Insurers and climate

Insurers and climate

Article Type: News items From: Disaster Prevention and Management, Volume 18, Issue 3

Peter Levene, chairman of Lloyd’s of London, told the San Diego Union-Tribune in 2004 that the issue with climate change “for insurers is natural disasters, which are a very great concern. And the impact of those disasters has been increasing because the climate has been changing.”

Federal and private insurers paid out more than $320 billion in weather-related claims between 1980 and 2005 under flood insurance and crop protection programs.

Private insurers paid about 76 percent of this total. According to the US Government Accountability Office, “Assessment by key governmental bodies generally found that rising temperatures are expected to increase the frequency and severity of damaging weather-related events, such as flooding or drought, although timing and magnitude are as yet undetermined.”

In 2007 before the US House Select Committee on Energy Independence and Global Warming, GAO’s John B. Stephenson said, “While both major private and federal insurers are exposed to increases in the frequency or severity of weather-related events associated with climate change, the two sectors are responding in different ways.”

Many major private insurers are incorporating elements of climate change into their annual and strategic risk management practices to reduce their exposure to catastrophic risk – that is, their vulnerability to extreme weather-related events and the associated financial losses.

“One consequence is that they are transferring some of their exposure to policyholders and to the public sector.”

Federal insurance programs…have seen their exposure grow significantly – NFIP’s total coverage has quadrupled from 1980 to 2005, nearing $1 trillion, and program expansion has increased FCIC’s (Federal Crop Insurance Corporation) total coverage nearly 26-fold to $44 billion.” (www.gao.gov/cgi-bin/getrpt?GAO-07-820T).

A 2007 report by Ceres (www.ceres.org/Page.aspx?pid=858), a coalition of investors, environmental organizations and investment funds, found that insurers both nationally and internationally have “a huge opportunity today to develop creative loss-prevention solutions” to climate change. The group identified “422 real-world examples from 190 insurers, re-insurers, brokers and insurance organizations from 26 countries”.

For instance, Arkwright Mutual Insurance examined climate change and flooding. The Insurance Australia Group is working with the University of Oklahoma on high-resolution climate modeling. Insurance broker Willis is collaborating with researchers in the United Kingdom and Japan on next-generation climate modeling, with greater resolution to enable the evaluation of changing typhoon risks and associated insurance implications Swiss Re and the Association of British Insurers have also coupled climate models with insurance loss models.

Swiss Re projects an average increase in losses of between 16 percent and 68 percent from European winter storms between 1975 and 2085.

But GAO’s Stephenson says that government programs are lagging: “The federal insurance programs have done little to develop the kind of information needed to understand the programs’ long-term exposure to climate change.”