Author Archives: DReynolds

A Birthday Present From The U.S. Treasury: Fed’s Announce An Investigation Into Climate Risks in Insurance

“Over the past 30 years, the incidence of natural disasters has dramatically increased and the actual and future potential cost to the economy has skyrocketed. We are now in a situation where climate change is an existential risk to our future economy and way of life.” 

Janet Yellen, United States Treasury Secretary, August 31, 2021

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Yesterday was my 22nd birthday and I want to thank the United State Treasury for a bit of a birthday gift in the form of the news that the U.S. Department of Treasury and its Federal Insurance Office have begun investigating the financial risks our society faces from climate change. That might not sound like an exciting birthday present but it sure could be an important one in our fight to solving the biggest issue, and I dare say risk, mankind will face in my lifetime.

My family has been in the insurance and risk management business for over 100 years dating to my grandfather’s arrival in Miami in 1910. Between that heritage and what I’ve learned over the years within the climate world, I’ve come to believe that the financial industry will shape climate policy in our futures in important ways.

Insurers are already being forced to consider what they will and will not cover much less the growing risks that our society faces from more devastating and common wildfires, monster hurricanes, and other catastrophes that earth’s rising temperatures are thrusting upon all of us as a result of mankind’s antiquated use of fossil fuels, such as petroleum. Insurance companies will surely continue to increase their prices to cover this increasing risk, require mitigation measures that will add to the cost of owning one’s home, and, one day soon, simply no longer offer coverage in areas where the risk becomes unprofitable to protect.

Likewise, mortgage lenders, many of whom traditionally offer loans with 15 or 30 year durations, must now consider the future of the asset they use as collateral for their loans, typically one’s home or business, in a world where seas are rising in places like South Florida. If you can’t get to your home or use it or, for that matter, insure it because insurers have deemed the risk too costly or impossible to bear then the climate oriented risk will impair lenders, realtors, developers, and an entire infrastructure of businesses that support where people work and live, much less the tax base these people and places currently generate for governments.

So, yes, insurers and lenders are going to dramatically shape the future of where we live and work and while the current real estate market is booming there is an end in sight. And that end comes in the form of our climate crisis that will lead to one’s flood, fire, and/or windstorm coverage going from increasingly expensive, as is the case today, to simply unavailable. That is unless we address the core problem (our use of fossil fuels) right away.

And the risks that we are talking about are truly significant. Within the FIO’s information request they refer to a 2020 report by the Financial Stability Board (FSB) about three possible climate-related risk categories including:

  • Physical risks are “the possibility that the economic costs of the increasing severity and frequency of climate-change related extreme weather events, as well as more gradual changes in climate, might erode the value of financial assets, and/or increase liabilities.” 
  • Transition risks can “arise from the technological, market, and policy changes needed to adjust to a low carbon economy and their effects on the value of financial assets and liabilities. Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organizations.”
  • Liability risks may “arise when parties are held liable for losses related to environmental damage that may have been caused by their actions or omissions.” 

The FSB’s report considers how climate risks might impact our world’s global financial system’s stability as well as how the risks we face will continue to evolve and grow from what it called “climate-related shocks.” Now if “climate-related shocks” is not a good title for a future blog post I don’t know what is, but all of this illustrates how seriously the serious world of finance is taking the risks industry and investors face from the very real impact of our climate change crisis.

With these things in mind the Federal Insurance Office (FIO) plans to begin by focusing on three areas of our climate crisis:

  1. Assessing climate-related issues or gaps in the supervision and regulation of insurers, including their potential impacts on U.S. financial stability;
  2. Assessing the potential for major disruptions of private insurance coverage in U.S. markets that are particularly vulnerable to climate change impacts, as well as facilitating mitigation and resilience for disasters; and
  3. Increasing FIO’s engagement on climate-related issues and leveraging the insurance sector’s ability to help achieve climate-related goals.

You can read an article from the Insurance Journal about what the Treasury is doing as well as link to the actual Federal Register so as to comment about any number of insurance and risk related concerns here. Comments are possible over the next 75 days so I’d invite anyone that’s concerned about the impact of the climate crisis to things like the availability or affordability of insurance or a loan to make your voice heard.

“Unequivocal”

Oil Profits = Environmental Deficits

Two things happened yesterday that are worth noting.

First came the news that the world’s biggest oil producer, Saudi Arabia’s Aramco, saw its income rise by 300% in the second quarter of 2021 as it and the world “recover” from last year’s COVID-19 induced shutdowns. This news followed last month’s report from America’s largest fossil fuel company, Exxon Mobil, that its second quarter income had skyrocketed to $4.7 billion this year versus a deficit (loss) of $1 billion during the same time frame last year. If you are an oil company it sure seems that happy days are here again. 

