FOR IMMEDIATE RELEASE
Hundreds of New Insurance Initiatives Emerging to Tackle Climate Change and Rising Weather Losses
Insurance for Wind Power, Green Buildings, Carbon Capture and Storage and other Climate Responses Reach Record Levels
Hundreds of new insurance initiatives, including coverage for green buildings, renewable energy, carbon risk management, and officers’ liability are being offered to tackle climate change and rising weather-related losses in the U.S. and globally, according to a major new report released today by the Ceres investor coalition.
The report outlines 643 climate-related activities in the US and abroad, including a doubling in new product offerings launched in 2008 alone. Among the newest products and services are coverage for wind and solar production shortfalls, premium discounts for building efficiency renovations, carbon capture and storage insurance, and coverage for humanitarian emergencies prompted by drought. Despite more creative offerings and a deeper institutionalization of climate-related activities within the sector, the report states that progress by the industry as a whole is still in its infancy.
“Insurers are integrating global warming concerns into many products and services, from green home and pay-as-you-drive auto insurance for consumers to renewable energy insurance for companies riding the clean energy wave,” said Mindy S. Lubber, president of Ceres, a leading U.S. coalition of investors and environmental groups, which commissioned the report. “Still, the scope and breadth of the insurer response fails to match the scale and urgency of the risks—or the opportunities—facing the industry.”
“Insurer attention to climate change is hugely important because the insurance industry underlies every aspect of the economy and has the power to transform the global energy system to one that is cleaner and more sustainable,” added Lubber.
“A vanguard of insurers is taking bold steps to adapt their business model to the realities of climate change,” said Dr. Evan Mills, the report’s author and scientist at the U.S. Department of Energy’s Lawrence Berkeley National Laboratory. “In many ways, insurers are still catching up to their customers, who are rapidly changing the way they construct buildings, design products, and produce energy, in response to climate change.”
The report, From Risk to Opportunity: Insurer Responses to Climate Change, comes on the heels of more than $200 billion in global catastrophic losses in 2008, the third highest losses ever reported, including $40 billion from Hurricanes Ike and Gustav in the U.S. Many of these losses were insured losses. While no individual weather event can be attributed to global warming, scientific data show that rising temperatures are likely increasing the intensity of hurricanes, floods, drought, wildfires and other extreme weather events in the U.S. and globally.
The report also follows the March 2009 groundbreaking decision by the National Association of Insurance Commissioners (NAIC) to require insurance companies to disclose to regulators and investors the financial risks they face from climate change, as well as actions the companies are taking to respond to those risks. It is the world's first mandatory climate risk disclosure requirement.
“Shareholders are eager to see insurers provide products and services that respond to the ‘greening’ of the global economy, improve loss prevention and be otherwise proactive about global warming. Acting on climate change is paramount to the very survival and prosperity of the industry,” said Jack Ehnes, chief executive officer of the California State Teachers’ Retirement System (CalSTRS), the nation’s second largest public pension fund.
The more than 600 innovative products and services identified by the report are offered from 244 insurers, reinsurers, brokers and insurance organizations in 29 countries; 37 percent of the activities come from U.S. companies. The insurer activities go far beyond offering new products. Examples include integration of climate change impacts and trends, such as warmer ocean temperatures and recent flooding data, into traditional catastrophic modeling, and $11 billion in direct investments in businesses that are developing or offering low- and no-carbon technologies.
Ramped up across the industry, many of these activities could dramatically reduce greenhouse gas emissions in some of the most energy intensive parts of the economy. For example, buildings account for 38 percent of all U.S. greenhouse gas (GHG) emissions, and green building practices can reduce energy use, and thereby emissions, by more than 50 percent in many cases and well beyond when coupled with purchases of renewable power and carbon offsets.
Among the recent offerings highlighted in the report:
- AXA, Munich Re, Navigators, Sompo Japan and Tokio Marine Holdings introduced coverage for renewable energy providers faced with less-than anticipated solar, wind, or geothermal energy production. Increasing revenue makes it easier for renewable energy projects to attract investment and financing.
- Zurich and Liberty Mutual began incorporating climate change considerations to liability insurance for directors and officers, an important development given pending and prospective lawsuits that could mean significant extra costs to major corporate emitters of greenhouse gases.
- Auto and transportation offerings are becoming more numerous and diverse, including pay-as-you-drive (PAYD) insurance, fuel-efficient/low-emission vehicle incentives, and premium discounts for hybrid vehicles. Two-dozen companies offer (PAYD) insurance products with discounts up to 60 percent for policyholders who drive less than the average driver. Fireman’s Fund offers the first replacement-upgrade product for hybrid cars and Travelers offers the first marine insurance product, a premium discount up to 10 percent for hybrid-electric boats and yachts.
- Twenty-two companies now offer 39 green-building products and services specifically designed for new green buildings, and upgrades to “green” for traditional existing buildings, either following a loss or in the course of normal renovations. The offerings are becoming more sophisticated and include premium credits and discounts for green buildings and commercial coverage for incremental cost increases of green measures such as recycled materials, energy-efficient products and green roofs, and business interruption coverage for delays in securing green materials.
- Insurers launched products to manage diverse risks from carbon capture and storage (CCS) for the first time in 2008. Ace and Zurich offer products that cover several types of risk unique to CCS, the process of capturing carbon dioxide pollution from power plants or other sources and injecting it deep into geological formations in the earth.
- In 2008, AXA Re introduced the world’s first-ever insurance for humanitarian emergencies, which was purchased by the World Food Programme. The innovative approach tracks rainfall amounts and patterns and pays claims well in advance of when post-event relief would be distributed. By mobilizing aid faster than possible by traditional approaches, it reduces human suffering and the overall costs of responding to humanitarian crises.
- Insurers are increasingly participating in carbon markets, which now include carbon trading, insurance for credit risks, political risks, plus advisory services and through carbon-neutral products.
Ceres is a national coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as climate change. Ceres directs the Investor Network on Climate Risk (INCR), a network of more than institutional investors who collectively manage more than $7 trillion in assets.
About the Report Author
Dr. Evan Mills, a scientist at the U.S. Department of Energy’s Lawrence Berkeley National Laboratory, served as co-leader of the Intergovernmental Panel on Climate Change (IPCC) Third Assessment Report’s chapter on insurance, under the auspices of the United Nations, and contributed to the Fourth Assessment released in 2007. IPCC scientists received the 2007 Nobel Peace Prize.