85–9687
Fig.1.Global atmospheric concentrations of CO
2
,1764–1994(Source:Worldwatch Institute).
CO
2
and other‘greenhouse gases’(GHGs)such as
methane,has?nally attracted concerted scienti?c investigation.Under the auspices of the United Nations,the International Panel on Climate Change(IPCC)was convened consisting of2500 scientists who gathered and studied evidence of global warming,GHG involvement and the accu-racy of proposed predictive models.In its1990 report,the IPCC concluded that under a‘business as usual’scenario,i.e.,a stabilization of the use of
fossil fuels and constant levels of emissions,CO
2 concentrations in the atmosphere would still con-tinue to rise causing the average global tempera-ture to increase3°C by2100(Houghton et al., 1990).
Armed with the IPCC analysis and with the Montreal Protocols aimed at thwarting the threat of chloro?ourocarbons(CFCs)to the ozone layer serving as precedent for international action,the global community convened in Rio de Janiero in 1992under the auspices of the United Nations Conference on Environment and Development. Following much discussion and without the sup-port of the United States,154nations signed the UN Framework Convention on Climate Change (Lachica,1994).The154signator nations agreed to roll back carbon dioxide emissions to1990 levels by the year2000.It was not until after the election of President Clinton that the US belat-edly pledged to abide by the accord.By1996,the substance of such a pledge cannot be supported by even US government projections of CO
2
emis-sions(see Fig.2).
Mobilizing the global community to phase down CFC production under the1987Montreal Protocols took nearly20years of scienti?c inquiry and debate(Firor,1990).Governments responded with implementation regulation and a regime of accelerating tax rates to be assessed against re-maining inventory(Mendelson and Mirsky,1990). In1990,on the basis of additional scienti?c infor-mation,the signators to the initial phase down agreed to move up the date to the year2000and,?nally under a1992protocol87countries ad-dressing growing evidence of severe ozone layer damage agreed to an even more rapid out of production(Ko et al.,1994).Although the nations of the world reached agreement on CFCs,
M .Tucker /Ecological Economics 22(1997)85–96
88Fig.2.Projected carbon emissions in metric tons (Source:US Dept.of Energy).
the road to that agreement was blocked for years
by major chemical manufacturers seeking de?ni-
tive proof that a problem did in fact exist.With
refrigeration representing the largest market for
CFCs,followed by a litany of many other practi-
cal applications,CFCs had become an integral
part and pro?table component of business.Pro-
ducers of CFCs were concerned not only with a
ban’s impact on their pro?ts,but also their ability
to provide viable substitutes without which many
conveniences of modern civilization would sud-
denly cease to exist.The chemical industry’s last
minute support for a phase out of CFCs in the
face of massive scienti?c evidence was boosted by
the discovery and development of acceptable sub-
https://www.doczj.com/doc/c714866370.html,cking current viable substitutes for fos-
sil fuels capable of sustaining global industrial
society at ever increasing levels of economic pros-
perity,scientists would need to simultaneously
develop de?nitive proof of global warming and
affordable substitute sources of energy.While
CFCs constituted only a small portion of the chemical industry’s revenues,fossil fuels are the petroleum industry.Fossil fuel substitutes may also be developed outside of the petroleum indus-try, e.g.,solar or geothermal.Employing those substitutes to ameliorate the impact of global warming would depress the market assets of oil companies that are not investors in these emerg-ing technologies,a fact that will likely make their opposition to action on global warming consider-ably stronger than that of the chemical industry to a phase out of CFCs.2.Discounting global warming Global warming,if it does occur,will largely be a concern for future generations.The economic cost of taking radical action to reduce GHGs today far outweighs the distant discounted bene?ts.For example,suppose the cost of developing substitute energy sources and making a global changeover could be incurred in one
M.Tucker/Ecological Economics22(1997)85–9689
payment of$3trillion today.Next,make the simplifying assumption that by changing over now,the world economy would avoid perpetual annual costs of as much as$500billion beginning in100years—a sum that may be in excess of the actual cost of global warming but useful for demonstration purposes.From a cost/bene?t standpoint the net present value at a10%dis-count rate of taking action costing$3trillion today would be a negative$2.999trillion.Because the bene?ts of taking expensive action today are so distant in time,the present value of those bene?ts appears minuscule when compared to the costs incurred.Doing nothing is therefore an eco-nomically logical alternative.Following this eco-nomic logic to its ultimate conclusion produces an even more sobering result.Let us assume that if we do nothing today the world as we know it will cease to exist in100years,i.e.,there is no longer any economy to speak of which essentially means we have lost all the future annual global GDP from that time forward.If we spend$3trillion today to avoid the cost of losing a future global economy worth$20trillion per year,the net present value of such an investment at a10% discount rate would still amount to a negative $2.985trillion.The most we should logically be willing to spend to avoid a future perpetual cost of$20trillion is just under$15billion,the present value of the$20trillion world economy lost in perpetuity beginning100years from now.Given that we are by no means certain that the end will come in100years,if we multiply the$20trillion annual cost that might be incurred by its likeli-hood,we would be willing to spend ever decreas-ing sums of money to avoid it as that likelihood is diminished.Pursuing this logic,it would appear that spending anything more than$15billion even exploring the problem is economically unjusti?ed if it will not have an economic impact for100 years.
Nordhaus(1991),using a discount model,ad-justing for uncertainty and taking risk aversion into account,?nds that utility gained to avoid reductions in future consumption is negligible re-gardless of the amount of risk aversion or uncer-tainty.While this is a more elegant and mathematically rigorous analysis,the results are essentially the same.One salient factor that would make the outcome different under these assump-tions would be to lower the discount rate;how-ever,it would need to be lowered considerably below an economically rational level before the present value of future losses would be greater than potential current expenditures.
