Climate change has become a hotter topic than ever before, thanks to the new political
leadership in the United States. Despite the financial crisis, a growing number of political, financial and business leaders are calling for immediate action to drastically reduce global warming pollution. For the first time, fighting climate change is seen not just as a long-term imperative but also as a short-term stimulus for a struggling economy.
Insurers have more incentive than any other industry to catalyze global action on climate
change. Though 2008 brought no Katrina-scale catastrophes, catastrophic losses to the economy
were the third highest ever, exceeding $200 billion globally in 2008, including $40 billion in losses from Hurricanes Ike and Gustav in the U.S. alone, according to global insurer Munich Re.
Last year’s figures are not an anomaly, but are part of a disturbing pattern. “This continues the
long-term trend we have been observing,” said Torsten Jeworrek, a member of Munich Re’s Board
of Management. “Climate change has already started and is very probably contributing to frequent
increasing weather extremes and ensuing natural catastrophes.”
Climate trends are creating risks on both sides of the insurance house—underwriting and
investment. But these trends also create vast opportunities, from product innovation to investment alpha, for insurers to be part of the global warming solution.
The latest Ceres report outlines the insurance industry’s significant progress in developing wide-ranging products and services to help global consumers and businesses reduce their exposure
to climate change—and to reduce the emissions causing global warming. The report identifies
643 real-world examples from 246 insurers, reinsurers, brokers and insurance organizations from
29 countries—a 50 percent jump in such activity compared to November 2007, when Ceres
issued a similar report.
Insurance coverage for green buildings, renewable energy, carbon capture and storage and
carbon trading are being offered by more insurers than ever before. For the first time, two insurers, Zurich and Liberty Mutual, have introduced directors and officers’ coverage specifically tailored to address liability risks associated with climate change.
But the bulk of deep market activity is in Europe, primarily from property and casualty (P&C)
insurers. And even among these P&C firms, the offerings—and overall market saturation—are
very limited.
Insurer activities go far beyond offering new products. This report documents the industry’s
growing investments in businesses that are developing and offering low- and no-carbon
technologies—specifically, a total of $11 billion in direct investments by 15 insurers, nearly double that observed in 2007.
Industry leaders are also driving forward improvements in the climate science that will help
governments better understand and prepare for future risks—government action that is critical to
the preservation of the private insurance market. And a small but growing number of insurers are
creating the right internal structures to manage the correlated risks posed by climate change.
There is no question that the industry is more aware of the need to act on climate change than
ever before. Surveys of industry analysts, representatives and boards consistently rank climate
change at the top of the list of risks facing the insurance industry today. Yet the scale, depth and market reach of activities outlined in this report do not reflect the urgency conveyed by those surveys. The industry’s response, from underwriting to investment to public policy engagement, is still incremental. The scale of risk this industry faces—and the opportunities that can be captured by those who act—call for much more dramatic and far-reaching action.
Now is the time to take transformative action. The next few years are likely to see a flurry of
activity driven by the changed political and economic context—projects that seek to retool and
de-carbonize the global energy system, to make family homes and commercial buildings more
energy efficient, to reduce dependence on oil, and to jumpstart national and international carbon
trading markets.
The opportunities for insurers to drive these transformative changes, through direct investments
and exponentially more green products and services, are unparalleled. Just as the industry once
asserted its leadership and expertise in tackling building fire and earthquake risks the past, today insurers can capitalize on their enormous creativity and market clout to preserve and grow their businesses in the face of this unprecedented challenge.
Without insurance innovation and investment we will not achieve the challenge of avoiding
extreme climate change impacts and realizing a low-carbon global economy. So here is a
challenge to the industry: How will insurers help policymakers, the capital markets, and
customers meet these challenges?
The answer to this question may well determine the future of the industry.
Extracted from Ceres report: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
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