After a devastating 2017 filled with natural disasters, questions have emerged about what climate change means for insurance and reinsurance. All in all, 16 storms broke the billion dollar mark according to NOAA, and the final tally broke $300 billion.
But while the scientific community is in consensus about climate change, its effects on insurance aren’t so clear, despite the soaring cost damage.
Berkshire Hathaway (BRK.A, BRK.B) CEO Warren Buffett has long been a master of the insurance business, having invested significantly with great success in the industry through Geico and others. In an interview with Yahoo Finance, Buffett decidedly put aside concerns about climate change to his business.
Is there more damage or are the properties just pricier?
“Every business we’re in has certain things that can happen over time,” he told Yahoo Finance Editor-in-chief Andy Serwer. “I don’t know how the internet will develop. There’s all kinds of things that can change. And climate change — that’s not really an insurance risk.”
Unlike a capricious and unpredictable internet, to use Buffett’s example, there is scientific consensus on what is happening and what the effects could be. It’s happening “very gradually,” he said.
Buffett gave an example that losses for damage to houses have grown in Florida isn’t just because hurricanes may be worse, but because “you probably have five times the insured values or maybe ten times the insured values.” The prices of homes are going up and there are more of them.
But understanding the speed of the insurance industry is the key to understanding why the third-richest man in the world ($84.5 billion according to Bloomberg) isn’t concerned. Insurance rates change every year, so a company or individual isn’t locked into a long-term commitment. In Buffett’s words, they can “adapt to changing conditions as they go along.”
That’s not to say Buffett doesn’t care about climate change, it’s just not a “specific insurance problem.”
“People like to think it is and we get things put on our balance that imply that it is, but it just isn’t true,” he said. “Climate change is a societal problem.”