Parry attempts a different approach,viewing action taken today as providing insurance against uncertainty(Parry,1993).The conclusions are the same.The insurance value from cutting GHG emissions is trivial compared to the cost unless an extremely low discount rate is used.Again,this is so because the possibility of climate change may be so far in the future and the impact of that change will be small relative to total consumption. Parry’s model does not assume a runaway green-house effect results in the earth resembling Venus, but rather a relative decline in economic output thus limiting the worst case scenario to relative economic inconvenience.Differing only in empha-sis with Parry,it will be argued that the uncer-tainty of change is as important as its advent and that uncertainty,if appropriately priced,can have policy implications.
3.Some proposed solutions
Left with little rationale for major expenditures by current economic analysis,some propose mar-ket-based intercession as a somewhat less painful route.Under a market-based system,countries would be given carbon emission offsets that could be traded(Swisher and Masters,1991).To accom-modate such a regime,an international treaty would have to be negotiated under which all countries would agree on carbon emission quotas, monitoring,and penalties.While not impossible, such a treaty would be dif?cult at best and would entail either the creation of a new international organization with sweeping powers or granting an existing organization such as the United Nations the ability to oversee the activities of signator members in a considerably more intrusive manner than it now does.Conservative politicians the United States,already suspicious of the United Nations as it currently exists and unhappy over a
M.Tucker/Ecological Economics22(1997)85–96 90
perceived loss of sovereignty accompanying mem-
bership in the World Trade Organization(WTO), would be unlikely to support such a concentration of global regulatory authority.
Even if the nations of the world were willing to negotiate some agreement on reducing emissions, there is the problem of setting country-by-country emission quotas.Rolling back emission levels to 1990would not suf?ce.Emissions levels in1990 would still lead to a doubling of atmospheric CO
2 by2100(Stevens,1994).An even more intractable though perhaps desirable goal,stabilizing CO
2 concentrations in the atmosphere at current levels, would require draconian reductions in emissions of 60–80%below1990levels(Houghton et al.,1990). Concentrating on regulating CO
2
emissions, clearly the easiest GHG emissions to target be-cause of its association with industrial processes or transportation involving burning fossil fuels, would leave other important GHGs unregulated. As a greenhouse gas,methane has58times more
heat trapping potential than CO
2
per kg,however, this is offset to a great degree by its relatively short persistence in the atmosphere of11years vs.100
years for CO
2
(Stewart and Wiener,1992). Methane,in its current atmospheric concentra-tions,represents only20%of global warming potential(GWP)of all greenhouse gases.In the
US,CO
2
emissions are six times greater than methane emissions,but in India methane emissions
are twice that of CO
2
.
Other dif?culties inherent in negotiating any type of effective international treaty are the differ-entials in the relative energy ef?ciency of the negotiating parties.Japan,having already drasti-cally reduced fossil fuel use,would?nd further reductions considerably more costly than the less energy ef?cient US and much more expensive than terribly inef?cient China(Epstein and Gupta, 1990).Less developed countries(LDCs)face a different situation and perhaps a more dif?cult negotiating position.Reducing emissions from al-ready comparatively low levels would inhibit fur-ther development unless viable and affordable energy substitutes for fossil fuels could be found. Without a change in economic motivation,the current energy choice of many LDCs,the use of abundant and inexpensive coal,is expected to double in the next30years(World Resources Institute,1994).China,a major user of coal,has already been a less than willing party to many international agreements.
Allocating emission permits by population rather than historical emissions levels would radi-cally change the economic fortunes of both the developed and less developed world(Epstein and Gupta,1990).Such an allocation strategy would place developing countries in the position of being able to negotiate energy ef?cient development in exchange for emissions permits.Unfortunately, while an economically interesting solution to both inequities in international wealth and CO
2
emis-sions,it would again entail the creation of a large intrusive international organization threatening the sovereignty of it members.It would also re-quire all major nations to agree to its terms or face irrelevancy.
4.Insurance industry uncertainty
The IPCC concluded that current climate mod-els did not provide a consistent indication of whether or not tropical storms would increase in the advent of global warming,and they noted that there was no evidence of an increase in intensity in recent decades(Houghton et al.,1990).The IPCC, 1995report was considerably less sanguine in both forecasting future damage and the potential evi-dence of current impact:
…human activities,including the burning of fossil fuels,land-use change and agriculture,are increasing the atmospheric concentrations of greenhouse gases(which tend to warm the at-mosphere)and,in some regions,aerosols(mi-croscopic airborne particles,which tend to cool the atmosphere).These change in greenhouse gases and aerosols,taken together,are pro-jected to change regional and global climate and climate-related parameters such as temper-ature,precipitation,soil moisture and sea level. Second,some human communities have be-come more vulnerable to such as storms,?oods and droughts as a result of in-creasing population density in sensitive areas
M.Tucker/Ecological Economics22(1997)85–9691 Table2
Major windstorm catastrophes1960–1992
1970–19791980–1989
1960–19691983–1992
2931
14
8
Number
$88.1
$38
Economic losses(in billions of1992dollars)$22.6$33.6
$8.3$18.9
Insured losses$52.1
$5.3
such as river basins and coastal plains.Poten-tially serious changes have been identi?ed,in-cluding an increase in some regions in the incidence of extreme high-temperature events,?oods and droughts,with resultant conse-quences for?res,pest outbreaks,and ecosystem composition,structure and functioning,includ-ing primary productivity.
