Climate Change and Insurance

Climate Risk and Insurance 

Perhaps no other industry is more exposed to the financial risks of climate change than the insurance industry”, says Eileen Claussen, president of the Pew Center on Global Climate Change. “But the unique risks faced by the industry also present it with an opportunity to take a leadership role in responding to the climate challenge.”

Weather patterns have changed and the insurance industry is paying a price for it. Earlier in April of 2011 over a three day span, 200 tornados that touched down causing deaths and between $3.7 to $5.5 billion in losses. (AIR WORLDWIDE)

 The rationale for the industry’s involvement in helping to mitigate risks from climate change is set forth in the introduction of the Swiss Re report report which states, “Today, global warming is a fact. The climate has changed: visibly, tangibly, measurably. An additional increase in average global temperatures is not only possible, but very probable, while human intervention in the natural climatic system plays an important, if not decisive role. And who is affected by climate changes? In a word, everyone. Climate change – a change in the average weather conditions – may have both positive and negative effects in individual cases, but it can never be without consequences. Since the weather influences all areas of life, climate changes affect each and every one of us. Thus, the decisive issue again is not whether we have to adapt, but to what, when and how.” Risks and opportunities for insurers and reinsurers are a business consideration also addressed in the report.

Munich Re supports the Climate Insurance InitiativeThis initiative is formed by insurers, climate change and adaptation experts, NGOs, and policy researchers intent on finding solutions to the risks posed by climate change. MCII provides a forum and gathering place for insurance-related expertise applied to modern climate change issues. The following research is an example of the work performed. .

Swiss Re’s website, http://www.swissre.com/, hosts a number of publications dealing with climate issues. A report published in 2007 details Swiss Re’s efforts at managing risks related to climate change.

The ACE Insurance Group’s report on their company’s response to climate change is found in the following report:

The National Association of Insurance Commissions (NAIC) has a task force for exploring the issue of climate change stating, “As regulators of one of the largest American industries, the insurance industry, it is essential that we assess and, to the extent possible, mitigate the impact global warming will have on insurance.”

The Florida State Univeristy Storm Risk Center website hosts a link to latest research into future of storm severity and probability.

http://www.stormrisk.org/index.cfm?page=5  

 Human activity may not only affect overall climate change but can affect weather patterns. An article in National Geographic suggest that tornados "take the weekend off" because there is less pollution in the air.
http://news.nationalgeographic.com/news/2011/12/111229-tornadoes-storms-hail-science-summer-pollution-environment/
The findings proved a significant difference between the weekdays and weekends .They discovered that tornadoes and hailstorms occurred at a rate of about 20 percent above average during the middle of the week. This hints that pollution might help breed storms, the study authors say, because moisture gathers around specks of pollutants, which leads to more cloud droplets. So reduction in pollution can help to reduce tornado activity especially in eastern states the authors note.

Quotes on Climate Change By Insurance Industry Researchers

“Contemporary climate science is an impressive intellectual endeavor that has revealed much about

the complex dynamics of the Earth’s climate system, enough to put us on notice that

climate change is a natural phenomenon, increasingly driven and amplified by human

activity. Indeed, climate science has confirmed the expanding contribution of

anthroprogenic climate change to the gradual and millennial changes in our planet’s

climate system that are the source of weather, as well as the more alarming possibility

that human activity might lead to abrupt climatic change that radically alters

the nature of the Earth’s weather.”   Global Climate Change and Extreme Weather:

An Exploration of Scientific Uncertainty; and the Economics of Insurance. Insurance Information Institute

(Valverde and Andrews) New York, USA, June 2006

http://www.iii.org/assets/docs/pdf/III_ClimateStudy.pdf

“The activities of industrial economies have altered the abundance of Green House Gases and aerosols in the atmosphere, mainly through the burning of fossil fuels. Together with the changed properties of land use, this has contributed to changes in the climate.” The Geneva Reports:  The Insurance industry and climate change-Contribution to the Global Debate,  2009  Geneva Assoc. p. 107 http://www.munichre.com/app_pages/www/@res/pdf/group/focus/climate_change/2009_07_geneva_report_en.pdf

The insurance industry should not only respond to the changed environment, but also be forward-looking in is behavior, extending the scope of a management traditionally based on economic value. The motivation behind this proactive approach would be improved competitiveness and access to new business opportunities. The Geneva Reports:  The Insurance industry and climate change-Contribution to the Global Debate,  2009  Geneva Assoc. p. 106 http://www.munichre.com/app_pages/www/@res/pdf/group/focus/climate_change/2009_07_geneva_report_en.pdf