Climate and Insurance.org | takefive with Roger A. Pielke, Jr.

Roger A. Pielke, Jr. has been a Professor in the Environmental Studies Program at the University of Colorado since 2001 and is a Fellow of the Cooperative Institute for Research in Environmental Sciences (CIRES). At CIRES, Pielke serves as the Director of the Center for Science and Technology Policy Research. His current areas of interest include understanding disasters and climate change, the politicization of science, decision making under uncertainty, and policy education for scientists. In 2006, Pielke received the Eduard Brckner Prize in Munich, Germany for outstanding achievement in interdisciplinary climate research. Before joining the University of Colorado, Pielke was a scientist at the National Center for Atmospheric Research from 1993 to 2001. Pielke is the author, co-author or co-editor of five books and numerous articles and essays. He also serves on various editorial boards and advisory committees. His most recent book is entitled, The Honest Broker: Making Sense of Science in Policy and Politics, which has been published by Cambridge University Press.

Takefive:
Professor Pielke, in addition to being a professor in the Environmental Studies Program at the University of Colorado, you also serve as director of the Center for Science and Technology Policy Research. Can you briefly describe the mission of the Center?

Professor Pielke:
The Center, which is a part of the University’s Cooperative Institute for Research in Environmental Science, was created in 2001 with a mission to improve how science and technology policies address societal needs, including research, education and service. To do this we focus on decisions that are made about science and technology and with science and technology. Most of our work to date has been related to the environmental sciences but our aims are to become more diverse in coming years.

Takefive:
You have just recently written a book, “The Honest Broker: Making Sense of Science in Policy and Politics,” which aims to identity a range of options for individual scientists to consider in making their own judgments about how they would like to position themselves in relation to policy and politics. Why should government and business decision makers, including insurance company executives, be interested in reading your book as well?

Professor Pielke:
The book is written for anyone who provides or receives expert advice. The insurance and reinsurance industries are built on a foundation of expertise, especially property/casualty but also others. It is important for executives (and other corporate decision makers) to ensure not only that they are getting the highest quality advice, but also that the processes that they have in place to generate advice are sound. Take catastrophe models for example. While the models are essential to the industry in many respects, I have for many years criticized how they are used and the sort of information that they provide. These models operate in a very political environment, whether the politics are those of state regulators or between different model providers. Executives need a framework for thinking about the advice that they pay handsomely for, and The Honest Broker provides such a framework.

Takefive:
In a paper that you and some other researchers recently wrote about normalizing hurricane damages in the United States between 1900 and 2005, you note that avoiding huge losses in the future “will require a change in the rate of population growth in coastal areas, major improvements in construction standards, or other mitigation actions.” In your opinion, how does one get policymakers to pay more attention to this observation?

Professor Pielke:
The first step would seem to be reaching a consensus that there is in fact a problem. After seeing the relatively weak response to Katrina, I am not convinced that catastrophic losses are high on the agenda of policy makers, even though many may well appreciate the risks. For example, the recent decisions in Florida to basically bet on small losses in the coming years suggests to me that decision makers sense that it is better to deal with a crisis as it occurs (or more accurately, for their successors to deal with) rather than take those steps today necessary to prepare for the disasters that inevitably will come. This would seem to be the obvious lesson of Katrina. The reality is that over the long term catastrophe losses are going to keep growing and growing, perhaps doubling in real terms every decade.

Takefive:
In May 2006, you collaborated with Munich Re on an international workshop on climate change and disaster loss trends. How do you see yourself and other scientists working together with the insurance industry in the future?

Professor Pielke:
I collaborated with Peter Hoeppe of Munich Re to examine recent trends in storm and flood losses around the world in the context of demographic and societal changes. Working with Peter was an absolute joy and it was very impressive to collaborate with someone so clearly focused on bringing the best science available into the business community. Our workshop involved 32 experts from 13 countries around the world and we concluded in consensus fashion that human-caused climate change is a very real risk, but that it is presently not possible to discern its signal in the historical loss record of storms and floods. This doesn’t mean that we can ignore climate change, but it does mean that we should take care not to confuse the increase in losses over recent decades due to ever increasing population and wealth at risk with a signal from climate change. Under all scenarios of future climate change, increasing losses in the coming decades will be dominated by demographics. This is in many ways oddly good news because demographic changes, in principle at least, can be influenced on the short term by government policies and company behavior. The climate system, by contrast, will react only very slowly to changes in energy policies and the actions that we take today will influence the climate system 50-100 years in the future. I do hope to continue to work with people in the industry as it is one of the most important actors shaping how we experience future disasters.

Takefive:
Finally, you recently questioned a new catastrophe model in an interview with a Florida newspaper and then offered a suggestion on how such models might be reviewed in the future. Could you comment here in more detail on your remarks to the newspaper?

Professor Pielke:
Last year Risk Management Solutions, Inc. (RMS) decided to change how they evaluate future risks from hurricanes. Instead of relying on the historical record to assess probabilities they instead decided to use the guidance of a small number of experts to produce 5-year forecasts of activity. The result was an increase in risk of about 40%. I was critical of this approach because I think that it is premature, at best, and not grounded in the state of the art in hurricane forecasting. There is no evidence available to suggest that combining expert judgments leads to a more skillful approach to hurricane forecasting than simply projecting forward the historical record. This creates a problem that I think plagues the entire catastrophe model industry, and that is the lack of an independent means to evaluate their products. There are, by contrast, many groups who can tell you how well a mutual fund performs against some naive baseline. Similarly bonds are rated by independent organizations. However, there is no such manner in which to evaluate the quantitative risk estimates from catastrophe modelers. This is not a failure of catastrophe modelers, but a blind spot for the entire insurance and reinsurance industry. Catastrophe models provide great precision, but how accurate are they? The truth is that no one knows. Precision without accuracy is a dangerous way to run an industry.