For property insurers,the IPCC’s forecast of uncertainty coupled with a more critical analysis of recent climatological history have led to dauntingly negative economic conclusions.Being in the busi-ness of forecasting the cost of claims in order to properly assign premiums,property insurers are of necessity also weather forecasters.Forecasters use historical data to estimate future events.Historical data may lose its relevancy as GHG concentrations accelerate and weather becomes more unpre-dictable,making forecasts based on such data problematic.Faced with a series of catastrophic losses,several property insurers have reached the conclusion that climate change and its economic implications have already arrived.Munich Re,the world’s largest reinsurance company providing sec-ondary coverage to property insurance companies, cites a sudden change in windstorm damage(Berz and Klaus,1994).Table2shows losses,in dollars in1992,have been increasing with the greatest increases coming most recently,particularly if the 1983–1992period(column four)is taken as a decade in comparison with prior decades.While insurers admit that a sizable proportion of the increase in catastrophic payouts is due to an increase in insured property values,a tendency for coastal development,and greater population,there is still something to be said for the increasing ferocity of windstorms.Kerry Emanuel of MIT,a hurricane expert,estimates that doubling green-house gas concentrations would increase cyclone intensity by40%(Leggett,1993a).The number of strong low pressure areas over North America and Europe has increased by40%since the1930s while the number of extreme low pressure areas has gone up even more rapidly(Berz and Klaus,1994). Although Hurricane Andrew did not hit a major metropolitan area,it still in?icted$25billion in damages(Flavin,1994).Insurance companies sus-tained$17billion of that damage(Leggett,1993b). Those losses bankrupted nine small insurance com-panies in Florida and resulted in the state taking drastic action to prevent major insurers from leaving and/or cancelling existing policies (Navarro,1996).In1993,Florida placed a morato-rium on insurance companies prohibiting the can-cellation or nonrenewal of existing property insurance.As an inducement to lure more insurers into the state,Florida also set up a fund to partially reimburse insurers in the event that a single hurricane in?icted damages in excess of$3 billion.To supply coverage for residential cus-tomers unable to?nd it,Florida also got into the insurance business by creating the Residential Property and Casualty Joint Underwriting Associ-ation insurance pool which services875000cus-tomers.The fund is meant to be temporary.With $1.5billion in credit it would be just as incapable of sustaining the$25–$50billion in insured dam-ages that could occur if a major hurricane struck a large metropolitan area as would be insurance companies.
In an unregulated market,rates would be ex-pected to rise to levels that would appropriately compensate insurance companies for increased risk.For homeowners with coverage,rates have gone up.In Florida rates have risen by since Andrew,and have more than doubled in the Miami area but insurers still consider these rates
M.Tucker/Ecological Economics22(1997)85–96 92
20–40%below what is needed to properly in-demnify insurers.Many small insurers simply want to get out while larger companies want to exclude hurricane damage coverage,passing that burden on to the state on a permanent basis. With a possible decoupling of historical data from future climate events due to the uncertain-ties of global warming,arriving at an appropri-ate assessment of risk and a fair premium to charge for insurance may be more of a‘guessti-mate’than a scienti?c analysis.
Where insurers have not been constrained from exiting they have in fact ceased offering policies.Following$300million in damage in?-icted by Cyclone Iniki in Hawaii,the?fth largest insurance group on the islands went out of busi-ness and the largest,First Insurance,announced it would not renew residential policies,leaving 38000homeowners without insurance(Leggett, 1993b).After severe cyclone damage in Western Samoa,National Paci?c Insurance and Travelers Insurance Company both withdrew from further coverage,leaving the island without any in-surance carriers whatsoever.An uninsurable fu-ture can have a devastating impact on an economy.In the US Virgin Islands,new con-struction has come to virtual halt because lenders require insurance protection and it is not avail-able(Leggett,1994).
European windstorms present another facet of unpredictability.Prior to the mid-1980s it was assumed windstorm losses exceeding$1billion could only occur in United States.That was until an October1987windstorm in Europe resulted in insured losses of$3.1billion.Even this catastrophe was dwarfed by the$10billion of insured losses(Table1)from windstorms in1990 (Berz and Klaus,1994).Thus,in addition to an increase in risk in areas of the world where wind damage from hurricanes and cyclones has histor-ical precedent,previously unaffected and ill-pre-pared areas may suddenly deplete insurance industry coffers.
When spread out across multiple policies and diversi?ed geographically,it is possible to limit risk exposure;a strategy which makes insurance a pro?table business.Smaller companies and even larger?rms may achieve geographical diver-si?cation by selling some of the risk to reinsurers who become the ultimate global risk takers,but also hold the most diversi?ed policy portfolio. The cost of obtaining reinsurance is passed along to policyholders.In the United States,state in-surance commissions regulate allowable rates in line with historical exposure to risk.Any change in forecasts that have not yet been demonstrated by actual events may not be factored into premi-ums until such events impact historical averages. If the overall data considered in tabulations of risk cover many years,even a trend of increasing catastrophic events would not have a major im-pact on acceptable insurance rates until many years of excessive payouts to claimants had oc-curred.
Is there in fact a change in global climate that can be ascribed to increases in windstorms?Me-teorologists have found that tropical cyclones or hurricanes can only develop and gain strength when ocean temperatures are greater than26°C. Therefore,if global warming is underway and water temperatures are rising,greater areas of cyclone activity would be possible,perhaps threatening South America,the Mediterranean region and Western Europe(Berz and Klaus, 1994).A Munich Re report concludes that if water temperatures in the Atlantic rose0.5–1°C, the hurricane season would be several weeks longer while the frequency and intensity of storms would increase(Leggett,1993b).Donald Friedman,former director of the Natural Haz-ards Research Program for Travelers Insurance, believes that warming would create an extended hurricane season with storms tracking further north,perhaps making New York City or even Boston more frequent targets(Flavin,1994).
