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Surviving Trump Pt. 12: Insurance, Global GDP Collapse & Climate Change [1]
['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.']
Date: 2025-02-01
There has never before been a global climate crisis in which such a diverse array of disasters all happen with increasing and unprecedented frequency in so many places at the same time. The colossal wildfire losses in California this year and from repeated massive hurricanes last year are a symptom of systemic failure, first to forecast risk accurately and second to adapt more quickly to reduce both known and newly manifesting risks.
Property, health and life insurers have become very good at using historical records to calculate probabilities of loss. They are also adept in using the law of large numbers to calculate and spread risk of loss among groups, properties, and economic sectors.
But when historical patterns of natural disaster, deaths and injuries begin to diverge in more and more unpredictable ways from past patterns, risk becomes harder to calculate, particularly if damage and losses become much higher, more diverse, and more widespread quicker than risk, based on projections from the past, can be adjusted.
The use of models projecting event severity and frequencies into the future is controversial but it is the only way scientists have of dealing with circumstances increasingly divergent from historical patterns. However, resistance to the implications of these forecasting models now drive entire political parties and government policies.
What is at stake?
Making projections into the future based on types and amounts of losses in the past, adjusted for inflation and other predictable aspects such as current labor costs and cost of replacing similar types of autos, houses, and so on are increasingly failing. The failure to properly understand risks posed by climate change threatens all systems which assess and use risk.
That means ALL market-interacting aspects of our global, interlinked civilization are at growing risk of uncalculated catastrophic failure.
This is NOT my assessment as a retired professional assessor of political-economic risk only. Forbes, a business journal, recently reported a stunning report that, during the tidal wave of Trump’s diversionary and destructive stupidity, has fallen completely under the rest of the MSM’s radar.
Global GDP Faces 50% Loss Without Climate Change Action
The detailed study this article was based on is available here:
If the implications of a global reduction of GDP by half don’t occur to you, read about the effects of a much smaller reduction in global GDP during the Great Depression. We are merely in the beginning phases of the repercussions starting to multiply and synergize.
In other words, Trump is a symptom and a reaction, not a cause, of what is increasingly stressing governmental systems, markets, and populations worldwide. He is an agent who is empowered by those whose monetary interests have blinded them to all else. He is as transactional as those who are also transactional.
He is what happens when “government is run like a (for profit) business”.
And do not take comfort that the forecast that global GDP will collapse between 2070 and 2100 seems far into the future. Scientists and forecasters have consistently underestimated the pace and degree of climate change. Watching this for several decades now, I have seen a consistent underestimation of effects that runs between 10 and 20 years shorter away than when they were first determined.
So we are likely looking at this collapse in GDP by 2050 to 2060.
Global GDP is an effect of a complex system, and forecasting failures of complex systems due to complex, little understood inter-related causes such as climate change is far from a routine calculation.
This timeline means all under 25 to 35 years of age right now have little to no hope of a secure retirement. Retirement, like insurance, depends on investments, spreading the costs, and working together to provide for those less and less able to fend for themselves. If those young people don’t realize it consciously, they somehow know that their future does not concern those in charge.
Radicalism, both progressive and regressive, will rise as a result.
People will be, and are already, starting to think in lifeboat terms wherein the limits of food and water and space make people willing to pitch empathy and morality overboard in a bid for personal survival. America First is the lebensraum movement from the German economic collapse of the 1920s and early 1930s.
But remember, insurance works only when groups behave predictably, and when risk can be spread among a wide number of persons across a broad region. The more the US turns isolationist, the less and less resilient becomes its economy and its socio-economic systems—and, whether they realize it or not—our corporate sectors which have spread risk globally and now face increasing pressures to divest and concentrate investments in one country. Insurance in a Fragmented World Economy
Sources of Failure
There is an ongoing failure of risk assessors to accurately assess the economic effects of climate change, first because this is a systemic risk, a risk to intricately inter-related aspects so complex that the links of one thing to another may not be readily apparent. Second, because these systemic risks are multiplying and increasing logarithmically, not arithmetically. And third, because economics as a discipline and economists as a group have siloed themselves from other disciplines whose methods for calculating and forecasting risk are rapidly advancing.
