Insurance companies are the risk managers of society. Given their unique role, it would be reasonable to assume that the U.S. insurance industry would be leading the global effort to mitigate and manage climate change risks, the greatest long-term threat facing our planet. However, while some insurance companies are actively working to address climate change, the industry as a whole is largely silent on the issue.
The insurance industry has a long history of advocating for common-sense precautions such as requiring seat belts in cars, fire codes for buildings and safety standards in the workplace. These practices help keep us safe, while lowering the costs that disasters and accidents can cause for businesses, individuals and the government.
Extreme storms, wildfires and floods have devastated communities across the nation, endangering lives and costing billions in losses. Climate change is expected to increase the frequency, intensity and duration of severe events, as well as the damages from these disasters. Insurers that are forward-looking and solution-oriented with regard to climate change risks can limit the amount of destruction and loss, benefiting both themselves and society at large. Yet most insurers have been slow to recalibrate their business and investment plans and practices to reduce their exposure to climate risks.
For more than a decade, Ceres has been working across the insurance sector to mobilize the industry to help reduce its exposure to climate change risks. For example, Ceres’ advocacy work helped spur the National Association of Insurance Commissioners (NAIC) and leading insurance regulators to require companies to respond to an annual climate risk disclosure survey. This information continues to provide insurance regulators, investors and policyholders with a much clearer view of the performance of most U.S. insurers, and leading practices across the sector.
In addition, insurers are the second largest type of institutional investor in the world, and – like many large investors – are significantly invested in fossil fuel related assets. Therefore, insurers need to assess and manage the potential risk of their high-carbon assets, while also seeking attractive clean-energy investment opportunities arising from growing global demand for low-carbon power and mobility solutions.
In sum, Ceres works directly with the U.S. insurance industry to promote proactive steps companies can take today to address the growing climate threat:
- Plan for the future, not the past. Insurance companies will need to re-assess their risk exposures based on new and emerging climate data, and share these findings with regulators and policyholders.
- Disclose climate risk exposure. Insurers should increase their level of transparency and consistency of public reporting to better enable insurance regulators, investors, and policyholders to assess the materiality of climate change risk to a particular insurance company.
- Assess and manage exposure to carbon asset risk. As major institutional investors, insurance companies have extensive exposure to risks associated with their holdings in carbon-intensive companies, particularly in the oil & gas sector as well as electric utilities. Insurers need to better assess and manage these exposures through new strategies ranging from engagement with companies they own to shifting their assets.
- Re-align investment portfolios to capture new opportunities arising from the global transition to a low carbon economy. Insurers should invest in clean energy solutions and corporations that are leading the way in water conservation, energy efficiency and environmental responsibility.
The bottom line is that insurers have much at stake, and multiple tools at their disposal to help reduce climate-related losses for businesses, consumers, governments, and companies themselves.
October 19, 2016
More U.S. insurance companies are preparing for climate change, but many still turning a blind eye
May 24, 2016