Insurers behind climate curve
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March 22, 2013
Insurers behind climate curve

Disclosures by 184 insurance companies indicate that the industry is not adjusting to the risks of climate change and thereby diminishing the prospects of sustained shareholder value.

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This overall conclusion was drawn by Ceres after collecting disclosure information the states of California, New York, and Washington required of the companies.  Ceres found that only 23 companies in the property and casualty (P&C), life and annuity, and health insurance sectors have comprehensive climate change strategies. 

“The implications of this are profound because the insurance sector is a key driver of the economy,” said Ceres president Mindy Lubber, who wrote the forward to the report.  “If climate change undermines the future availability of insurance products and risk management services in major markets throughout the U.S., it threatens the economy and taxpayers as well.”

Catastrophic losses

Ceres notes that in the United States in 2012, there were 11 extreme weather events that individually caused at least $1 billion in damages.  Hurricane Sandy alone resulted in $50 billion in losses, including tens of billions of dollars of insured losses by P&C firms, whose quarterly profits suffered as a result.  Moreover, the P&C segment is not alone in facing changing business conditions as a result of climate change.  Life insurers, for example, own vulnerable coastal real estate valued at hundreds of billions of dollars.

Companies are adjusting, but too slowly, states Ceres.  For example, a majority of the companies reviewed in the report indicate that they recognize that extreme weather events are affecting revenue and profitability.  But the large majority of companies have not yet gone the extra distance by accounting for climate change as a whole. 

Consideration at all levels

The Ceres report includes recommendations for insurance companies, including:

  • Treat climate change as a corporatewide strategic issue affecting all functions at all levels, and formalize this in a public corporate policy statement.
  • Assess how a warming climate will alter extreme weather, disease vectors, political risk, and infrastructure resilience, and implement strategies to adapt their underwriting and investment practices accordingly.
  • Develop catastrophic models that anticipate the probable effects of climate change on extreme weather events.
  • Advocate for public policies that will help reduce carbon emissions, and maintain an economy that is resilient to climate risk.

Also included are recommendations to regulators, including continuing to mandate annual, public climate risk disclosure by insurers; engaging with all stakeholders on how rates should be adjusted to reflect changing risks; and better incentivizing consumers to reduce their vulnerability to these risks.

Read the Ceres' report, Insurer Climate Risk Disclosure Survey: 2012 Findings & Recommendations.

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