Creating different scenarios for strategic planning exercises with a wide range of clients over many years inevitably gives rise to a reflexive response to certain news items. There are all sorts of triggers – it might be a current event that was prefigured in an earlier scenario, or a developing issue that has the potential to affect the future in ways that aren’t immediately obvious, or the potential confluence of a number of unfolding events with larger long-term consequences. So we thought we’d occasionally capture some of these thoughts under the heading “Signals” . This week we give most space to thoughts on the retreat of home-insurance providers from Louisiana—more than 20 of them since 2020. We also look briefly at news of the population decline in China, and finally at meteorologists’ concern about the terms used in describing weather events, and the effects of language choice on the public.
Louisiana, Homeowner’s Insurance, and Medicare for All
Louisiana has endured a battering from the weather. Insurers paid out $23 billion in claims after Hurricanes Ida and Laura in 2020. Hurricanes are only one part of the story. Just before last Christmas, 21 tornadoes touched down across the state.
A problem like this may feel local. It’s not. It’s not even all about homeowner insurance.
Certainly the local weather has damaged Louisiana’s experience ratings for insurers. But as the Fox report points out, natural disasters around the planet are driving up premiums everywhere. Climate change is making these events stronger than conventional actuarial tables account for. It only happens to be Louisiana we are talking about right now.
Forget the problems of insurance companies for the moment. Think about homeowners weighing the cost of premiums against what they imagine their risk to be and deciding to go without. There will be consequences for them, sure. As we wrote back more than a decade ago, there may also be consequences for society.
For most Americans, our home is our largest financial asset. Passing on its value to the next generation is the most significant factor in creating generational wealth. As a colleague observed when we were discussing the Fox story, many of the places where homes are at risk are the same areas where quality medical care (or any care) is falling quickly. (According to US News Louisiana ranks 47th in health care among US states).
What does that have to do with homeowners’ insurance? In those same places where violent weather is threatening the principal financial asset of middle-class people the quality of health care is also at risk—just at a time when health-insurance premiums are rising above what many can afford.
A couple of scenarios are possible from this convergence. One is a permanent underclass. This will not be a great thing for political stability in the United States.
Another might be a populist uprising demanding that states and/or the Federal government do something. They may have to not only get into the reinsurance business, as Florida’s Republican state legislators have done.
It may not be such a philosophical leap from there to some variety of “Medicare for all”—a long-time goal of the left that could become a requirement for political survival for politicians in states that do not lean left at all.
Both might happen at once, and when they do we might look back and say it was inevitable.
China, Demographics and Language Inflation
Considerable coverage was given to the news that China’s population has fallen for the first time in 60 years. This is something that FSG has written about in the past, here, and most relevantly for this piece, here. Back in 2017, writing about the declining birthrate in the US, we pointed out that as recently as 1975, both Japan and Italy had a higher birth rate than the US, but in both countries it had subsequently shrunk significantly, bringing economic stagflation, and hence our conclusion – “a reminder of the powerful tectonic impact of demographic change, often overlooked because it is slow to appear, and thus never headline-worthy.”
There are several points to make here; that a decline in China’s population is of course headline-worthy, based on the assumption that it continues and slows economic growth in China and with it, the World. In this sense the use of the word ‘crisis’ in the New York Times headline is justified. At the same time, another ‘crisis’ – climate change – is often linked to population growth, because of the inevitable increase in energy consumption, suggesting an impasse between crises.
We have to wonder about the use of the term ‘crisis’ in relation to either phenomenon – as they are both very slow to evolve and it will be many decades before their effects are fully felt. On the one hand it is of course appropriate to suggest that we are in a time of crisis and need to react accordingly. On the other, there is a risk of linguistic inflation – by overusing words, often inappropriately, their meaning is devalued. The need for attention, and in the case of climate change, for action, can lead to hyperbole, which acts as a positive feedback, increasing the risks by steadily eroding the effectiveness.
Bomb Cyclone Hyperbole
Finally, and directly related to this, the Times carried a piece describing how meteorologists are concerned about the overuse and misuse of colorful terms like “bomb cyclone” and “atmospheric rivers”, for exactly the reasons we outlined above.
The bigger idea running through everything we’ve written here is that in considering the possible effects of large forces for change, allowance must be made for cross-impacts and second- and third-order effects. To quote this earlier FSG blog, “Lives and behavior are affected by climate, but also by the expectation (or not) of climate change, as well as by the policies designed to address climate change, and the expectations (or not) of the nature and magnitude of such policies in the future as climate change worsens. People’s lives and the operating environment for most organizations will be affected by all of these things, as well as by the speed with which they occur.”
Great stuff. Several thoughts occur to me.
1. When I started in this old scenario game, India was thought to be doomed to perpetual slow growth because of their huge rate of population growth. Now China is thought to be in trouble due to its shrinking population. The U.S. also is in the same potentially slow economic-growth boat (to China?), because we have a deep resistance to immigrants – just when they are said to be badly needed to fill jobs going begging (“the jobs that Americans won’t do” seem to have expanded since COVID) and also to pay taxes for retiring immigration-resistant Baby Boomers’ Social Security and Medicare. Funny how cause and effect get turned around after thirty years or so.
2. As for hurricanes and insurance and “bomb cyclones,” as some of the FSG folks know, we sold a house in Southwest Florida as part of a move to New Zealand this past summer (winter down here). Three-plus months later our old Florida neighborhood was underwater and we were marveling at our luck. Then an “atmospheric river” from up north (that’s the tropical direction down here) decided to inundate our house in Auckland twice this past week, as well as a bunch of the furniture we had rescued from that Florida house. So I could suggest some replacement terms for “atmospheric river” or “bomb cyclone,” but they would mostly contain four letters right now. Suffice it to say that if I were an insurance underwriter (as I was 40 years ago), I would be pulling out of many geographic and lines-of-business areas right about now, because climate change appears to be either very real, or else the most elaborate and expensive hoax in human history. That Al Gore – he should get another Oscar for this year’s weather!
I was taken by the speculation about an emerging (potentially permanent) underclass in the Home Insurance signal. Years ago FSG included a look at ocean property values in a few scenario engagements. Noting that the only people who could afford to own ocean front or near-ocean front property were those who could self-insure. In 2023, I would add, now, that the only people who can afford the weekly rental on beach front McMansions are also the affluent and wealthy.
My point is that the emergence of a underclass may not be only the result of catastrophes like losing your uninsured home. It can also be subtle incremental things that chip away at self worth – can’t afford (or find) a doctor for my child, can’t afford a beach vacation.
I think you are on to something with this signal.