Please watch Steve Keen’s short analysis of this failure of conventional economists before reading the rest of this article: Keen on the failure of Economics
TLDW Note: Conventional economists forecast the economic effects of climate change will be so small that on an annual basis they are nearly unnoticeable. But climate scientists increasingly, even in panic, warn of total economic collapse and civilization itself in peril. The disparity in predictions means that someone is fundamentally WRONG. And Keen gives very good reasons why conventional economists are the ones getting their forecasts calamitously incorrect.
Actuaries, the professionals who analyze statistical data and develop models to predict such things as accident frequencies, death rates, and claim amounts, tend to come from economic backgrounds and work with firms that are managed by professionals who mainly come from business, not scientific, backgrounds.
And that is why insurance is an industry increasingly in crisis today. And that is why we who buy insurance or invest in insurance companies face serious dangers ahead, along with every other entity such as banks and governments with which insurance interacts.
“Climate change is worsening the insurance crisis” Andrea Riquier wrote in USA Today on Monday the 27th of January. She provides several key aspects to consider about this crisis.
First aspect, up to 2013, mandatory mortgage insurance premiums made up only 7-8% of most mortgages. But by 2022 such premiums made up over 20%. That portion is much higher now and will rise more as the costs of last year’s hurricane losses and those from the first California fires of this year begin to filter through.
Second, insurance companies offering homeowner’s insurance have lost money underwriting coverage every year since 2017, and those losses are growing. There are two types of losses here, one is loss covered by insurance that insurance companies are on the hook to pay out. The second type of loss is of the difference between the premiums being charged and the payout. Payouts are being subsidized by profits from investments, not covered just by the premiums.
Believe it or not, both types of loss are increasing faster than premiums are rising.
According to a report released by the US Treasury Dept.:
“From 2018 through 2022—the five-year time period for the data analyzed in this Report—the annual number of major disaster declarations for climate- related events was almost double the annual average over the 50-year period from 1960 to 2010. In 2023, a significant number of natural catastrophes again impacted the United States, at an estimated cost of $114 billion, of which approximately $80 billion was insured. In the first three quarters of 2024, natural catastrophes caused the United States to suffer an estimated $145 billion in economic losses, of which nearly $80 billion was insured.”
Report
The year 2024 in the US ended with nearly $200 billion in losses. 2025 began the first quarter with possibly more losses than during the entire year before.
So far, gains in investments from prior years of profits have been able to make up the losses for insurance companies. But a major economic downturn, much less a full on economic global GDP collapse of 50%, could very well impair, if not end, the ability of insurance companies to compensate for premiums not covering the losses.
So what does it mean if investments from past years are covering for today’s losses? It means rates NOW do not reflect current costs. And rates NOW do not reflect future geometrically increasing costs of climate change. And it means insurance firms cannot depend on their investments bailing them, and you, out. This is especially the case as the global economy fragments and makes investing outside one’s nation or region more risky. Slowbalization and Insurance
Property insurance rates in some states, such as California, have been artificially low due to the state restricting rate changes, and prohibiting insurance companies from using modeling to forecast future losses from climate change. The USA Today article:
“California law prohibited insurers from forecasting risk into the future, relying solely on backward-looking analyses of natural disasters and other factors that would drive insurance payouts.
The state will now allow insurers to use what the industry calls “catastrophic storm modeling” in pricing. “These reforms will help California’s market recover its equilibrium, though the Los Angeles wildfires have added significant additional challenges to the state’s insurance marketplace,” the spokesperson added.”
That means, at least in California, insurance companies are prohibited by law from raising premiums fast enough to compensate for increasing risks from climate change, and from the failure to properly zone and impose building requirements that lessen dangers from fire, floods and wind.
Large portions of the losses were not insured, and that portion of uninsured loss is sure to grow since non-renewals of insurance are increasing. These non-renewals include decisions by insurance companies to pull out of high risk zip codes and states, and from owners deciding the cost of insurance is just too high to be affordable. As the Treasury report cited above noted: “average nonrenewal rates increased by substantially more in the highest risk areas than in the lowest risk areas over this period, which indicates that consumers in these highest risk areas faced decreasing availability (of insurance coverage) over the five- year period.”
Conventional economic modeling for the impact of climate change have been grossly underestimating the cost impact. Insurance actuaries, not just Steve Keen, have become more and more aware of this. But policy makers and legislators have not kept up. Insurers new methods to assess climate change impact. Climate Change impact report.
