Warren Buffett slammed for dismissing climate change as potential worry for insurers

Warren Buffett slammed for dismissing climate change as potential worry for insurers

Warren Buffett slammed for dismissing climate change as potential worry for insurers Investment tycoon Warren Buffett was roundly criticized this weekend by environmental advocacy groups for statements he made claiming climate change is not a worry for the insurance industry, but rather a significant and potentially profitable opportunity.

In his annual letter to Berkshire Hathaway shareholders, Buffett addressed climate change concerns, which one investor suggested may devastate the company’s insurance subsidiaries. Insurers of homes and other properties would be on the hook for climate change-related claims, the shareholder argued, including floods and wildfires.

Buffett dismissed the concerns, saying climate change will actually benefit the insurance industry as they take on increased risk. Any potential losses can be addressed as the typical auto or home policy lasts for just one year – not 10 or 20 years at fixed prices – allowing flexibility in premiums.

“As a citizen, you may understandably find climate change keeping you up nights,” Buffett wrote in his letter. “As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.”

Buffett added that inflation may also work to the advantage of insurers, increasing the cost of repairing property – an increase that has been matched by rises in rates.

“Paradoxically, the upward march in loss costs has made insurance companies far more valuable,” he wrote. “If costs had remained unchanged, Berkshire would now own an auto insurer doing $600 million of business annually rather than one doing $23 billion.”

Environmental activists are not buying Buffet’s arguments, however.

Naomi Ages, climate liability campaigner at Greenpeace, told The Guardian that climate risks are unpredictable and that other insurers are taking the threat more seriously.

“Warren Buffett appears to assume that climate change is a manageable risk for insurers, but the damage caused by the increasing frequency and force of extreme weather events associated with a warming planet is set to become unmanageable,” Ages said.

“And unmanageable risks bankrupt insurers.”

Ages noted that Lloyd’s of London have been more forward-thinking in their approach to climate change, urging businesses to include warming trends in their risk models and confirming that they “will be at the vanguard of the industries whose bottom lines are affected by climate change.”

“[That] is a nice way of saying ‘we could be bankrupted by these catastrophes first,’” she said.

Insurance Information Institute President Robert Hartwig also said the industry is not taking the risk of climate change lightly, though he does not anticipate heavy losses related to any long-term changes in weather.

“We are exposed on every corner of the planet and are monitoring trends in real time,” Hartwig told the newspaper. “The insurance industry is exceedingly well-capitalized and very well prepared to manage this and many other risks.”

Scientists and economists have not calculated the potential financial losses associated with climate change with any certainty, though most agree climate change will cause more severe storms.