Let's be realistic. Look at the "House prices in Malibu and Pacific Palisades" -- the averages are all in excess of 3 MILLION dollars.
The millionaires owning those homes are the very ones that supported the elitist governor and California legislature that passed 103 to keep their insurance on the multi-million dollar homes low.
Those millionaires intentionally bought or built those homes in what they had to have known was "harms way". Like those East Coast millionaires that build homes on sandy beaches in hurricane country, they seem to believe that their wealth alone will protect them -- maybe because, "obviously", they are inherently better than everyone else.
"Climate change is causing more and more intense extreme events, which are leading to more frequent and costly disasters, and as a result of growing economic losses,"
Do you not agree that the increase in CO2 concentration in the atmosphere since [name a date] has increased the probability of extremes events like the the conditions prevailing in LA recently compared to no increase?
This is not to deny that the biggest problem is that rates were misrelated even with backyard-looking risk estimates.
I've laid out my perhaps mistaken understanding of the detection-attribution issue before and you have not directly contradicted me. But let me do it again and you can correct me if I am wrong.
It may be the case that we cannot reject the hypothesis that increased CO2 in the atmosphere since [date] increased the probability of "LA fire weather." I mean by this that we run the best climate model numerous times with the actual buildup of CO2 and then with no buildup. This gives up two probability distributions each with mean probability of "LA fire weather," [p(0), var(0)] and [p(1), var(1)]. Given var(0) and var(1) we cannot reject the hypothesis that ((p(1) - p(0)) = zero.
It could also be the case that (p(1) - p(0)) > 0 It woud be proper to say that we have estimated the effect of CO2 accumulation on the probability of "LA fire weather" as (p(1) -p0).
And it is also the case that hazard insurance rates should be based on p(1), not p(0).
"Fire weather: Climatic conditions conducive to wildfire have increased in Mexico, Western and North-Western North America, primarily due to warming (high confidence). Abatzoglou and Williams (2016) found climate change led to higher values for eight fuel aridity indices over the western USA in recent decades, with 2000–2015 changes exposing 75% more forested area to high fuel aridity and adding nine more high fire-potential days each year, similar to 1979–2013 western USA and Mexico fire season expansion reported in Jolly et al. (2015)."
Abatzoglou and Williams (2016) (cited above) Figure S1. shows the magnitude and direction of forced trends. In SoCal they are smaller than much of he west but present nonetheless.
Then of course there is Pielke (2011): "Some recent research is suggestive that regional warming in the western United States can be associated with increasing forest fires, even in the context of complex patterns of forest management over the past century."
Importantly -- insurance ratemaking is not based on changed risk but absolute risk. So the precise details of attribution are much less important than arriving at an accurate estimate of current risks, whatever the state of detection and attribution of long-term changes.
Fantastic. I fail to understand how variability in home value can have a substantial effect on rates since at question is the cost of replacement of structures. Outside of making material changes to a home how do gyrations in value affect insurance price unless it relates to foreclosure and associated risk for banks?
I guess it's impossible to predict home valuation for insurance purposes going forward in the Palisades given that it effectively no longer exists. There is no baseline for understanding what the market will be until homes are built and sales take place.
Roger. Great story. However, I noted you were negative about the 20 year actual loss in California's current plan. I think actual losses are the best way to go but perhaps 30 or more years and losses based on current replacement costs. Otherwise you get into the nebulous case where climate change is used to increase rates. You have shown that hurricane/tropical losses when adjusted for current development have not changed due climate change. After the 2005-2006 hurricane season my rates for a place on Alabama Gulf coast tripeled in part because of Al Gore preaching that hurricane statistics had changed due to climate change. What is not to like if you are an insurer getting higer rates? After that, as I
remember we had 11 years where there were no major land falling storm in U.S. My rates eventually came down as other providers felt they could live with rates that didn't include the full climate surcharge. I think a better strategy would be if new losses become statistically greater than the historical replacement cost that governments (perhaps both federal and state) provide interim assistance to insurers perhaps through FEMA until the actual losses can impact the historical rates.
Terrific investigative reporting as usual. Thank you. Our media, mostly three networks and local and regional newspapers that served their area, once included good investigative reporting. Now, unfortunately, the media is fragmented into dozens and dozens of outlets that mostly serve a specific bloc or faction of the population, telling them what they want to hear. Targeting specific audiences is the business model. This includes social media, which, like so much of the news, panders to people's biases, and further reinforces those biases and worse, distrust and antipathy of opposing views. Our many so-called "wicked problems" devolve into blaming a wicked opposition. How do we escape this political nightmare?
Wow. An incredibly knowledgeable analysis of the complicated world of insurance regulation.
