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“Climatic Variations and the Market Value of Insurance Firms”
A growing number of insurance firms have begun to express their concern of global
warming and its effect on both market value and economic performance. This concern comes as
a result of increased occurrences of extreme weather conditions which, according to insurance
firms, bring about higher costs and expenses to their balance sheets (Hu, 2016). Insurance
companies claim that these weather conditions are becoming more extreme due to global
warming as well as the negative impact this climate change has on the economy and society as a
whole.
This study examines whether or not variations in the climate have historically been
connected to the profitability of insurance firms. The results obtained from this research indicate
that the past increases in extreme weather conditions have not had a negative effect on the
market value of these firms. Essentially, even though firms might be forced to pay out more
claims as a result of the weather change, they could potentially enjoy an expanded market for
their insurance products.
With regards to global warming, most climate scientists agree that the main cause of the
current trend is human expansion of the greenhouse effect. This effect is the warming that results
when the atmosphere traps heat radiating from Earth toward space (Bouwer, 2011). Certain gases
in the atmosphere such as carbon dioxide and nitrogen block heat from escaping. In essence, this
leads to the gradual and continuous increase in the planet’s climate.
Going back to the topic of the article, one point that decreases the strength of the
insurance firms’ argument is the fact that climate change cannot be directly measured. This is
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because the connection between global warming and extreme weather remains uncertain.
Knutson et al. (2008) used a regional climate model of the Atlantic basin to reproduce the pattern
of hurricane counts between 1980 and 2006. But when faced with large-scale changes consistent
with twenty-first century projections, the results forecast a reduction in tropical storm and
Atlantic hurricane frequency.
“Climate change leads to more damage from weather disasters.” This claim is made
frequently in debates on the impacts of ongoing global warming. However, if insurance firms can
accurately predict the risks of weather conditions and charge consumers appropriately, the firm
may even be better off than before. Although many other impacts and risks are associated with
climate change, shifts in weather extremes are one of the most prominent anticipated impacts to
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