The end of climate stability is the end of the insurance market
The markets: The non-farm payroll jobs report
is due at 8.30 a.m. today. Expectations: jobs up by 155,000; unemployment to stay at 4.2%. … U.S. stocks were broadly flat yesterday with the S&P 500 still under the 6000 threshold. … US futures called for further declines pre-open. … Europe and Asia were marginally down this morning.
Today: The Los Angeles fires are not yet under control
because
LA’s water-supply infrastructure
is
not capable of generating the sustained pressure
necessary to support firefighters at scale, indefinitely, against five separate blazes.
Firefighters have made some progress
, however. The death toll is now at 10. More than 9,000 buildings have been razed. 130,000 people have been ordered to evacuate areas north of the city.
LA Times coverage here
.
CEO Daily insight: Climate stability and the insurance market
Good morning.
The wildfires in Los Angeles have killed people, destroyed thousands of homes, and are now likely to
exceed $50 billion in losses
. There are the donations and
expressions of sympathy
from leaders like
Apple
CEO Tim Cook and
Amazon’s Andy Jassy
, surreal trivialities like theme park closures alongside devastated residents posting pictures of their former homes.
We saw this coming.
Insurance carriers have been abandoning wildfire-prone areas for years, leaving
some residents with no money to rebuild.
State Farm
announced last year it was discontinuing 72,000 policies in California, including
about 70% of policies
in Pacific Palisades, the neighborhood now devastated by fire. It’s one of several major insurers to have pulled back or pulled out of the market in recent years.
I spoke with PG&E CEO Patti Poppe,
Edison International
CEO Pedro Pizarro, and Sunrun CEO Mary Powell about their
efforts to create a more resilient grid
that — among other things — would reduce wildfire risk. In my podcast
conversation with Poppe
about taking the helm in the aftermath of the 2018 Camp Fire (started by a PG&E power line), she talked about the reality that “the risks have changed.”
When I reached out to Pizarro this week, he noted that several hundred of his team members had to be evacuated and at least 15 had lost their homes. Back in the summer, he told me that his team at Edison had reduced the probability of catastrophic fire starting from his infrastructure by 85 to 88% in the prior six years. [Edison covers about 50,000 square miles in California, more than a quarter of which is in a high fire-risk area. “Every sector is going to need to be making investments to adapt its infrastructure for the climate change that’s coming,” Pizarro told me.
When it comes to assessing the business impact of climate change, I’ve long looked to
Spencer Glendon
of Probable Futures. He’s an economist and former head of research at Wellington Management who argues that 12,000 years of climate stability have made us complacent and illiterate about climate change.
As Glendon
noted in a commentary we ran last year
, “the end of climate stability signals the end of the insurance market as we know it.” That’s because insurance doesn’t protect you against hazards. It’s a financial contract, based on pooled risk, that reimburses you if you’re among the unlucky ones to face a rare and predictable hazard.
When such hazards become unpredictable or heartbreakingly common, affecting everybody in the pool, the market structure crumbles along with the buildings they’re designed to protect.
Also on the radar
:
Global temperatures warmed by more than 1.5C
last year for the first time ever. It was the warmest year on record. Global warming is accelerating, Europe’s Copernicus observation agency
said today
.
President-elect Trump will be sentenced
in a New York court today on 34 counts in the Stormy Daniels
hush money case
.
Trump called U.S. Supreme Court Justice Samuel Alito on the phone
on Tuesday, right before the court ruled to allow the sentencing of Trump to proceed. They did not talk about the case, Alito said. Nonetheless, “the fact of the call and its timing flouted any regard for even the appearance of a conflict of interest,
according to the NYT
.
Blackrock is pulling out
of the Net Zero Asset Managers initiative, which committed asset managers to
reaching net-zero greenhouse gas emissions by 2050
.
Mark Zuckerberg defended his decision
to ax censorship rules on Meta. Those who leave
Facebook
, Instagram, and Threads are “
virtue signalling
,” he said.
Tipping: It’s not just you.
Americans, annoyed by ubiquitous auto-prompts for tips, have reduced the amount they give,
data shows
.
From the analysts
:
More news below.
Diane Brady
[email protected]
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