But critics take the billionaire investor to task for saying, in an annual shareholder letter, that fears about the negative impact of climate change on Berkshire Hathaway’s insurance business are unfounded

Environmental advocacy groups have criticized billionaire businessman Warren Buffett for his recent claims that climate change will be a manageable and profitable risk for the insurance industry.



In his annual letter to shareholders of his conglomerate Berkshire Hathaway, Buffett pointed out that the potential devastation caused by climate change will benefit – not harm – his insurance subsidiaries. He laid out his argument in response to a shareholder proposal asking Berkshire to assess and report the financial risks of climate change on the insurance business. The proposal reflects concerns that the insurers of homes and other properties will have to pay out big money in climate change-related claims and lose lots of money as a result.

Scientific evidence shows that excessive manmade greenhouse gas emissions are causing temperatures to rise and will, over time, increase the number and intensity of disasters, such as floods and wildfires, in communities worldwide.

“As a citizen, you may understandably find climate change keeping you up nights,” Buffett wrote. “As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.”

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Buffett said his shareholders’ concerns are unwarranted. Insurers will be able to react quickly to any hike in the cost of doing business because each auto or home policy typically lasts for one year, not 10 or 20 years at fixed prices, so the premiums could climb along with the cost, he said. He also cited inflation as an example of how an increase in the cost of goods and services is good for the insurance business.

“Over the years, inflation has caused a huge increase in the cost of repairing both the cars and the humans involved in accidents. But these increased costs have been promptly matched by increased premiums,” he said. “So, paradoxically, the upward march in loss costs has made insurance companies far more valuable. If costs had remained unchanged, Berkshire would now own an auto insurer doing $600m of business annually rather than one doing $23bn.”

Naomi Ages, climate liability campaigner at Greenpeace, said Buffett is making a false comparison between inflation and climate risks, which are far more unpredictable.

“Warren Buffett appears to assume that climate change is a manageable risk for insurers, but the damage caused by the increasing frequency and force of extreme weather events associated with a warming planet is set to become unmanageable,” she said. “And unmanageable risks bankrupt insurers.”

Ages pointed to warnings from insurers, like Lloyd’s of London, that are pushing businesses to consider the impact of climate change because “the cost of catastrophes is going up” and they “will be at the vanguard of the industries whose bottom lines are affected by climate change”.

That sentiment, Ages said, is “a nice way of saying ‘we could be bankrupted by these catastrophes first’”.

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Assessing the financial impact of climate change is difficult. As Buffett pointed out his letter, the insurance premiums for covering catastrophes have fallen in recent years, making that type of coverage less lucrative than before. Indeed, global financial losses from weather events in 2015 were lower than any other year since 2009, according to reinsurance giant Munich Re. But winter storms that battered the northeastern US and Canada a year ago still resulted in huge costs to the insurance industry, with insured losses reaching $2.1bn, Munich Re said.

While scientists say climate change will cause more severe storms, they can’t predict for certainty the number and severity at any point in future. “It is not yet possible to produce causal proof, but there is a logical chain of indices,” said Peter Höppe, head of Geo Risks Research at Munich Re, on the link between climate change and extreme weather events, in a statement.

Robert Hartwig, president and economist at the industry group, Insurance Information Institute, said the insurance industry isn’t taking the risk of climate change lightly, and neither does it plan to lose money from covering those risks.

“We are exposed on every corner of the planet and are monitoring trends in real time,” said Hartwig. “The insurance industry is exceedingly well-capitalized and very well prepared to manage this and many other risks.”

Buffett certainly understands the danger of miscalculating risks. In his 2007 shareholder letter, he wrote that “devastating storms” like Hurricane Katrina could “rock the insurance industry”.

“We do know it would be a huge mistake to bet that evolving atmospheric changes are benign in their implications for insurers,” Buffett said then.