In1991Tokyo Marine and Fire concluded that a one–degree centigrade rise in the surface temperature of the China Sea had made it possi-ble for Typhoon Mirielle to become the sixth strongest typhoon ever recorded to hit Japan. That one degree was considered to be related to global warming by Tokyo Marine and Fire vice president Shiro Horichi(Leggett,1994).
A base of meteorological experience indicates that warmer oceans are an important component in cyclone and hurricane formation.
M.Tucker/Ecological Economics22(1997)85–9693
The possibility that the oceans are warmer,seen as fact by Tokyo Marine and Fire,creates a much more dif?cult insurance climate.Calculat-ing the risk of damages based on historical data could grow increasingly irrelevant.
Crop insurance,a specialized area of property insurance accounting for3%of property in-surance policies written in the US,is similarly dependent on the stability of historical data.Pre-miums are established by consulting a detailed database consisting of insured crop losses dating back to1924by township,crop and type of policy,premiums and losses paid(Fosse and Stanley,1993).Aside from unpredictable changes in climate that would occur under global warm-ing,there would also likely be a shift in the varieties of crops grown in some areas.Under one economic scenario,to maximize value,it is assumed that farmers would shift away from grains to other crops less threatened by a drier, warmer climate(Mendelsohn et al.,1994).A shift in crops coupled with changing weather pat-terns would make premium calculations ex-tremely dif?cult for crop insurers.Historical experience has shown that when crop changes have occurred due to localized changes in climate and/or local decisions to alter crop concentra-tions,there were several years of adjustment dur-ing which severe losses were suffered by both farmers and insurers(Fosse and Stanley,1993).
A greater frequency of hail,in?uenced by in-creased use of irrigation,was found to be one unpredictable new variable.Ironically,an opti-mistic model of climate change postulated that crop changeovers coupled with increased irriga-tion would reverse the negative economic aspects of climate change in the United States(Mendel-sohn et al.,1994).Contrary to that assumption, precedent in the United States(Fosse and Stan-ley,1993)indicates that great adjustments in crops under cultivation coupled with alterations in weather patterns over large areas would place considerable strain on crop insurers as well as farmers,perhaps necessitating an increased re-liance on government programs even as those programs are under pressure from a budget con-scious US Congress.5.Uncertainty and insurance premiums:an option analysis of premium prices
For insurers a simple equation,R=P S,risk equals the probability of an occurrence times the scope of a loss event,is at once informative in setting rates and dif?cult to calculate.Methodo-logically,probability must be established to deter-mine which events are possible and which events are impossible.Accidents or damage below the threshold of massive disruption can be dealt with by affected social and economic systems. Catastrophes are of a greater magnitude than accidents and require outside help to avert the destruction of social and economic systems.That help typically comes from reinsurance companies that have taken on locally excessive risks on a global basis.Swiss Re,a major global reinsurer,is increasingly less certain about how expensive that risk may be.‘‘As long as there is no way of forecasting how the future climate will evolve and as long as it can justi?ably be assumed that within the space of two human generations,higher values will be achieved than at any time in the preceding 10000years,the occurrence anywhere on earth of sudden storms of unprecedented and perhaps even inconceivable ferocity and duration cannot be ruled out’’(Swiss Re,1995).Both the probability of extreme events and the scope of those events may be rising in the simple risk equation. Applying the?nancial theory of options valua-tion may provide insight into insurance valuation and a way of modeling the cost of increased risk before extreme events occur.Financial options, such as the right to buy stock,a call option,or sell stock,a put option,can be valued by taking into account the price of the stock,the variability of price changes,the exercise price of the option, time to expiration and the variability of the un-derlying asset value.Insurance policies are very much like put options.In essence,the sale of an insurance policy is the sale of a put option to a policyholder.The insurer as the seller of the put agrees to buy back the asset for its insured value if that value should fall below the insured value. More precisely,the insurer agrees to restore the asset to its original value up to the value of the policy or compensate the policyholder for the
M .Tucker /Ecological Economics 22(1997)85–96
94Fig.3.Policy Premium for $100000of coverage at different rates of variability.
reduction in the value of his asset up to the full
value of the asset.An insurance policy viewed as
a put option can be valued using the Black Sc-
holes Option Pricing Model:
P =?VN !?ln(V /X )?(r +|2/2)T
| T "+X e ?rt N !?ln(V /X )?(r ?|2/2)T | "where,P =the insurance policy premium;V =
current market value of the insured property;
X =the insured value of the property;r =is the
riskless rate of interest (typically Treasury Bill
rates);T =time to expiration of the policy;|=
standard deviation of property values as affected
by weather;N {.}=normal density probability
function (Smith,1979).
Pricing the weather component of a property
insurance policy involves pricing the value of the
put option being sold by the insurance company.