Fundamental causes for fundamental errors
Professional risk assessors and regulators frequently fail to forecast or forestall systemic failures of other kinds. “Unexpected” banking crises arise with regularity, from the savings and loan collapses of the 1980s to the Asian Currency Crisis of 1997-98, the Global Financial Crisis of 2008-09 and the COVID pandemic economic collapse and inflationary surge of 2020-2022.
But, over time governments have learned to create means to recover from such failures, in limited cases. The FED, FDIC, SEC and various other such agencies are “insurers” against financial market risks, and they have developed means to monitor and “stress test” financial institutions under various scenarios even if they cannot calculate exactly when another black swan event might occur. And our unemployment insurance and food security programs have provided other backups and counter-cyclical dynamics to counter these crises.
Our financial system has failed regularly enough that we have built a system to act when it does fail. But no such system of regulators and “lenders of last resort” exists to prevent total economic collapse from climate change impacts.
We have never had an environmental collapse before, though the Dust Bowl of the 1930s came close. And remember how that and the Great Depression ended. Another World War won’t fix it this time, though.
We have the EPA, which even in its limited form, is constantly under attack from vested interests, either to capture it as a regulator, or to cripple it. And its mandate is not to monitor, forestall, or stress-test for climate change related environmental collapse. FEMA responds to damage, but on an ad hoc and as needed, and most times underfunded basis. The DOD assesses security risks posed by climate change, and its assessments are likely the most comprehensive we have. But it is not empowered to act to reduce, forestall, or stress-test anything that its research shows may be a point of failure. NOAA researches weather and weather affected economic aspects of climate change in conjunction with the Dept. of Agriculture, when it and the Ag Dept. are permitted to do so. The Interior Dept. deals with forest fires and perhaps causes and actions to respond to them, but it has no mandate to systematically assess how climate change will affect the lands under its control or those properties which run along the boundaries of federal lands.
The IRA was the first relatively comprehensive legislation to stipulate and fund wide-ranging actions against climate change causes and effects. But there is no regulator at the federal level which can regulate or mandate such things as changing zoning, building codes, and hardening public services against various climate change related threats
like fire, floods, and sea level rise. And there is no comprehensive system like the Federal Reserve system that has systemic, regional capacities to monitor, forecast, and prescribe actions to counter climate change related economic damage. Indeed, the FED rejected action that would merely have required financial institutions to report climate change related risks to its financial status.
What must be done?
People reject science for many reasons, but when science, which deals in probabilities, is used to impose more and more restrictions and increasingly raise costs, invested interests driven by profit try all the harder to dodge the restrictions and offload the costs onto others. Using fear, uncertainty and disinformation (FUD) to forestall effective reforms and regulation has become so widespread whole legal and marketing firms specialize in it.
However, to survive not just Trump, but what he symptomizes, we MUST understand what is happening to us and to all that is around us.
And it means we have to figure out how to counter and constrain profit driven interests that oppose any action, even action that results in the long run in their own best interest being preserved. In short, like FDR during the Great Depression, we have to save capitalism from itself by reining in capitalism and its solely market driven initiatives.
This gets beyond what one investor or even a group of investors can do to protect themselves. It takes action by all of us to save ourselves—for we must save ourselves together, and not by pitching the weakest overboard.
For one thing, billionaires must be taxed into oblivion or utterly banned from using their money to influence politics and policy via government, media and all research and policy related venues. Their choice: interfere in government and lose your wealth which empowers you to interfere, or stay out and put your wealth to other uses. Instead of tax sheltering “think tanks” and the like that use FUD to undercut scientific research, these personal and company lobbies need to be extra-taxed, with the taxes put to public funding of research and ensuring such research is based on best science, not who’s funding it.
We will have to either unpack the Supreme Court or push to amend the Constitution to stipulate that money is not speech and corporations are not people. They have no interests that should prevail over real persons and should never be allowed to imperil the nation and the globe by headlong pursuit of profit and monopoly.
Billionaire owned media, including social media, must be broken up, made to compete, and restricted from forming combinations that effectively monopolize news and commentary. Local news needs to be locally owned, so in-state ownership which lives in the state or city of publication could be mandated. There are many proposals on how to regulate social media to disincentivize disinformation. It’s past time to act.
