Climate-Proofing The Insurance Industry
The world’s largest reinsurer has examined the recent rise in the number and severity of natural disasters worldwide, and finds the trend bears the unmistakable fingerprints of climate change.
What’s more, America is bearing the brunt of that change.
“North America is the continent with the largest increases in disasters,” Munich Re’s Peter Hoppe told USA Today yesterday. Take a look at the map of the most costly extreme weather events in 2011 and so far in 2012 for a snapshot that begins to show what he’s talking about.
The drumbeat of a warming climate, worsening weather, and the resulting human toll continues, and keeps getting louder. At this point, it should be deafening enough to wake up anyone still denying the reality of a new normal for our climate, our weather, and the insurance companies whose stability underlies our economy.
Here are just a few of the voices of concern recently raised:
“Insurance is the first line of defense against extreme weather losses, but climate change is a game-changer for the models that insurers have long relied on,” Washington State Insurance Commissioner Mike Kreidler told an industry blog on risk and insurance. “Companies will need to adapt if insurance is to remain available and affordable.”
“With 40 percent of industrial insurance claims that Allianz now pays out being due to natural catastrophes, climate change represents a threat to our business,” Allianz told the Insurance Journal.
“We are already vulnerable to the impacts of weather related natural catastrophes. We expect climate change to compound the problems,” Swiss Re Natural Hazards Expert Megan Linkin says on the reinsurer’s web site.
“The insurance sector has broader importance because of the role it plays in the broader economy. Insurance is the oxygen that keeps our economy alive,” added Jack Ehnes, CEO of the California State Teachers’ Retirement System, one of the nation’s largest investors. “Despite the significant risk that climate change represents, the insurance industry’s response is still well short of what we need.”
Helping the insurance sector fill in that gap is what Ceres’ latest report is all about. Stormy Future for U.S. Property and Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events lays out a plan of action for insurance companies, regulators and investors to deal with the increased risks tied to climate-driven disaster. And it calls on the insurance sector to help our country adapt, and to tackle the problem of climate change pollution head-on.
In New York, California and Washington State, regulators already require major insurance companies to disclose their exposure to climate-related risks. Our report calls for rolling this approach out nationwide. Expanding disclosure would prompt insurers to incorporate climate risk into their business decisions—something they must do if they are to thrive, and even to survive, the coming storms. Disclosure would also help investors and regulators more accurately assess insurance companies’ financial strength.
And sensible standards for insurability—drawn up with the latest climate science and projections in mind—can help vulnerable communities make good decisions about land use, infrastructure and building codes, so that they are more resilient when disaster strikes.
In the past couple of years, Americans have suffered an extraordinary string of extreme weather events. A glance at the extreme-weather map makes it clear that no part of our United States is safe; we are all vulnerable. And as the climate continues to change, weather disasters are only expected to become more frequent and more intense.
Insurers’ support for research and public policy that helps the U.S. adapt to climate change – and to act in a way that curbs its worst effects – is in the insurance sector’s own best interests. It is also in the best interests of our economy, and of our nation as a whole.