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And speaking of deficits the second piece of news yesterday arrives in the form of the United Nations’ Intergovernmental Panel on Climate Change’s (IPCC) interim Working Group report that was published yesterday ahead of next years comprehensive Sixth Assessment Report (AR6) that will be published in September 2022. Yesterday’s report is more than 3,000 pages long and includes the findings of 234 scientists whose first draft alone was was peer reviewed by 23,462 experts who then considered over 51,000 comments and includes over 14,000 citations. 

Yesterday’s report paints an increasingly bleak picture for our natural environment while vividly illustrating that the damage that’s being done is caused by the same love affair humans have long had with oil that’s boosting those oil companies profits into the sky, a sky that their product’s pollution and our use of is destroying.

Key findings in the report, which you can find here, include:

  • The past five years have been the hottest on record since temperatures were first measured in 1850. 
  • Global surface temperature was 1.09°C higher during the 2011-2020 decade than it was during the decade between 1850-1900.
  • The authors conclude that human influence on these rising temperatures is “unequivocal”, that it is “very likely” (there is 90%+ agreement amongst the authors) that mankind is warming our climate, the main driver of the global melting of glaciers that earth has experienced since the 1990’s, as well as the decrease being experience in Artic sea-ice during this same period. 
  • It is “virtually certain” that the heatwaves being seen around the world have become more frequent and intense since the 1950’s while cold events are less frequent and severe. 
  • Natural gas methane, a polluting greenhouse gas like carbon dioxide, is skyrocketing and at its highest point in 800,000 years.
  • Warming is happening faster than scientists previously thought; likely reaching a 1.5 degree increase over the next decade or two, far sooner than predicated in the past, 2 degrees by 2050 and 3 degrees by 2100.  

“The ice melt is accelerating and it’s going to be unbelievable over the next decade or two. We’re just at the beginning.”

Dr. Hal Wanless
University of Miami Professor of Geography & Urban Sustainability 

Earth’s warming temperatures and melting ice is a very bad combination for places like South Florida, places surrounded by water. Michael Byrne, a client researcher at the University of Oxford, explained the report’s findings this way: The effects of global warming are no longer in the distant future or in far-flung corners of the world. We knew what was coming and now it’s here.” 

Mr. Byrne, like Dr. Wanless, is right.

Rain bombs.

Drought.

Extreme flooding.

Wildfires.

Ice melt.

Sea level rise.

More and stronger hurricanes.

They are all upon us and nearly no one that steps outside of their home does not see, smell, or feel the heat that is driving us to disaster. 

The solution?

As always, the solution is that mankind must dramatically reduce and soon thereafter eliminate its use of the fossil fuels that we know are warming earth’s climate. The science aside, yesterday’s IPPC report notes that there is hope that we can limit the worse impacts of our growing climate crisis and that hope is founded in reducing and eliminating the pollution. Stated simply, if we cut global carbon dioxide emissions by 50% by 2030 (8.5 years!) and eliminate it by reaching net zero carbon emissions by 2050 or so we can reduce the most severe impacts of our climate crisis. 

But we are running out of time.

As oil company profits surge and too many politicians put their political futures ahead of our planets’ time is simply running out. The United Nations’ Secretary General Antonio Guterres is right to call the report a “code red for humanity” and thus the question is will governments, industry, and people the world over take action before it’s too late? We have defined the problem. We know what needs to be done. The critical question facing each of us is does mankind have the will to actually solve the problem or will the priorities of profits and politics soon sink places like South Florida?

Champlain Towers Tragedy

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Words cannot express how sad I am over the tragedy that is taking place here in Surfside, a small oceanfront community on the Atlantic ocean a few miles north of Miami Beach. Late last week a section of the Champlain Towers’ condominium building collapsed in the middle of the night and as of today, 22 people are confirmed dead and another 126 remain unaccounted for as rescuers from all over the world work around the clock desperately searching for survivors. The residents, their families and friends, as well as the Surfside and greater South Florida community are in my thoughts and prayers as we hope for a miracle that allows more survivors to be found amidst the rubble.

And while the search for life desperately continues, the search for answers over how this could have happened has also begun. Those answers will, at the very least, be months if not years in the making. Questions will be asked of various architects, engineers, contractors, maintenance people, and others that might offer insight into the construction, repairs, and condition of the building. Association leaders and residents will also add their own observations, insight and concerns. One or more detailed forensic engineering audits will likely take place and experts from a range of entities including the Federal government will conduct investigations. Determining the cause or causes will take time and obtaining those answers will be critical not only to understand the cause(s) of this horrible tragedy, but to guide future construction projects as well as inspections and maintenance of the countless such buildings that cover much of Florida’s coast.

