…or is it?

The Emerging Risks Team at Lloyd’s has just published a new report on Behavioural Risks. The report looks at a whole variety of typical biases in human thought processes – and suggests that knowledge of them can help us manage risk better.

Biases with hindsight is discussed in the classic book “Judgment under uncertainty: Heuristics and Biases”, written in 1982 by Daniel Kahneman, Paul Slovic and Amos Tversky.

They suggest that rather than learning from our past behaviour, instead we will tend to view things through rose tinted spectacles – overstating our own abilities.  Summarising the work of a 1975 experiment by Freschoff and Beyth, they say of people reviewing the past:

“They not only tend to view what has happened as being inevitable but also to view it as having appeared ‘relatively inevitable’ before it happened.  People believe others should have been able to anticipate events much better than was actually the case.  They even misremember their own predictions so as to exaggerate in hindsight what they knew in foresight”

This does not suggest we cannot learn from the past – far from it!  But knowing about this bias along with all the others described in our report can help insurance professional be more objective about “facts”.

The report includes a case study on emerging risks management, which I believe is particularly susceptible to these biases (due to the great uncertainty around probability and impact in this field). We hope it will provoke some debate and also provide a useful background to Paula Jarzabkowski’s ethnographic study of the Lloyd’s market.

Tags: Behavioural Risk, Emerging Risk, Paula Jarzabkowski

The Economics of Climate Adaptation (ECA) Working Group has published a report titled “shaping climate resilient development“.  It is an excellent report and focussed around a series of case studies.  It proposes that decisions on which of the many adaptation options to adopt should be taken using detailed cost benefit calculations.  A sensible suggestion at face value; but there are problems which I’ll describe below.
 
Before I do,  I wanted to note that the report itself considers some of these issues though not quite the way Im describing it below.
 
Lets consider why people buy insurance.  From a cost benefit point of view its an odd product.  How many other products do you pay money for something you expect to be less valuable than the price?
 
It comes down to the word “expect”.  In the context of cost benefit analysis, you compare the expected cost with expected benefits.  The argument is that you chose the option where expected benefits outweigh costs.  So that means you should not choose insurance, right? 
 
We’ll no, probably not.  People buy insurance to protect against extremes.  They are willing to pay more than their expected benefits because, just occaisionally they’ll receive much more back than they put in.
 
Mathematically, the way round this is to introduce the concept of “utility“,  this is just a obscure way of saying “happiness”.  We shouldn’t be trying to maximise expected benefits but to maximise utility.  To aim to be “happier”.
 
This is why insurance works.  An insurer is happier selling you an insurance policy, because, by the law of averages (and providing premiums are based on the level of risk), we expect to make a profit; but simultaneously the policyholder is happier buying it, because they prefer a small guaranteed loss (the premium) against an uncertain very large loss that may lead to financial ruin.
 
Its a classic, win-win.
 
So I like the ECA’s new report; and it does indeed discuss the case for insurance  – but I’d have preferred a more direct discussion of utility.  Cost benefit may not be the best way to consider adaptation;  concepts such as “resilience”,  “no regrets” and “utility maximising” may be far more relevent.   A robust policy in the face of great uncertainty may be far better than an “optimal” one.  Because to truly optimise things you need to be really sure of your facts – and with climate risk we just aren’t.
 
Nevertheless I commend the report to you – it’s case studies are very interesting.

I was recently asked why there was a conference taking place in Denmark about Global Warming. This is a question that pains me every time that I hear it – and emphasises the requirement to communicate the message about climatic change!

Climate change does not = global warming.

The headlines of newspapers relating to temperature changes – oft quote the range of 1.1.to 6.4degC temperature increases by 2100 sourced from the IPCC.  The Press rarely delve to the level of detail below the headlines to explain how this average change is manifest across different geographical regions. This point was further highlighted yesterday during a talk with Pen Hadow who, as part of ClimateWise week, was addressing a Lloyd’s audience about his recent findings with the Catlin Arctic Survey.

Surface air temperatures here in the northern hemisphere are distinctly higher than the reference 1961-90 period. Indeed, the annual mean Arctic temperature for the year 2008 was the fourth warmest year for land areas since 1990. These changing temperature regimes are resulting in a marked decrease in the level of sea-ice thickness in this area.

