Planet Insurance. Seriously.

English Bay
English Bay, Vancouver. A proposed expansion of the Kinder Morgan pipeline from Alberta’s oil sands to the British Columbia would see an increase in tanker traffic through this west coast Canadian city. Photo copyright Deborah Jones, © 2013

Published May 2, 2014

Acidifying oceans. Desertifying fields. Liquifying glaciers and icecaps. Toxifying lakes and rivers. Our species has a nature problem. Or to put it another way: nature has a human economy problem.

Before this century is over — more likely before it’s half over — that problem will be resolved, one way or another. Either we’ll be bright and change the way our economy works, or — and also more likely — we’ll carry on until either our economy or nature or both break beneath our weight.

What we need here is a little insurance. Seriously.

Insurance is what I buy when I know something bad, expensively bad, could happen to me. Maybe it won’t, but it might.

I don’t light candles under paper streamers. I don’t smoke in bed. I don’t overload the wiring. But I also have fire insurance.

I don’t drink and drive. I keep my car’s brakes maintained. I try to watch for the other guy’s lapses in attention. I still carry car insurance.

I try to watch my weight. I get my exercise. I control my blood pressure. And I have health insurance.

Right now, when it comes to the planet, we’re behaving like an overweight chronic alcoholic who downs a double vodka with beer chaser for breakfast before leaving his lit cigarette on a sofa and getting behind the wheel for the freeway commute to work — all without a penny of insurance.

But wait, I hear you protest, how can you insure the planet? If we waste it, who’s left to pay off the claim?

Well, quite true. But consider two facts. One: the public and private entities that sell fire and car and health insurance never expect everyone to suffer a house fire, car wreck or fall on the same day. Two: Most of us aren’t like that guy. We watch our health, our driving, the safety of our homes.

There you have two of the three magic ingredients that make insurance work. The third is that insurance companies have gotten very, very good indeed at brutal honesty about the cost of things. You may think your buddy Tom can fix that fender for a few bucks. Your insurance company has seen a lot more fenders than you have, and it knows a $1,200 tab when it sees one.

These three magic ingredients all work together. Most of the time, most of the insured aren’t in accidents, sick or losing their home to flames. So their premiums cover the expenses of the minority who are.

But because people’s behaviour and choices influence the likelihood of their damage or personal suffering, how we behave makes a difference to the costs that insurance companies face — and to the premiums they charge the rest of us in turn to cover the risk that we also may make a claim.

That feedback function affects the choices we make even before we lay a claim. Our health insurance will be lower if we quit smoking. Our fire insurer may require us to remove that old and unsafe wood stove. Get a couple of speeding tickets that reveal a lead foot, and you’ll pay more for car insurance.

So here’s how we insure the planet: we require every enterprise to carry unlimited ecological liability insurance. If its activities uproot a wetland without approval, if its gas well poisons an aquifer, if its product creates an epidemic of bee mortality — the enterprise must carry insurance coverage for the full cost of making that damage good.

Several consequences would flow immediately from such a requirement.

First, insurance companies would scramble to better identify their risk. This would unleash a creative florescence of biological and environmental science and related progressive economics, as those insurers tried to nail down, accurately and precisely, just how much it will really cost to repair the damage we do to our ecological infrastructure.

Secondly, enterprises that are freeloading on that infrastructure will find it’s no longer possible to do so. Companies whose activities pollute or whose products damage ecosystems, would face the same two choices our chain-smoking alcoholic driver does: either clean up, or face prohibitively expensive insurance premiums.

Thirdly, when enterprises nonetheless do damage to the environment, whether unavoidably in the nature of their operations or accidentally or through negligence, funds will be there to repair it.

Fourthly, all of that will happen dynamically in the private sector and marketplace, as the result of one single and relatively simple legislative intervention. By obliging enterprises to take full economic responsibility for all their costs, and empowering a profit-motivated industry to figure out what those costs are in each particular business situation.

An ecological insurance requirement would ‘penalize’ businesses only to the extent that it exposed the eco-risks that an individual enterprise has been ‘externalizing’ onto the public and nature until now. A ten-person consultancy in a green office block would pay next to nothing. Extractive industries would pay a lot more.

If eco-insurance premiums made the latter uneconomic, the lesson would be both obvious and mathematically inarguable. If a mine or heavy-oil well or steel mill cannot afford to insure the damage it is doing to humanity’s natural security, it is fundamentally uneconomic in a world we hope will survive.

The trouble with markets generally isn’t in the idea of exchange. It’s in what one side or the other — or sometimes both — don’t know. Economists who study the impact of industry on the environment universally agree that the crux of the problem is the environment’s invisibility to the dollar economy. When no one pays for nature’s services, like a free buffet they are soon devoured to the last tired shrimp.

Regulation and various environmental fees and taxes are two solutions popular with different schools of economists. Both have helped. Neither has worked well enough to reverse our suicidal over-exploitation of the natural services that support our species’ existence: wetlands and water catchments, productive oceans suspended in a pH balance slightly on the basic side, fertile soils.

It is too easy for industry to bully bureaucrats and well-meaning government scientists, to bribe politicians in a thousand ways large and small, for regulations and fees ever to fully cover the risks of environmental damage or the cost of repairing them. The process is dragged down by institutional checks-and-balances that mean even that limited action is always trailing far behind new and emerging threats.

Accurate risk estimates are, by contrast, at the very core of the insurer’s business model. Only if premiums accurately reflect outlays to cover claims (the carried risk), does the insurer survive to write a policy another day. Require enterprises to carry eco-insurance, and large comprehensive insurers to sell it, and we can rely on the profit motive of the latter to ensure the sums are done right.

One of the functions that marketplaces excel at is what is called “price discovery.” If the book-keeping problem behind our nature problem is that we fail to account on our balance sheets for the cost of destroying nature because that cost is invisible to us, then it’s an urgent task to start discovering those costs.

The insurance marketplace has an app for that.

Copyright © 2014 Chris Wood


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