"...Property and Casualty (P&C) insurers (including multiline) demonstrate far more advanced understanding of the theoretical risks that climate change poses to their business. P&C insurers also tend to be at a further stage of development in implementing the tools needed to manage climate change risks, when compared to the Life and Annuity and Health segments of the industry, irrespective of the size of the company.
Though most insurers view climate change as a risk that will inherently be captured in their Enterprise Risk Management strategies, the tendency for companies to plan to the short-term compromises their ability to cope with the dramatic changes projected to occur in the coming decades, including sea level rise, extreme wildfire, more persistent drought and more severe heat waves.
The survey reveals five main motivators of action on climate change, INcluding:
- Impacts on revenue and profits. The exposure of the company’s operations, revenue and profitability, is a motivator for 110 out of 184 companies, although this is primarily due to concern for current extreme weather events, rather than climate change per se.
- Emergent risks from future climate trends. 88 out of 184 companies viewed climate change as a potential future loss driver, even though scientific assessments such as the recent IPCC Extreme Events report and draft National Climate Assessment emphasize that climate change is already amplifying extreme events that lead to insured losses.
- Client exposure to climate change was cited by 72 out of 184 companies, with concerns including clients’ exposure to carbon regulation, extreme weather damage to clients’ physical operations or assets and damage to clients’ investments.
- Sustainability and related reputational benefits. This driver is relevant for all segments, but especially so for health insurers. While only nine companies include the reputational benefits of acting on climate change, a far higher number highlight correlations between sustainability programs and reputational benefits (77 firms, or over 40% of the survey).
While the insurance industry has begun to recognize the potential impacts of climate change and to evaluate its likely effects on their business, significant challenges remain. Some leading insurers and reinsurers are promoting new products and policies that will help reduce carbon pollution, which is driving climate change. Others are focused on building stronger resiliency to climate impacts, especially sea level rise, stronger storms and extreme precipitation events.
“Just as the insurance industry asserted leadership to minimize building fire and earthquake risks in the 20th century, the industry has a huge opportunity today to lead in tackling climate change risks,” Lubber said.
Recommendations
The Ceres report recommends that insurance companies:
- Treat climate change as a corporate-wide strategic issue, affecting all functions, at all levels, and formalize this in a public corporate policy statement.
- Assess how a warming climate will alter extreme weather events, disease vectors, political risk and infrastructure resilience, and implement strategies to adapt their underwriting and investment practices accordingly.
- Develop catastrophic models that anticipate the probable effects of climate change on extreme weather events.
- Advocate for public policies that will help reduce carbon emissions and maintain an economy that is resilient to climate risk.
Insurance regulators have a role to play as well. Ceres recommends regulators:
- Continue to mandate annual, public climate risk disclosure by insurers.
- Engage with insurers, consumers and other public policy makers to better understand the nature of climate change risk, including how rates should be adjusted to reflect changing risks, and the steps insurers and regulators need to take to better incentivize consumers to reduce their vulnerability to these risks.
Click here to read the report: http://www.ceres.org/resources/reports/naic-report/view
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