Insurance Industry Response To Global Climate Change

Aug 22: Dozens of new insurance activities, such as 'green' building credits and incentives for investing in renewable energy, are emerging to tackle the causes of climate change and rising weather-related losses in the U.S. and globally, according to a major new report issued by the Ceres investor coalition. But the report also states that more insurance companies need to be offering similar services to minimize losses and make the most of business opportunities related to climate change. Mindy Lubber, president of Ceres said, "Climate change poses unprecedented risks to the insurance industry, but it also creates vast opportunities for new products and services to help consumers and businesses reduce their losses, while also reducing the pollution causing global warming. We've seen encouraging progress from big-name insurers and brokers since last year's devastating hurricanes, but many more creative services will be needed as we confront what is perhaps the biggest threat in the industry's history." The insurance industry is the world's largest industry, with $3.4 trillion in yearly premium revenue.

The report comes on the heels of devastating back-to-back hurricane seasons in the U.S. that caused a record $75 billion in insured losses during 2004 and 2005, including $45 billion from Hurricane Katrina alone. While no individual weather event can be attributed to global warming, a growing body of new 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, From Risk to Opportunity: How Insurers Can Proactively and Profitably Manage Climate Change, highlights the insurance industry's unique, powerful role historically in helping the country grapple and manage emerging risks. Just as the industry asserted its leadership to minimize risks from building fires and earthquakes, it is well positioned today to further society's understanding of global warming and advance forward-thinking solutions to minimize its impacts.

The report, written by two insurance industry experts, identifies 190 innovative products and services available or in the pipeline from dozens of insurance providers in 16 countries. Many provide win-win benefits, by reducing financial losses and greenhouse gas emissions. More than half of the activities come from U.S. companies, covering climate change solutions including energy efficiency, green building design, carbon emissions trading and sustainable driving practices.

Examples cited include the Firemen's Fund Insurance that is launching a first-of-its-kind "green" coverage, including rate credits and other incentives, for commercial building owners who re-build damaged properties using green and LEED-certified (Leadership in Energy and Environmental Design) building practices. California-based Firemen's Fund will begin seeking state regulatory approvals this month so that the products can be offered in states around the country this fall. Another example, Marsh, the world's largest insurance broker, and AIG, the world's largest insurer, have launched carbon emissions credit guarantees and other new renewable energy-related insurance products that are allowing more companies to participate in carbon offset projects and growing carbon emissions trading markets. The carbon trading market in the European Union alone is expected to hit $30 billion by the end of 2006.

The new report also outlines the nation's growing insurance availability crisis that has hundreds of thousands of coastal homeowners feeling the combined sting of premium shocks and coverage restrictions after last year's hurricanes. In Louisiana and Florida alone, more than 600,000 homeowners' property policies have been cancelled or not renewed in the past year. In Massachusetts and New York, private insurers have cancelled coverage for more than 80,000 coastal homeowners the past two years, even though it has been decades since the last major hurricane hit the region. Among the impacts of the pullouts is a stronger reliance on governments as insurers of last resort. As more private insurers refuse to take on new policies or renew existing ones, mandated state-run insurance "pools" are being forced to take on more customers and more financial exposure.

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 50-plus institutional investors who collectively manage more than $3 trillion in assets.

Access a release and link to the audio of the press conference (click here). Access the complete 55-page report (click here). Access the Ceres website for additional information (click here). [*Climate]