[Each year, the best Canadian risk managers gather to discuss the state of the discipline at the RIMS Canada Conference. The 2011 incarnation is taking place this week in Ottawa so I will be reporting from here for the next few days.]
If you go to a conference focused on risk, you will likely hear someone talking into a microphone about climate change. If you go to a lot of these events, you will hear a similar message repeated again and again.
After a while, it can become redundant.
Don’t get me wrong — I personally think climate change is arguably the biggest risk facing the world. And obviously there has been very little progress on mitigation and adaptation, both on a societal and organizational level. So it is very important to continue to educate anyone who will listen — particularly those in the risk and insurance industry who can theoretically help discover and fund solutions.
It’s just that it has become rare to hear anything that hasn’t already been said. Temperatures are rising and ice caps are melting and this is a grave threat that, egads, nobody is doing anything about. Relaying new stats and photos of polar bears is great, but at this point, if they want to advocate for something to be done, people should probably be highlighting the fallout. That is the only way to create urgency. To make the threat real. Unfortunately, many of these speakers fail to show the tangible, detrimental effects that warmer temperatures will have on the average person (Lester Brown’s recent talk on food security notwithstanding).
I still always try to attend panels and speeches discussing the topic, but I have come to expect little more than a reminder about the severity of the problem and a plea for action. On day two of the 2011 RIMS Canada Conference in Ottawa, however, climatologist David Phillips of Environment Canada gave a very entertaining and compelling presentation on how climate change is causing erratic weather. To him, the unpredictable and unprecedented weather we will continue to see in the future will make planning and risk management of all types vastly more difficult than it is today. And an inability to project the future will affect individuals, markets, companies, governments and international relations.
He started off in humor land, highlighting Canadians’ unique obsession with their nation’s weather, something they are “secretly disgusted” by but “outwardly so proud” of. “We follow the wind chill like others follow the Dow Jones,” said Philips who also works closely with the Meteorological Service of Canada.
But he was quick to note that there is more to the Great White North than just snow and ice, despite what so many outsiders believe. The climate of the world’s second-coldest nation is actually quite diverse, comprised of basically every type there is aside from desert and rainforest. And this forces Canadians to prepare their wardrobes for any environment. “We have more clothes than people in any other country — and it’s not because we’re fashion conscious,” said Phillips. “Our GQ magazine is the Canadian Tire catalog.”
The brutal cold is certainly a reality, however. Phillips told one story about a diplomat from Australia, where he says people call Canadians “frozen Yanks,” who once came to Canada and, “as Aussies tend to do,” bought a few cases of beer for his stay. He stored it in the garage overnight and was distraught when he found it frozen rock solid the following day. “This must be the only country on Earth where you put the beer in the fridge to keep it warm,” said Phillips, recounting the diplomat’s response.
Of course, the topic at hand was much more serious than the light-hearted start of Phillips’ presentation — especially to many of the brokers and underwriters in the room. “Insurers are the first financial victims of climate change,” said Phillips.
Even worse has been the damage inflicted upon the nation’s citizens. He listed some of the worst weather disasters to hit Canada during the past decade and a half.
There was Hurricane Igor last year, which caused $200 million in damages. In 2004, it was Hurricane Juan. That storm knocked down 100 million trees in Nova Scotia and Prince Edward Island. The remnants of Hurricane Frances also did damage that same year, dropping 137 millimeters of rain on Ontario. Oddly — and illustrating just how erratic things have gotten — had this storm not hit, it would have been the driest month on record in Ontario history.
In 2007, it was a twister. The first-ever level F5 tornado to hit Canada. And of course there was the 1996 Sagueny flood in Quebec, which was called a 10,000-year event and became the first $1 billion insurance disaster in Canadian history.
Perhaps worst of all was the great ice storm of 1998.
I grew up in Maine and was a senior in high school when this storm hit the New England and the Canadian maritime provinces. It was bad in my state. We lost power for five days and missed an entire week of school (although I wasn’t complaining about that). The damage was even harsher further north. The heavy ice froze to power lines, knocking down enough cable in Canada to stretch across the world three times, according to Phillips. It also prompted the largest volume of claims in the history of insurance.
In short, Phillips’ message was that things have become very strange. And scientists are now comfortable concluding that warming has contributed to this increasingly odd weather. For example, storms are now 7% wetter due to “car-wash-like downpours,” and 50% of the flooding in the UK can be attributed to manmade factors, said Phillips. Why? Canada is now in its 319th month in a row in which the average temperature is above the 20th century norm. “All indicators point to the same message,” said Phillips. “The world is warming up faster than it has at any other time.”
As a result, Phillips does not believe that the recent oddities can be considered a part of some short-term trend. This isn’t a blip on the radar. This is not a stretch of bad luck. “These losses and damages will continue to rise indefinitely,” he said.
But as erratic as the weather has become, it in and of itself may not be the whole problem. It might have just as much to do with where, and how affluently, we live. “Sometimes I think we’ve changed more than the weather has,” said Phiilps.
Today, throughout the world, more people live in cities than in rural areas for the first time in human history. This means that disasters are increasingly striking major population centers — with major fallout.
It doesn’t help that one-third of the world’s population lives within 100 kilometers of water, according to Phillips. “We’re also living where we shouldn’t be living,” he said.
And it’s not just us — it’s all our stuff. Everyone has more possessions. And more insurance for all those possessions. Now, every driveway has three cars. When Phillips was a little kid, there might only be one in the entire neighborhood. All this contributes to larger losses when disaster does hit a city. “The dartboard is getting bigger,” said Phillips.
All these leads to great uncertainty. There has historically been an understanding that the worst-case can happen. But there has also been an expectation that even the strangest stretches of weather would, in time, return to the mean. You might have 30 days that come in 10 degrees colder than expected next winter, but the winter after that would be more typical.
This presumption is no longer realistic, however, says Phillips. There is no more mean. “The new norm is to expect the unexpected,” he said.
And that makes managing and pricing risk infinitely more difficult. “You can’t plan,” said Phillips, later adding that “we can no longer assume the past is a guide to the future.”
Exactly how organizations can incorporate this new normal into their planning is hard to say. Phillips had a few suggestions on the societal level. The first is the most obvious, oft-stated. “[We must] ween ourselves off of our insatiable demand for carbon,” he said. “Not just bury it or trade it … actually ween ourselves off of it.”
Easier said than done, obviously. His other advice is easier to implement, although admittedly still tough in an economic downturn, particularly one that is gutting the construction industry.
We need to build more resilient cities, he says, and enforce building codes. Some 50% of the damage from Hurricane Andrew, for example, could have been prevented if building codes had just been enforced.
There are no easy answers. But the key takeaway is that each organization’s long-term strategic planning must understand that erratic weather is here to stay. Those things that you used to take for granted no longer apply. And as he states, perhaps it was a Hall of Fame Yankees catcher who best described this new reality.
“I think the great philosopher Yogi Berra had it right,” said Phillips. “The future aint what it used to be.”