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Insurance CEOs Call on Industry to Get Proactive About Climate Change

By Stacy Morford

Jul 8, 2009

Insurers can also provide incentives through premium discounts for businesses that reduce energy consumption, for drivers of low-emitting vehicles — or for driving less, under new pay-as-you-drive plans — or for companies that improve their water supplies, infrastructure and drainage systems.

Similarly, the report suggests, they could provide discounts for companies that adopt eco-friendly technology — and premium increases, where regulations allow, for those that don’t.

“Few insurers are involved today in efforts to promote resource productivity, which would also help to strengthen the societal an economic resilience to climate change,” the CEOs write.

“It can be a powerful mechanism to discover and incentivize the right behavior.”

Leverage of a Big Money Manager

Insurers also wield another powerful tool: They are big investors.

The Amsterdam Circle of Chief Economists estimates all insurance assets to total about 11 percent of all assets worldwide. The authors note, though, “it would be naïve to assume that asset managers in insurance would stop investing in a certain sector solely because of that sector’s negative climate impact. As long as external effects on climate change are not fully internalized by those actors responsible for them, asset managers will respond to the distorted incentive to invest.”

To force corporations to take responsibility for the climate actions, the CEOs are calling on the world’s biggest polluting nations, meeting this week in Italy, to support laws and regulations that can account for emissions and fight climate change.

“Governments must establish an international agreement and commitment to reduce greenhouse gas emissions, and a well-founded national strategy for climate adaptation across various sectors of society,” the CEOs write.

The key to spurring climate action is getting the true cost of greenhouse gas emissions onto the corporate balance sheets, they write. So far, U.S. politicians have been leery of putting a price on greenhouse gas emissions and climate-changing behaviors such as deforestation.

Motivators for the Industry

Hurricane Andrew in 1992 was a global warming wakeup call for the insurance industry and customers who rely on it. The hurricane’s devastation across Florida left 12 insurance companies insolvent and led to the creation of a state-backed insurance and reinsurance systems of alternatives to the private market. During the 2004-2005 hurricane season that battered Florida, more insurers pulled out.

Climate change will bring even worse conditions: hotter and drier weather in the subtropics; wetter and stormier conditions in the northern United States, Canada and northern Europe. Coastal flooding and aquifer salination will become problems in low-lying areas.

Melting sea ice and thawing permafrost are already causing structural problems for residents in Alaska and the Arctic.

The Alaskan village of Kivalina, where the sea ice that once buffered the community from storms has largely disappeared, is an example of another climate change risk that major greenhouse gas emitters are already beginning to face: lawsuits. Kivalina is suing ExxonMobil for $400 million to relocate its 400 residents. Swiss Re recently warned its clients that climate change could become of the legal system.

The insurance company CEOs see both huge potential and huge risk in climate change. They're urging a shift within the industry to risk pricing that is based on up-to-date scientific models and eventually to a holistic approach to climate change rather than insurance that separately addresses its various elements, such as water shortages, hurricanes and wildfires.

“The insurance industry is at the beginning of the learning curve with regards to climate change,” said Bruno Pfister, CEO of Swiss Life.

The CEO authors of the report add:

insurance

I really want to see what insurance companies will do in the health department after the Obama law will pass.

Although insurance CEOs are

Although insurance CEOs are more concerned about climate change than CEOs in other sectors, they are less likely to be preparing for climate-change initiatives in the coming twelve months. This split vision may stem from the fact that most insurers believe climate change is not particularly relevant to their internal business models, although it has huge potential consequences for non-life companies, because it increases the risk of natural disasters. Re-insurers and property casualty firms have taken a leading role in lobbying for co-ordinated remedies and must stick to their task. Anyway thanks a lot for the useful information and for the ability to express my own opinion. Regards, Peter Dickson from

At first I didn't understand

At first I didn't understand what do insurance industry has to do with the climate change... Now I understand that an active implication from insurers can make the difference. For sure the auto industry will be among the first industry affected by the insurance changes.

I am glad to see this...

There is little doubt that Global Warming is happening. With that will be disease and deteriorated health The cause and effect will be more insurance claims that will drive insurance prices to through the roof. Thanks for sharing, this was the most interesting read of the day.

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