Why We Will All Pay for Climate Change

There used to be an easy way to clear your house of unwanted guests…or those who had overstayed their welcome.

A method so simple, it had stood the test of time. All you had to do was start a discussion about religion.

Guests, even the less nimble ones, would soon scarper for the door. Their shadow disappearing into the night, as they jumped the front fence in their efforts to get away.

In the slow creep to what you might call a more secular society, you could argue that religion no longer holds the position it once did. Though, that is a discussion perhaps best left for another day.

Nowadays, there are other topics that get us all worked up. One, in particular, that seems to raise everyone’s hackles.

All you have to do is utter two words, and even the most placid among us will start flailing their arms about like nutters.

These two words, are of course, ‘climate change’. It is hard to think of two other words that cause so much aggravation.

Is climate change real or not?

By my reckoning, climate change has claimed at least two, maybe three prime ministers so far. And who knows, might even knock over a fourth when we go to the polls next year.

It has also disembowelled several of these prime ministers in their previous gigs as opposition leaders.

The problem with the debate is the sheer toxicity of it. In particular, the language. It is highly politicised, splitting people into groups of either ‘believers’ or ‘deniers’.

It has to be hard to find middle ground using such groupings. And alas, no middle ground there seems to be.

Those warning of impending catastrophe believe that there can be no compromise. That it is already becoming too late to act.

All the while, the sceptics go about their lives and business. To them, the doom-prophesising from the talking heads on TV, is just another layer of noise they have to encounter each day.

Buoyed by the failure of so many other prophesies — climate or otherwise — they have become immune to any further claims of catastrophe. Each one pronouncing that no, this is really it…this is the one that brings us all undone.

Like in one of the flu scares, the dour predictions by World Health Organisation officials warn of an imminent global pandemic. As that and others pass, punters become ever more sceptical with every new claim.

The louder the shrill from the pulpit, the less we all hear. So the whole debate becomes an endless cycle of mindless slogans until your head explodes.

For me personally, I’m always sceptical about any claim. Whatever the size of it, and no matter the subject.

But when it comes to climate change, what is my opinion worth? Easy answer: not a brass razoo. 

As a non-scientist, my opinion matters no more than any other half-wit burning up our planet’s oxygen. For me, I’ll leave it to the scientists to slug it out.

The thing is, though, that whatever your take on climate change, the choice is increasingly going to be out of our hands.

Is there a new world order? Or a worldwide treaty among all governments to limit the emission of CO2? No, nothing like that.

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Insurance companies will be the judge

The answer is as boring and as mundane as you would ever be likely to hear. And that is, that it will be insurance companies that ultimately determine governments’ policy on climate change.

As the industry responsible for insuring everything from storm damage, floods and fires, their job is to accurately assess the risk of everything they insure. If they can’t fully assess it, they might just choose not to take on that risk.

And it’s not just the insurance companies themselves. It is also the re-insurance companies — that is, the insurers’ insurance companies — that will dictate what risk they can take.

The job of reinsurers is to help insurance companies transfer risk. That is, they take on some of the insurer’s portfolio, in exchange for a fee. The reinsurers might simply decide not to take on that risk.

Whether you believe in climate change or not. Or believe that it is real, but are unsure of how much is ‘man-made’, ultimately what you think won’t matter. It will be the insurance companies that make that decision for you.

While they would like it, insurance companies don’t have to have a definitive answer about climate change. To them, it’s all about probabilities. Much like when you take out life insurance, they want to know your age, occupation and health.

Even if the science is still undecided — and again, that’s a matter of debate — insurance companies need to calculate these probabilities, and decide whether or not to take that risk.

Consider just a single example. Think of a street full of homes just over the road from the beach. Could be anywhere in Australia, right?

And they are all less than 1 metre above sea level. Whether the science says this level will rise 2mm, 2cm, or 20cm…or maybe not all all, how does an insurer account for that risk?

Something that might seem improbable — even highly improbable — could still send them broke if it was to occur.

Then multiply that out across all the waterside cities around the globe. Not to mention roads, railways and bridges, and countless other infrastructure assets.

For insurers, and reinsurance companies, they couldn’t possibly manage a claim of that magnitude…whatever the odds of it happening.

That’s why we will all pay for climate change, whether we believe in it or not.

All the best,

Matt Hibbard
Editor, Options Trader

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While many investors chase quick fire gains, Matt takes a different view. He is focused on two very clear goals. First: How to generate reliable and consistent income in a low-interest rate world. And second, how you can invest today to build wealth over the next 10–15 years. Matt researches income investments. You can find more of Matt’s work over at Total Income, where he is hunting down the next generation of dividend-paying companies for the future. He is also the editor of Options Trader, where he uses basic options strategies to generate additional streams of income beyond the regular dividend payments. Having worked for himself and with global firms for almost three decades, Matt has traded nearly every asset in existence. But now he is on a very different mission — to help investors generate income irrespective of what the market is doing. It’s about getting companies to pay you a steady, stable income, with minimal stress and the least risk possible. Matt doesn’t believe you have the luxury of being a bull or a bear in the market right now. You have to earn an income from it, regardless of whether stocks are going up or down. By getting the financial markets to pay you an income, you can get to focus on more important things than just money.

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