Links - Climate and Claims
Unreliable narrator meets motivated reasoning
This post is not about debating climate change much less denying that we are experiencing climate change, some of which is the result of human activity.
Rather, the general purpose of this post is to point out that claims made about it deserve particular scrutiny. Like with climate change from a scientific perspective, the implications of climate change economically deserve a deeper look than many commonly allow. And the specific purpose of this post is to think about economic impacts through the lens of insurance markets and regulation.
Roger Pielke, Jr. recently examined a report from the insurance company Munich Re. In doing so he found there is a big disconnect between the data, the narrative of Munich Re, and the conclusions of Munich Re (not to mention Swiss Re’s conflicting narrative, which is more aligned with the data). What would explain this?
Pielke writes,
The figure below updates the time series of Munich Re’s disaster loss record as a proportion of global GDP.

Loss in 2024 were about 0.26% of global GDP, similar to 2021 and 2022, much lower than 2005 and 2017, and higher than 2018, 2019, and 2023. Since 1990, the overall trend is down — from about 0.25% of GDP in 1990 to about 0.20% in 2024. In the 1990s catastrophe losses as a proportion of GDP exceeding those of 2024 were common.
The data in this graph is good news — in terms of economic losses, extreme weather has less of an impact today than it did 35 years ago.
He then later ends the post writing,
For its part, in 2024 Munich Re expects profits of more than €5 billion. For 2025, Munich Re expects even greater profits of €6 billion. After climate change has taken off its gloves, it turns out that its claws are not really that sharp.
Well, Munich Re could be correct, but what explains their profit outlook? Alternatively, they could be conforming to the political (regulatory) zeitgeist currying favor. Similarly and perhaps jointly they could be playing for better terms with their regulators and customers.
What do I mean by this? To understand it, look to the dire and very tragic situation with the California wildfires and their insurance market regulations.
Brian Albrecht lays it out well in a thread on X.
The insurance companies have a vested interest in being able to charge higher rates for insurance they offer including advocating for higher rates. This is not at all necessarily a bad thing. In fact given the fact that they are so constrained regulatorily, it is likely both a necessary and good (second-best-world) process. True free market pricing along with barrier-free (meaning a non-protected) industry approach would be a first—best-world process. But we can’t have nice things, so we are left with this.
When the regulator(s) resist allowing rates from reaching a market-clearing price, insurance companies naturally will use various techniques to push back. When the government caps rates below that price, something has to give. Hence, the insurance companies are forced to leave the market dropping the insurable interests that do not pay enough to justify the risk.
As for the fires themselves and what role bad policies did and did not play, see this piece from Reason. Similar to many tragedies from school shootings to random accidents, natural disasters sometimes just will happen. The work to minimize and adapt is crucial, but it can never be perfect.