And for another, we need a FED type system of regionally based and thematic centers (like the FDIC and S&L regulators) that have a mandate to research, identify causes, identify actions, and then prescribe and regulate the pace and scale and costs of taking actions to counter and/or adapt to climate change. These regions may be better understood as East and West coastal regions and interior regions that broadly experience similar challenges. So, for example, the Great Lakes region, the Mississippi-Missouri-Ohio river, Colorado river, Rio Grande, and Columbia river regions might be sensible regions to combine for research and regulatory purposes. Islands such as Puerto Rico, Hawaii, American Samoa, US Virgin Islands and so on might be grouped as environmental regions facing similar threats. These regions would work with the other agencies such as FEMA, EPA, Interior, Ag, NOAA, DOD and others to develop comprehensive threat assessments, action plans, and stress tests so we can develop robust means to respond to climate change as it manifests and as it accelerates.
Insurance actuaries as a profession are increasingly aware of how climate change is affecting insurance.
https://www.soa.org/programs/catastrophe-climate/ And they are increasingly developing research to understand “compound events” which is their term for the complex interacting factors described above.
https://www.soa.org/resources/research-reports/2024/compound-weather-extreme-events/ But research into compound events began only in 2012 with the IPCC report that year, and policy makers, who must put into place governmental structures in response, are both sorely late in acting, and increasingly hampered in acting, by entrenched interests.
But businesses and investors are slowly, too slowly, becoming aware that they must act. Climate risk, Directors, and corporate governance.
ESG funds have grown in size, despite considerable and increasing opposition by Republicans, but a lot of that “environmental” in these ESG funds have been greenwashing rather than actual, effective action to address climate change.
And that must change sooner than later.
Trump’s and Musk’s stupidity and cupidity may give us the chance for radical rapid adaptations in policies and governmental structures that we must have if we are to survive climate change with a civilization more or less intact.
How, you might ask?
In Star Trek, there was a global war and breakdown of civilization before the discovery of warp drive and the first contact that reknit and healed the world. We cannot depend on such a deus ex machina to save us. But, Star Trek as a story gives us hope that we humans can learn from our mistakes. Past generations learned from the dark times of WWI, the Great Depression and WWII and the Nazi “supermen” of their time, and forged a flawed, but workable global framework that promoted peace and prosperity for billions. Returning to that past, with the US as Nazi Germany this time, well, we know what that will lead to if we don’t fight it. We cannot surrender nor despair, and like insurers, we know we must work together to insure against loss, not isolate ourselves, and have no one available to help after a disaster.
Businesses may be becoming aware of what is at stake: Krugman: End of North America
You’re on your own, which is what happened to too many after Hurricane Katrina. That fundamentally shook confidence in government among many, many Americans. Government failed that test, like it has been failing to react fast enough to climate change. But we cannot throw the weak overboard. We must not turn on each other like rabid dogs.
That must not be the outcome of Musk and Trump’s madness.
We, you and I as activists concerned about our mutual wellbeing and future, are the insurance against that.
Next Week: Insurance and healthcare.
Previous articles in the Surviving Trump Series:
One: Tariffs, Trump's pockets, and yours
Two: Protection schemes of the New Regime
Three: Mechanics of a crash
Four: Setting up retirement funds
Five: Guidelines for managing retirement funds
Six: History of Republican economic mismanagement
Seven: Jackson and Trump, rogue regimes and economic catastrophes
Eight: Black Swans, cryptocurrency and threats to the dollar
Nine: The Coming Republican Crypto Crash
Ten: Trump's effects on the Energy and Utility Sectors
Eleven: Benchmarks
Disclaimer and disclosures:
I am not a CFA (chartered financial analyst). This article and comments are not investment advice from a fiduciary. They are discussions among investors with varying levels of experience. For over 30 years I taught state-market interactions at under-graduate and graduate level, focusing mainly on economic history and thought as well as specialized classes on international trade structures (WTO) and dynamics, and public administration as it relates to economic policy making, taxation and regulation, mainly in China. I was an area political-economic risk analyst for a decade for an internationally known risk assessment firm. I have technical degrees (and experience) as well as academic degrees, including a certification in Military History from West Point which would have let me teach ROTC classes if I had not gone overseas. I also started two small businesses (one a B-corporation type) and currently farm (organically and sustainably) in WA state. I have managed my own investment portfolios for at least 25 years. All advice is offered freely and from this context.
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