An elected insurance commissioner is a huge part of the problem. Commissioner Ricardo Lara has been terrified of the political problems of raising rates. Basic economics tells us the result of suppressed rates is a shortage — it is now very hard to get homeowners insurance in California. And because of the huge losses in So. Cal. it is about to get a lot worse as even more insurers flee the state.
Similar problems exists when attempting to cost large projects. Projects are usually analysed in terms of a work breakdown structure, and the cost of each item in the WBS is then itself analysed in terms of materials, labor and so on. This works quite well when the work to be performed in a particular WBS item is familiar, in the sense of similar items having been performed many times previously. Costs can be described in terms of a low bound, a most likely value and a high bound. However, this breaks down where the work to be performed is largely unfamiliar, leading to the dreaded ‘rogue task’ in which unforeseen problems cause the final cost to be orders of magnitude above the estimated cost. We typically dealt with this by describing tasks with a high unfamiliarity rating in terms of a lognormal distribution, where the upper bound has no limit, but goes on indefinitely at a decreasing level of probability. (Other distributions can be used but lognormal seems to work best most of the time.) Monte Carlo analysis is then used to arrive at an overall project cost and related contingency values.
Such analysis frequently results in higher than expected cost estimates, often leading to senior management raised eyebrows, but saved our bacon on more than one occasion.
Again, it's like somebody opened the window and let the fresh air in, thanks Roger! It gets so tiring of constantly hearing every adverse weather event is due to climate change. It just allows them to double down on their ineffective and way too costly waste of money.
If the insurance crisis was caused by climate change it would be world wide and not limited to one state. Do California politicians really think that climate change is limited to California? The stupidity in that question reflects the stupidity in the assertion.
Great analysis Roger - can’t help but think of Jack Nicholson exploding in court “You can’t handle the truth”. Can’t have it both ways - build homes in fire-prone areas and keep insurance rates artificially low
Let's be realistic. Look at the "House prices in Malibu and Pacific Palisades" -- the averages are all in excess of 3 MILLION dollars.
The millionaires owning those homes are the very ones that supported the elitist governor and California legislature that passed 103 to keep their insurance on the multi-million dollar homes low.
Those millionaires intentionally bought or built those homes in what they had to have known was "harms way". Like those East Coast millionaires that build homes on sandy beaches in hurricane country, they seem to believe that their wealth alone will protect them -- maybe because, "obviously", they are inherently better than everyone else.
When will they ever learn?
"Climate change is causing more and more intense extreme events, which are leading to more frequent and costly disasters, and as a result of growing economic losses,"
Do you not agree that the increase in CO2 concentration in the atmosphere since [name a date] has increased the probability of extremes events like the the conditions prevailing in LA recently compared to no increase?
This is not to deny that the biggest problem is that rates were misrelated even with backyard-looking risk estimates.
I’m happy to discuss.
Best place to start is IPCC AR6 WG1 Chapters 11 and 12 on detection and attribution of extremes
Let's start with your position. :) What is it?
I've laid out my perhaps mistaken understanding of the detection-attribution issue before and you have not directly contradicted me. But let me do it again and you can correct me if I am wrong.
It may be the case that we cannot reject the hypothesis that increased CO2 in the atmosphere since [date] increased the probability of "LA fire weather." I mean by this that we run the best climate model numerous times with the actual buildup of CO2 and then with no buildup. This gives up two probability distributions each with mean probability of "LA fire weather," [p(0), var(0)] and [p(1), var(1)]. Given var(0) and var(1) we cannot reject the hypothesis that ((p(1) - p(0)) = zero.
It could also be the case that (p(1) - p(0)) > 0 It woud be proper to say that we have estimated the effect of CO2 accumulation on the probability of "LA fire weather" as (p(1) -p0).
And it is also the case that hazard insurance rates should be based on p(1), not p(0).
IPCC AR6 WG1 Ch.12 states:
"Fire weather: Climatic conditions conducive to wildfire have increased in Mexico, Western and North-Western North America, primarily due to warming (high confidence). Abatzoglou and Williams (2016) found climate change led to higher values for eight fuel aridity indices over the western USA in recent decades, with 2000–2015 changes exposing 75% more forested area to high fuel aridity and adding nine more high fire-potential days each year, similar to 1979–2013 western USA and Mexico fire season expansion reported in Jolly et al. (2015)."
Abatzoglou and Williams (2016) (cited above) Figure S1. shows the magnitude and direction of forced trends. In SoCal they are smaller than much of he west but present nonetheless.
Then of course there is Pielke (2011): "Some recent research is suggestive that regional warming in the western United States can be associated with increasing forest fires, even in the context of complex patterns of forest management over the past century."