Of particular interest in this valuation is the
change in the standard deviation of property val-ues.Typically S.D.s are calculated using historical data.This calculation is only accurate if variabil-ity for the insured period will be the same as during the historical period.In the event that global warming is in fact beginning to have an impact on climate,its ?rst manifestations could be an increase in the variability of weather (Smith and Tirpak,1989).Using a simple example of a $100000insurance policy covering weather-related damage only,it is possible to examine the impact changes in weather variability would have on the price of that policy.Fig.3shows fair market increases in policy premi-ums necessary to account for weather-related de-clines in the end of period value of insured assets calculating the option pricing model at increasing S.D.s,i.e.,occurrences of weather-related disas-ters that damage property and lower the value of the insured asset.Premiums increase with in-creases in variability because higher variability increases the probability that insured assets will be worth at the end of the period.From the standpoint of the bell curve of a normal distribu-
M.Tucker/Ecological Economics22(1997)85–9695
tion,higher variability translates into a?atter distribution with larger tails;what were once con-sidered outlier events become more probable. 6.Insurance companies as environmentalists? Insurance company responses to increases in exposure can range from abandoning riskier mar-kets,to raising premiums,to insisting on greater deductibles,to refusing to insure property without owners subscribing to a list of protective mea-sures.All of these strategies are aimed at reducing risk to the insurance company,i.e.,the variability of outcomes.Reducing greenhouse gas emissions rather than coming up with end-of-pipe solutions is analogous to redesigning processes that for-merly dumped ef?uent into rivers rather than installing treatment facilities.
From the perspective of insurers,the most ef-fective way to reduce risk would be to take action to limit the probability of global warming or reduce its impact.Of course,insurers could still make money by raising rates,but a series or even one major catastrophe for which they would be unable to charge a suf?cient preceding premium would have the potential to bankrupt a large portion of the industry.From a macroeconomic standpoint,higher insurance rates put a damper on economic activity particularly if those rates do attempt to price all the uncertainty inherent in climate change.With many jurisdictions ruling on the appropriateness of premium increases insisting on linkages with historical data,there may also be limits put on increases until trends could be estab-lished by which time some insurers could be out of business.
Faced with an inability to raise rates to appro-priate levels and in some instances barriers to exit from risky markets,insurance companies may drown in red ink subsequent to weather catastro-phes.One way to approach this dilemma is to become proactive environmentalists.Fifty in-surance companies,none based in the United States,have signed a United Nations-sponsored document,Statement of Environmental Commit-ment by the Insurance Industry,pledging to sup-port sustainable development,environmental management,public awareness and communica-tions(Flynn et al.,1996).Citizens Trust,a family of socially responsible mutual funds managing $320million in assets has called upon?ve US-based insurance companies,General Re,Chubb Corporation,St.Paul Companies,SAFECO,and USF and G,it had identi?ed as socially responsi-ble to
Take climate change into account when esti-mating expected losses.
Favor industries that can contribute to reduc-ing emissions in asset management.
Promote sound environmental practices.
Become active in public awareness and climate formulation policies.
7.Conclusion
Gathering suf?cient evidence to convince the sharpest critics of the existence of global warming continues.With some of those critics,the oil industry in particular,having a vested interest to deny the role of fossil fuels in climate change,the entry of a similar sized industry on the other side of the debate could play a major role in convinc-ing other businesses of the ef?cacy of existing evidence and the need for immediate action.Cer-tainly,the linkage between insurance premiums and the threat of global warming would send a clear economic message to all parties.The?rst signs of the appropriateness of that linkage could be the increase in catastrophic weather-related damages.Incorporating the rise in such risks into a justi?cation of insurance rate hikes in the ab-sence of long-term trends is a dif?cult proposi-tion.Application of option pricing from?nancial theory demonstrates the very real nature of the justi?cation of premium hikes even in the absence of a shift in‘average’damages.The heightened uncertainty of future climate due to rising levels of greenhouse gas emissions and concentrations has been accepted as fact by the IPCC report in 1990and more strongly in1995.Accepting that uncertainty may be suf?cient motivation to begin making a case for economic justi?cation to take action today.Demonstrating the link be-tween increased uncertainty and the necessity for
M.Tucker/Ecological Economics22(1997)85–96 96
higher insurance premiums is the opening argu-ment.The logical advocates with an economic stake and the clout to make the case are insurance companies.
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#157:避免温室变暖，还是解决? Some people think instead of preventing climate change, we should find ways to live with it. To what extent do you agree or disagree? 学生的观点点评 学生的观点点评 A适应变化 B不用花钱治理 C成本低不合理。Live with climate change意 思是忍受气候变化，这个成本也不低的。 A忍受不作为B气候异常物种灭绝C破坏生态平衡有点空泛。生态平衡破坏有什么具体的坏处？ A 人类适应气候是一个漫长的过 程 B 需要花费点几代人的代价以及巨大的资源 C 人类应该选择治理气候感觉没有什么逻辑。既然那么漫长，为什么还治理？ 开头段替换词 Prevent climate change: reverse climate change, halt climate change, stop climate from changing, fight global warming Find ways: find methods Live with it: adapt to it 开头段范例 Climate change has been an international issue which has drawn extensive attention. I do not agree with people who argue that we should adapt to climate change, rather than make an attempt to prevent it from happening. 结尾段范例 In conclusion, while some regions may have the incentive to adapt to climate change, I believe that the primary strategy is to prevent it. 点击开始作答观点
题目： Some people think that instead of preventing climate change, we need to find a way to live with it. To what extent do you agree or disagree? 范文： Climate change represents a major threat to life on Earth, but some people argue that we need to accept it rather than try to stop it. I completely disagree with this opinion, because I believe that we still have time to tackle this issue and reduce the human impact on the Earth's climate. There are various measures that governments and individuals could take to prevent, or at least mitigate, climate change. Governments could introduce laws to limit the carbon dioxide emissions that lead to global warming. They could impose “green taxes”on drivers, airline companies and other polluters, and they could invest in renewable energy production from solar, wind or water power. As individuals, we should also try to limit our contribution to climate change, by becoming more energy efficient, by flying less, and by using bicycles and public transport. Furthermore, the public can affect the actions of governments by voting for politicians who propose to tackle climate change, rather than for those who would prefer to ignore it. If instead of taking the above measures we simply try to live with climate change, I believe that the consequences will be disastrous. To give just one example, I am not optimistic that we would be able to cope with even a small rise in sea levels. Millions of people would be displaced by flooding, particularly in countries that do not have the means to safeguard low-lying areas. These people would lose their homes and their jobs, and they would be forced to migrate to nearby cities or perhaps to other countries. The potential for human suffering would be huge, and it is likely that we would see outbreaks of disease and famine, as well as increased homelessness and poverty. In conclusion, it is clear to me that we must address the problem of climate change, and I disagree with those who argue that we can find ways to live with it.