In the early part of this decade, there were suggestions that the summer sea-ice extent in the Arctic may disappear by the end of the 21st century – it now appears that there may be no summer sea-ice within a decade. The rate of warming here is alarming.

Whilst we are witnessing decreasing sea-ice in the northern hemisphere, we are observing some distinct differences in Antarctica. The British Antarctic Survey recently published the first comprehensive review of the state of Antarctica’s climate. Since 1980 there has been a 10% increase in Antarctic sea-ice extent, particularly in the Ross Sea region, as a result of the stronger winds around the continent (due to the ozone hole). In contrast, regional sea-ice has decreased west of the Antarctic Peninsula due to changes in local atmospheric circulation and this has also been linked with the very rapid warming seen over land on the west coast of the Peninsula.

The picture is confused? Or is it? Regional climate change impacts will be varied – we know this – but does the wider public? On a relatively local scale, the UK Climate Impacts Programme (UKCIP) published a set of probabilistic scenarios for changes in projected UK climate – with distinct regional differences.

On a global scale all of these changes will be further magnified. BUT, this is not what is reported in the press – and does not help to inform the public debate. The impacts of climate change will not necessarily result in uniform warming across the entire planet. This has to be recognised as part of the outcome from COP15. Today is the last day of negotiations in Copenhagen. We await with baited breath as to what the outcome(s) will be. Fingers crossed for a number of positive steps forward.

My other pleas:

1. better communication around the regional dimension of climate changes, and that the planet will experiemce differemt changes as wego forward

2. Improved information arpound the rate of some of these change s- notabl y in the Arctic

With all of the statistics being thrown about during the COP15 Climate talks you may find yourself wanting to get to the bottom of some of the numbers yourself.  Well, if you are one of those people you’re in luck as www.realclimate.org are tackling the question of “where’s the data?” with their own collection of data sources.  Not only that, but for the really adventurous they have links to code that allow you to run your own models.

My personal favourite is the www.WoodForTrees.org website that includes an interactive graph that allows you to view the various data that scientists have used to understand climate change including information on temperature, solar activity, ice and the atmosphere and ocean.

After week one of the Copenhagen climate summit disagreement still remained as to the overarching objective of limiting global warming to 1.5° or 2°C? While G8 and major developing nations endorsed 2°C as a target in July this year, Tuvalu, a small island in the Pacific with very real existential concerns, led the charge for members of the Alliance of Small Island States (AOSIS) calling for a legally binding agreement along with a target of 350 ppm of CO2 and 1.5° of warming with the backing of over 100 delegations.

Neither target is going to be easy according to the UK Met Office which released analysis showing that 1.5°C would be “almost impossible” to meet without implementing measures to take carbon dioxide out of the air, and that even if emissions peaked by 2020 there was only a 50:50 chance of holding temperatures to 2°C.

On a positive note, some progress has been made on short-tem funding commitments to help developing countries adapt, with the EU making up a large part of a $10bn annual global package. On longer term finance a consensus is emerging among developed countries around $100bn per annum, although developing countries say it needs to be more.

So the stage is set for Week 2 of the Conference of the Parties, with heads of state descending on Copenhagen for the final stages of negotiations. Optimists still hope for historic agreement. With President Obama set to join the fray later this week let’s hope that negotiators can “put their hands on the arc of history and bend it once more toward the hope of a better day.”

Notwithstanding the ambiguities surrounding Climategate, which is put nicely in context by George Monbiot here, the majority in the insurance industry are inclined to believe the climate is indeed changing. Under a warming world clearly weather patterns are likely to change, but for the reinsurance sector, key questions revolve around the impact on catastrophe events and losses:

• Will we see more (and more intense) hurricanes in the future than in the past?
• Will rising sea-levels mean worse coastal surges?
• Can we expect more flooding due to extreme precipitation events?
• Will heatwaves increase wildfire events and exacerbate crop insurance losses?

The IPCC report in 2007 says Likely, Likely, Very Likely, Very Likely in answer to the above questions, and the large majority of subsequent research supports this view. Given that (re)insurers will pick up much of the cost of additional losses, it’s no surprise that a substantial amount of effort is going in to translating the emerging science of climate change into insurance loss impacts.