I am a scientist, not a builder nor an engineer. For those reasons I can’t offer any expert or near expert opinion on the construction or maintenance of the condominium building but the more I learn about the Champlain Towers collapse, the more I can’t get Henry Flagler’s Royal Floridian Hotel off of my mind. Back in 2015 I wrote a blog about my visit to the then construction site of the Monarc at Met 3 building that was being built on the site of Flagler’s grand hotel, the Royal Palm Hotel, at the intersection of today’s Biscayne Boulevard and the Miami River in Downtown Miami. Bob Carr, esteemed long time South Florida archeologist, had shared what he had found in the excavated the site during the early site preparation stages of the Met 3 construction and later that day I eagerly drove to that site to see the things he’d uncovered for myself.

That day in downtime Miami was my first real view of sea level rise, the magnitude of the problems we face in places like South Florida, and what I saw that day continues to haunt me.

You see, South Florida pioneer Henry Flagler, industrialist and founder of the Florida East Coast Railway to Key West and much of early South Florida’s development, had between 1896 and 1897 constructed one of America’s most magnificent hotels on the shores of Biscayne Bay. The palm trees, that today associate with South Florida but were not indigenous to our region, were brought by ship from the Bahamas and planted on the hotel property by the hundreds to build the tropical paradise of Flagler’s imagination. During my visit to the Met 3 construction site I could see some of the remaining root balls just where he’d had those trees planted, decades dead from the salt water that over the decades rose up through our porous limestone geology. Clearly those trees were not planted in salt water back in the 1890’s and just as clearly rising seas over the decades saturated and then killed them.

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And as alarming as the water surrounding those root balls were, the water that covered what I imagined were once majestic brick porches fully illustrated the depths of South Florida’s future, of our fate, in a world of rising sea levels. My mind’s eye pictured the guests who stayed at the hotel, that enjoyed the amazing views of the Bay and amenities and ambiance that has pulled at people’s hearts for generations since. Obviously the Royal Palm was not originally built sitting in salt water but what I was looking at some 120 years later that day was a building submerged in salt water by sea levels that had risen in the years since it was built.

And that’s why the Royal Palm has been on my mind since the horrific collapse of the Champlain Towers. I just can’t stop thinking that among the many possible reasons this tragedy has taken place, perhaps in combination with one another, that sea level rise could be one of those causes. And I am not alone.

Consider the exceptional work of Emmy Award winning reporter Jim DeFede of Miami’s CBS4 and the interview he conducted with the former Maintenance Manager of the Champlain Tower, Mr. William Espinosa. You can read Mr. DeFede’s article here (https://miami.cbslocal.com/2021/06/20/condo-collapse-former-maintenance-manager-william-espinosa-was-concerned-about-saltwater-intrusion/), but here’s what Mr. Espinosa had to say about what he saw with his own eyes and how he and his team would attempt to counter the sea water from the ‘ocean’ that frequently rose up through the building’s ‘foundation’ by using pumps;

“Any time that we had high tides away from the ordinary, any King Tide or anything like that, we would have a lot of saltwater come in through the bottom of the of the foundation. But it was so much water, all the time, that the pumps never could keep up with it.

The water would just basically sit there and then it would just seep downward. It would just go away after a while. And I would think, where does that water go? Because it had to go in through somewhere. I’m talking about a foot, sometimes two feet of water in the bottom of the parking lot, the whole parking lot.

It was all saltwater. It was coming from the ocean.”

William Espinosa
Former Maintenance Manager, Champlain Towers, Surfside

Like I said, I can’t yet say what caused this terrible collapse and tragedy. It’s simply too soon for anyone to say or know as experts search through the remains in hopes of finding survivors. But what I do know for certain is that our global sea levels are rising as a result of the carbon dioxide humans are pumping into our atmosphere and that this will increasingly lead to the loss of priceless environments all over earth, as well as much of the as-built community that is in its way unless we dramatically and quickly eliminate man’s use of fossil fuels.

And if you don’t believe me, then allow me to end this post with the recent thoughts of my long-time mentor, professor, and dear friend, the esteemed Dr. Hal Wanless from the University of Miami:

“It’s going to be an enormous to impossible job everywhere to deal with that. The sea level rise is accelerating and will do so more dramatically than most people anticipate. Every sandy barrier island, every low-lying coast, from Miami to Mumbai, will become inundated and difficult to maintain functional infrastructure. You can put valves in sewers and put in sea walls but the problem is the water will keep coming up through the limestone. You’re not going to stop this.”

Dr. Hal Wanless
Geological Sciences Professor, The University of Miami

Today is not the day to determine or decide what caused this tragedy. Today and for all the days ahead until every person who is missing is found, our priority must be those who have lost their lives, their loved ones, and our community’s pain over what’s happened in Surfside. The day will come to determine the cause and to consider what was happening in that building, to learn from it and take action but until then let us all keep Surfside in our hearts, minds, and prayers.

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