2015MBA联考英语作文押题（按重要程度排序） 1.建议信 Directions: Restrictions on the use of plastic bags have not been so successful in some regions. "White Pollution" is still going on. Write a letter to the editor(s) of your local newspaper to 1) give your opinions briefly, and 2) make two or three suggestions. You should write about 100 words. Do not sign your name at the end of the letter; use Li Ming instead. You do not need to write the address. Dear Editor, I have been reading your newspaper for many years with a great enthusiasm and interest. It is my view that limiting the use of disposable plastic bags is of utmost significance. To crack this hard nut, I would like to propose several practical recommendations as follows. First and foremost, it is imperative for us to ban the free use of disposable plastic bags. In addition, we should develop possible alternative forms to replace them, such as paper
我的低碳生活初中英语作文带翻译 篇1 Low carbon life is popular nowadays. Its aim is to reduce the energy in our daily life, especially reduce the emissions of carbon dioxide. It is well-known that the air pollution is more and more serious. So we should do something to protect our earth. 如今，低碳生活是很受欢迎的。其目的是为了减少我们日常生活中所消耗的能量，尤其是减少二氧化碳的排放量。众所周知，空气污染越来越严重。所以我们应该做些什么来保护我们的地球。 Firstly,we should take more bus instead of driving cars. As people’s living standard has improved, there are more and more people driving private cars. This phenomenon is one of the causes for air pollution. Because its gas will produce lots of carbon dioxide, which may enventually lead to air pollution. Secondly, when we leave our house or classroom, we would better turn of the lights, fans or airconditioning. 首先，我们应该多坐公车而不是开车。随着人们生活水平的提高，越来越多的人开私家车。这一现象是造成空气污染的原因之一。因为它排放的气体会产生大量的二氧化碳，这可能最终导致空气污染。其次，当我们离开我们的房子或教室时，我们最好把灯，风扇或空调关了。 To make our unique earth better, we should appeal people to live a low carbon life. It is also will be the main trends in the fut ure. Let’s do something for our mother earth. 让我们唯一的地球变得更好，我们应该呼吁人们过低碳生活。这也将是未来的主要趋势。让我们为我们的地球母亲做点事情吧。 篇2 Nowadays ,many people are talking about low carbon living. I think each and every one of us is responsible for the greenhouse gases we emit in our daily actions and choices. Therefore, combating climate change is going to take the combined efforts of everyone on the planet. 现在，许多人都在谈论低碳生活。我认为每一个人都是我们每天的行动和选择中排放的温室气体的责任。因此，应对气候变化将采取联合的努力，在地球上的每个人。
climate change essay 题目： Some people think that instead of preventing climate change, we need to find a way to live with it. To what extent do you agree or disagree? 范文： Climate change represents a major threat to life on Earth, but some people argue that we need to accept it rather than try to stop it. I completely disagree with this opinion, because I believe that we still have time to tackle this issue and reduce the human impact on the Earth's climate. There are various measures that governments and individuals could take to prevent, or at least mitigate, climate change. Governments could introduce laws to limit the carbon dioxide emissions that lead to global warming. They could impose “green taxes” on drivers, airline companies and other polluters, and they could invest in renewable energy production from solar, wind or water power. As individuals, we should also try to limit our contribution to climate change, by becoming more energy efficient, by flying less, and by using bicycles and public transport. Furthermore, the public can affect the actions of governments by voting for politicians who propose to tackle climate change, rather than for those who would prefer to ignore it. If instead of taking the above measures we simply try to live with climate change, I believe that the consequences will be disastrous. To give just one example, I am not optimistic that we would be able to cope with even a small rise in sea levels. Millions of people would be displaced by flooding, particularly in countries that do not have the means to safeguard low-lying areas. These people would lose their homes and their jobs, and they would be forced to migrate to nearby cities or perhaps to other countries. The potential for human suffering would be huge, and it is likely that we would see outbreaks of disease and famine, as well as increased homelessness and poverty. In conclusion, it is clear to me that we must address the problem of climate change, and I disagree with those who argue that we can find ways to live with it. 'economic progress' essay 题目： Many governments think that economic progress is their most important goal. Some people, however, think that other types of progress are equally important for a country.? Discuss both these views and give your own opinion. 范文： People have different vi ews about how governments should measure their countries’ progress. While economic progress is of course essential, I agree with those who believe that other measures of progress are just as important. There are three key reasons why economic growth is seen as a fundamental goal for countries. Firstly, a healthy economy results in job creation, a high level of employment, and better salaries for all citizens. Secondly, economic progress ensures that more money is available for governments to spend on infrastructure and public services. For example, a