A useful recent addition to this work was published by the ABI (pdf here) supported by AIR and the UK Met Office, and includes impact analysis of 2, 4 and 6 degrees of warming on UK Flood risk.

Two flavours of El Niño
Recent research about El Niño (widely credited with helping suppress Atlantic hurricane activity in 2009) under warming conditions, suggests that in future we may experience more central Pacific El Ninos, rather than the typical eastern Pacific ones. Bad news is that the central Pacific ones may not suppress Atlantic hurricanes to the same degree. [link]

While there is still uncertainty and disagreement in the scientific community around how global warming will influence hurricane formation, it’s worth remembering that we have already seen anomalous Atlantic hurricane activity this decade in terms of geographical extent (north east and south Atlantic) and duration of the ’season’ which saw the official close (30th Nov) of the 2005 season extend into the following January.

Clearly much uncertainty remains as to how exactly climate change will \ is already influencing catastrophe risk, and it is vitally important that the insurance industry continues to follow the academic research and reflect emerging trends into our risk frameworks.

Realclimate.org is my favorite global warming blog. They describe themselves as a “commentary site on climate science by working climate scientists”. They provide an invaluable service by providing free expert views on: the latest research, media articles and sceptic driven psuedo science.

Recently a posting with the title “an offering “ caught my eye. This post was simply a link through to a series of climate change lectures by Professor David Archer. He works at the University of Chicago and he recorded the lectures he gave this Autumn on climate change. I’ve started watching these and am really enjoying them; although the content is not new to me it is fantastic to see the facts presented so clearly.

Note the post was called “an offering” – this seems typical of climate scientists. Not presumptious at all; he didnt call it “a gift”. But as far as Im concerned that is what it is.

I havent watched them all yet; but from what I have seen anyone with remaining doubts about climate change should watch these lectures. In the face of this much evidence how can people continue denying?

The spotlight at the COP 15 summit recently shone on the World Meteorological Organisation and the UK MET Office as they presented their most recent findings.  They gave a striking message that this decade will be the warmest since records began back in the mid-1800’s  and that they have no doubt we are in a warming trend.  The results presented also coincides with the production of two maps  that outline the effect on the Earth of a 2 and 4 degree temperature rise, with the aim of explaining why we must avoid a 2 degree rise at all costs. 

I think their point is well made.

What struck me was sheer scale of the range of local temperatures when comparing a 2 and 4 degree global rise.  While I knew that a global rise in temperature would result in local varience, plus 1 degree here, minus half a degree there, the 4 degree global rise is much more substantial.  Predictions show temperatures in New York and Moscow rising by 6 degrees, while Delhi and Tokyo rise by a modest 5 degress.  However, the big hitters occur as we move away from the equator where an 11 degree rise is predicted for northern Russia, while parts of Canada and Iceland will increase by a toasty 14 to 15 degrees.  Given that this is where many glaciers call home this will in turn have a serious impact on global sea-levels as the glaciers melt more quickly under their hotter conditions.  The maps also give a flavour of other impacts such as subsidence caused by the melting of permafrost, the aforementioned sea-level rise combined with storm surges could pose a serious threat to costal assets, greater risks for forest fire, and the list goes on.  When comparing with the 2 degree map we see that the local temperatures and secondary impacts are far more preferable. 

Of course ideally we’d like to suffer none of these impacts and have our climate stay just how it is, however given the choice, a global temperature rise of 2 degrees is far more prefereable than one that is 4 degrees or more.  Let us hope that the COP15 summit takes this message to heart and take the steps needed to sustain our environment.

One of Nixon’s greatest legacies (in popular culture) was the suffix of “gate” – associated with anything that had an air of suspicion around it. This holds remarkably true for the recent episode of intrigue around Climategate. The similarities with Watergate really end there – because the furore raised by those who hacked into the Climate Research Unit’s servers at UEA and published SELECTED EXTRACTS from a series of emails from leading climate scientists will not bring about the downfall of one of the largest issues facing humanity today – and tomorrow.