Importantly -- insurance ratemaking is not based on changed risk but absolute risk. So the precise details of attribution are much less important than arriving at an accurate estimate of current risks, whatever the state of detection and attribution of long-term changes.
Of course, but as climate and forest management risks change, so should premia.
Fantastic. I fail to understand how variability in home value can have a substantial effect on rates since at question is the cost of replacement of structures. Outside of making material changes to a home how do gyrations in value affect insurance price unless it relates to foreclosure and associated risk for banks?
I guess it's impossible to predict home valuation for insurance purposes going forward in the Palisades given that it effectively no longer exists. There is no baseline for understanding what the market will be until homes are built and sales take place.
The environmentalists live solely to profit from their intense jealousy of merchants.
I thought this was what Judith Curry has been doing, risk analysis for businesses?
OTOH no one is talking about the upcoming catastrophic mudslides coming with the big rainfalls S Cal gets.
Roger. Great story. However, I noted you were negative about the 20 year actual loss in California's current plan. I think actual losses are the best way to go but perhaps 30 or more years and losses based on current replacement costs. Otherwise you get into the nebulous case where climate change is used to increase rates. You have shown that hurricane/tropical losses when adjusted for current development have not changed due climate change. After the 2005-2006 hurricane season my rates for a place on Alabama Gulf coast tripeled in part because of Al Gore preaching that hurricane statistics had changed due to climate change. What is not to like if you are an insurer getting higer rates? After that, as I
remember we had 11 years where there were no major land falling storm in U.S. My rates eventually came down as other providers felt they could live with rates that didn't include the full climate surcharge. I think a better strategy would be if new losses become statistically greater than the historical replacement cost that governments (perhaps both federal and state) provide interim assistance to insurers perhaps through FEMA until the actual losses can impact the historical rates.
Terrific investigative reporting as usual. Thank you. Our media, mostly three networks and local and regional newspapers that served their area, once included good investigative reporting. Now, unfortunately, the media is fragmented into dozens and dozens of outlets that mostly serve a specific bloc or faction of the population, telling them what they want to hear. Targeting specific audiences is the business model. This includes social media, which, like so much of the news, panders to people's biases, and further reinforces those biases and worse, distrust and antipathy of opposing views. Our many so-called "wicked problems" devolve into blaming a wicked opposition. How do we escape this political nightmare?
Roger,
Wow. An incredibly knowledgeable analysis of the complicated world of insurance regulation.
An elected insurance commissioner is a huge part of the problem. Commissioner Ricardo Lara has been terrified of the political problems of raising rates. Basic economics tells us the result of suppressed rates is a shortage — it is now very hard to get homeowners insurance in California. And because of the huge losses in So. Cal. it is about to get a lot worse as even more insurers flee the state.
Bullseye!!!
Good, well written easy to understand.
Even if California's problems are related to climate change the way to mitigate the consequences is rational insurance rates.
Similar problems exists when attempting to cost large projects. Projects are usually analysed in terms of a work breakdown structure, and the cost of each item in the WBS is then itself analysed in terms of materials, labor and so on. This works quite well when the work to be performed in a particular WBS item is familiar, in the sense of similar items having been performed many times previously. Costs can be described in terms of a low bound, a most likely value and a high bound. However, this breaks down where the work to be performed is largely unfamiliar, leading to the dreaded ‘rogue task’ in which unforeseen problems cause the final cost to be orders of magnitude above the estimated cost. We typically dealt with this by describing tasks with a high unfamiliarity rating in terms of a lognormal distribution, where the upper bound has no limit, but goes on indefinitely at a decreasing level of probability. (Other distributions can be used but lognormal seems to work best most of the time.) Monte Carlo analysis is then used to arrive at an overall project cost and related contingency values.
Such analysis frequently results in higher than expected cost estimates, often leading to senior management raised eyebrows, but saved our bacon on more than one occasion.
Thank you for a very well written explanation of the current situation.
Again, it's like somebody opened the window and let the fresh air in, thanks Roger! It gets so tiring of constantly hearing every adverse weather event is due to climate change. It just allows them to double down on their ineffective and way too costly waste of money.
Very well described. Thanks
Excellent analysis. The WSJ should publish this.
If the insurance crisis was caused by climate change it would be world wide and not limited to one state. Do California politicians really think that climate change is limited to California? The stupidity in that question reflects the stupidity in the assertion.
Great analysis Roger - can’t help but think of Jack Nicholson exploding in court “You can’t handle the truth”. Can’t have it both ways - build homes in fire-prone areas and keep insurance rates artificially low