The best way to solve the world’s environmental problems is to increase the cost of fuel. To what extent do you agree or disagree? 自己写： There is no doubt that we are producing record levels of CO2 and there is no dispute about the connection between this and environment problem. （这句话虽说是在交代背景，但是却没有很好 的联系题目Most people would accept that one of the highest priorities today is to find a solution to the various environmental problems facing mankind.范文就联系到了solve 这个词But rising the price in fuel is not the only way to protect the environment crisis. （It has been suggested that best way to achieve this is for governments to raise the price of fuel.感觉首段对于同不同意这种题还是先不要表达观点，我就变相的先提出了观点）So I partly agree with the idea.（表明同意还是不同意比较好I am, however, not sure that this is necessarily the case.范文的表达方式可以借鉴） The first point to make is that variety of factors contribute to the environment issues, excessive use of fossil fuels is only one of these. （自己的观点还是很好的，跟范文意思差不多，但是他更切题 并且简洁One reason why this approach may not work is that there is not just one environmental problem the world faces today.）Obviously human activity is the main reason in affect the earth. Like built increasing number of dirty power station which using tons of fossil fuels. And we cannot forget that illegal logging in the Amazon Basin is also a major factor in environment problems. Although some areas are relatively unaffected now, environment issue is still a global problem.（If governments did make fuel more expensive, it might well help reduce the amount of carbon dioxide we produce and so slow down the rate of global warming and air pollution. However, it would not help with other major problems such as intensive farming, overpopulation, the
Climate Change and its Solution Climate problems are becoming more and more serious all over the world. In recent years, we human frequently pay the bill for the man-made climate change. Climate problem, as a world wide problem, gradually poses a threat to the sweat life of human beings. What contributes to the climate changes? Greenhouse effect has been directly leading to the global warming. As is known to all, the greenhouse gas, as a protector, plays a vital role in adjusting temperature of the earth. But excessive quantity of greenhouse gas will block the heat exchange between the earth and astrospace, which gradually results in the warming of the earth. Among these greenhouse gas, nitrogen dioxide (CO2) is the chief one to cause greenhouse effect. In order to pursue economic development, countries around the world have discharged a great quantity of CO2 to the atmosphere and ultimately developed into climate problem. When it comes to the climate problem we confront with now, some scientists treat it as a natural period which is similar to the history, so they try to persuade us not to worry and panic. But others think the climate change is a long-term other than a temporary issue. According to the statistics, eleven of the last dozen years have ranked the twelve warmest years since 1985. Why do the average temperature continue go up? In the past years, the world population is explosing, while large acreage of
The climate is changing. The earth is warming up, and there is now overwhelming scientific consensus that it is happening, and human-induced. With global warming on the increase and species and their habitats on the decrease, chances for ecosystems to adapt naturally are diminishing. Many are agreed that climate change may be one of the greatest threats facing the planet. Recent years show increasing temperatures in various regions, and/or increasing extremities in weather patterns. This section looks at what causes climate change, what the impacts are and where scientific consensus currently is. It seems there has been a recent interest in associating climate change/global warming with “over population” and that countries such as China and India have to do more to help contain global warming. Yet rich countries have a lot to do themselves. There were agreed reasons why developing countries were exempt from initial greenhouse gas emission targets: it was the emissions from rich countries that accumulated in the atmosphere for so long to trigger climate change.
climatechange作文 【篇一：雅思作文环境类作文】 2014年7月26日雅思写作解析与范文（环境话题） 题目：some people think that environmental problems are too big for individuals to solve. others, however, believe that these problems cannot be solved if individuals do not take actions. discuss both views and give your own opinion. 解析： 环境话题是雅思考试每年的必考题，今年更是多次考到。这类话题主要涉及能源、资源和生态环境。7月26号这个题目也算是环境话题里的老题目了。前几年曾经多次出现这个题目。 保护环境当然是每个人的责任，只不过政府的责任更大。本文的主体段第一段是写得个人力量有限，主要靠政府的法律和行政权力（legal and administrative power），以及企业的财力和技术。举了几个例子，比如政府颁布法律（enact strict laws），惩罚排放污水（discharge waste water）的企业，开发新技术等等，这些都是个人力量无法做到的。 主体第二段写得是个人可以为保护环境做一些事情，仍然采用举例论证，比如节约用水，减少开车。这些都是individuals可以做的事情，都可以节约资源，改善城市空气质量。这些素材在之前的环境类话题中也多次写到过。 最后一段进行总结。政府、个人，包括全社会的每一个成员都应该参与保护环境。 there is no doubt human society is faced with serious environmental problems and immediate measures should be taken to solve these problems. however, what role ordinary people should play in environmental protection is a topic of debate. some people think that the power of the individual is too small and the solution to environmental problems lies with the government and large enterprises. if the government can use legal and administrative power to curb environmental pollution, the effect would be significant. for example, it is common practice for some factories to discharge waste water into the river. if the government could enact strict laws to punish these factories, this kind of