The contents of the extracts that have been variously published at face value appear damming, and unsurprisingly have been held up high and wide by climate sceptics who argue that this is the end of the Global Warming “charade”. Senator Inhofe, who sits on the US Senate Committee on Environment and Public Works has really gone to town. The message from the Senator’s blog is unequivocal, and I quote ”Most important, however, these revelations of fudged science should have a cooling effect on global-warming hysteria and the panicked policies that are being pushed forward to address the unproven theory”. Although this is hardly surprising when one looks at Inhofe’s previous postings including the ‘Fact of the Day’  ”Skeptic’s guide to debunking global warming”.

Leaving aside the issue of the illegal access to the emails – the extracts are what they are, and they are now in the public conscious. What does this mean for climate science and advising governmental policy to drive forward and effect change? Personally, I think the sceptics will have a blip of a louder voice for a short while – and this will have a marginal impact on public sentiment. But thankfully this will pass. I am hopeful that the COP15 proceedings will further demonstrate the imperative to take decisive action to begin to mitigate the potential impacts of climatic change (not just global warming). And we need the scientists to help us to understand what this could mean.

Most climate scientists are reasonable and will agree that there remains a degree of uncertainty (if you’ll excuse the pun) as to the relative levels of natural variability and anthropogenic contribution to climate change, both regionally and globally. The one fact that doesn’t change is that change is happening – and its not all for the good. The scientific community needs robust challenge and needs the opportunity to share what it has found. Much of what we see published is based upon models – views of a potential future. The recent claims that have had a higher voice claiming these are all a sham fail to note that there are a number of independent academic institutions, running thousands upon thousands of simulations – and yes there are some years that point to globally averaged high increases in temperature, some lower (yes some will point to cooling!). However, the average of these multiple views all point to a dramatically changing global climate.

Now, we have a choice. Do we do nothing and let the world continue to pump inordinate quantities of CO2 into the atmosphere and see what happens? Or do we use the information that we have had from the climate science community and DO something.

Are we really going to play Climate Roulette? The bullet is loaded….

The Intergovernmental Panel on Climate Change (IPCC) was set up in 1990 and its first report arguably led to the creation of the United Nations Framework Convention on Climate Change (UNFCC).  From this a series of annual meetings has emerged, the “Conference of the Parties (COP)”.  COP3 led to the Kyoto protocol in 1997;  in 2010 we all earnestly hope that COP15 will lead to another set of international agreements.

The IPCC is a respected body,  it does not carry out science, it reviews the work of others and publishes a summary.  Its summaries represent a global scientific consensus.  In order to manage the vast volume of papers they have to review the IPCC have to impose a cut off date. This means that the latest IPCC report is based on science that is now three years old.

In many respects this is not a big deal.  The science back then was already very clear; climate negotiators already know what they have to do.  To reduce the risk of the worst predictions political leaders must agree to rapid cuts in greenhouse gas emissions; starting in the developed world and quickly involving everyone.

But to ignore the science of the last three years would be unwise.  Sadly, as has so often been the case over the past 20 years the emerging science is “worse than they expected”. One reason for this in my view is that the IPCC consensus process leads to excessively cautious pronouncements – the scientists are so scared of making statements that turn out to be overly pessimistic that they will only opine when they are really sure of their work.  Whats wrong with that?  You might ask.  Well, I suggest it means that the IPCC reports are not a “best estimate” but are really an optimistic statement – and this is bourne out because each new report contains even worse predictions.

However, climate negotiators dont need to wait until the next IPCC report (2013) for the latest science.  A large group of world famous scientists have produced a new report “The Copenhagen Diagnosis” which contains their latest views on risk.

The news isn’t good.

Greenhouse gas emissions are now 40% higher than 1990, higher than all the scenarios considered to date. Greenland and West Antarctic Ice sheets are loosing ice at an accelerating rate (see our 360 report on this), the Arctic Sea Ice is dissapearing much more rapidly than thought.  Sea levels are rising much quicker than expected, upper limits are now set at 200cm by 2100 compared to 59cm as previously thought!  

Is there hope?

Yes.  We can change and accept lower energy allowances.  Groups are starting to imagine what the society of the future will look like; and to many in the frenzied work environment of the early 2100 century they are quite appealing.  The future doesnt have to be bleak;  we need leadership and vision to choose a future we want – rather than have one imposed which, trust me, we don’t. Our thanks as ever go to the tireless scientists who have worked to ensure the climate negotiators have the best science on which to make their deal.

Tags: Climate change