2020考研英语二阅读真题解析：难度适中 首先，从题材角度来分析 今年的考题从文章角度上看，貌似读起来很拗口，不知所云，但其实只要认真读，没有那么难理解。详细来说，第一篇文章讲到了 一个当今很流行话题，压力下如何表达情绪，即Whenguiltisgood，什么时候内疚是好的。虽然这是英语二的考题，但与英语一2008年 第一篇Womenunderstress中的内容有相同之处，以及2016年英语 二新题型《如何表达情绪》中也有相应内容，这也是相似话题的重 复命题考察。所以，再次强调，真题很重要，复习好真题，并且多 遍反复看真题是重中之重。接下来，看看第二篇文章，UsingForeststoFightClimateChange，和第四篇文章 Let’sstoppretendingquittingstrawswillsolveplasticpollution 环境类话题，近年来来环境和新能源问题都是热门考点，出题人也 会紧跟整个全球的发展。比如，2014年第三篇，2015年英语二第二 篇等都是围绕环境这个话题，当然还有很多很多。出题人越来越关 注环境话题。 英二第三篇文章涉及美国农业的话题，题为 USFarmsCan’tCompeteWithoutForeignWorkers,美国农业问题对于2019年考生来说属于和时事有关的内容，英语二2018年第二篇文章，文章一上来就考察了Trump这个人物，是不是很时新，是不是 很潮流，出题人也会紧跟整个全球的发展。比如，各位有没有发现，2015年英语二第四篇文章考察了Obamacare奥巴马医改，这个话题，当年的奥巴马还是很热门的啊;再比如2007年第三篇文章考察了PresidentPush的SocialSecurity活动，这说明出题人越来越关注 最新时事话题。越来越倾向于贴合全新的当下和热点有一定关联的 内容选出阅读文章，大家平时要读报纸，也要多读些时事要闻 从以上的分析可以看出，一方面要多次反复地复习曾经考过的题目;另一方面，要相应地关注一下时事新闻，最好是最新的期刊杂志 等多关注一下。
【最新2018】英语作文：Climate Change-word范文模板 本文部分内容来自网络整理，本司不为其真实性负责，如有异议或侵权请及时联系，本司将立即删除！ == 本文为word格式，下载后可方便编辑和修改！ == 英语作文：Climate Change 话题： This week's topic: Climate Change (90-110 words) Suggestions: 1) Share your story of suffering climate change(including extreme weather conditions) 2) Is it inevitable? What can we do to change it? 3) What is the influence of climate change? 4) Anything you would like to write. 范例1： Human beings are now adapting to extreme weather conditions. On the one hand, afflicted by frequent scorching summers, raging hurricanes, icy cold winters and devastating floods. On the other hand, favorable weather becomes a rarity for them. In the future, extreme events will exert a greater impact on climate-dependent sectors, such as water conservancy, agriculture, forestry, energy, health care and tourism. As global economy becomes increasingly unstable and uncertain, the above-mentioned factors further complicate the economic recovery prospect. [ 英语作文：Climate Change ]相关文章：
【篇一】关于环保的高三英语作文 The problem of “white pollution” caused by used plastic is becoming increasingly serious, in which plastic shopping bags play an important role. In China about three billion plastic shopping bags are consumed every day, which results in a great waste of resources and heavy environmental pollution. Luckily, The government has put a nationwide ban on the use of free plastic bags, demanding that all stores and supermarkets not provide customers with free plastic bags after June 1. The rule will undoubtedly reduce the use of plastic bags and enhance the awareness of environmental protection. It is highly advocated that we should turn to cloth bags and shopping baskets from now on. 【篇二】关于环保的高三英语作文 There have been many environmental protection problems in recent years . One of the most serious problem is greenhouse gas emissions have caused climate change ,At the same time ,lots of trees have been used and wasted.So our earth is becoming warmer and warmer . .That brings us illnesses and death. Luckily ，,many countries have done a lot to stop environmental pollution。It's the most important in the environmental protection today. In my opinion ,on the one hand ,through education we should make people realize that destroying the environment means destroying ourselves,..On the other hand ,we should try to do something to produce fewer greenhouse gas emissions. In a word .we must develop low-carbon economy.................... 译： 现在这些年已经有很多关于保护环境的问题。其中最严重的一个问题就是温室气体排放已经造成了气候改变。同时，很多树木被砍伐掉了，而且大量别的资源已经被用完或者浪费。所以我们的地球变得越来越温暖(热)。这样带给我们的是疾病和死亡。 幸运的是，很多国家已经采取了很多措施来控制环境污染问题。如今，这是最重要保护环境的措施。 我认为，一方面，虽然教育我们应该让人们意识到破坏环境就是伤害人类自己。另一方面，我们应该尽力做一些事情来控制温室气体增长。
One of the universal issues that draw growing concern is climate change. Scientists mostly agree that global warming is an alarm-bell, warning that only when effective political actions are taken without delay, human beings could get through extinction problem within the next following century. The effect of the phenomenon has become a considerable threat to the earth and all human beings. They are too obvious to be ignored. Uncertain as the cause is, climate change may have contributed to more extreme weather today from prolonged droughts to devastating hurricanes, making tens of thousands of people's death and a huge financial loss. Still worse, coastal counties are facing the danger of disappearing by the rising sea levels. So what are the reasons for the climate changes? No one can give a certain answer. The most crucial factors, according to the researches given by the scientists, will be listed as follows. Most importantly, exorbitant emission of carbon dioxide has been held first accountable for the cause. Our industrialization, giving out poison gases and other man-made chemical compounds by an increasing tendency of using automobiles and modern machines, however, have led to the pollution and mismatching between the consumption and the production. Besides, the population boom hurries up the process of pollution, then worsens the climate change. Climate change is now a huge challenge to our planet, but there is not enough political action to control excessive consumerism and terrible pollution. In order to meet the urgent needs of cope with the situation, every citizen and every country should take measures. For one thing, by using the public service advertising to let everybody know that we humans are facing such a challenging problem. Just as the saying goes, the people's power is the most powerful force. For another thing, make laws and regulations, and enhance the further cooperation between countries so as to cut down the emission of co2 and other harmful gases in the worldwide. It is a really good news that many countries are involved in looking for solutions. In conclusion, with more and more people joining together, the problem of climate change, I believe, will be finally solved and all of us will be sure to live a healthier and happier life.