Insurers and re-insurers have been warning about the potential consequences of climate change for years. Munich Re has calculated that by 2050, climate change could cost up to $300 billion annually in weather-related damages, industrial and agricultural losses, and other associated expenses.
A Ceres report “From Risk to Opportunity 2007: Insurer Responses to Climate Change” written by Dr. Evan Mills, a scientist with the IPCC which shared the 2007 Nobel Peace Prize, was just published. As we have been reporting for the past 5 years, global warming and the growing incidence of extreme weather events pose an enormous challenge to the insurance industry. This summer’s floods and heatwaves around the world are only the latest reminder of why investors and consumers are concerned about the impacts of climate change on insurers. The report focuses on the significant progress made by insurers to develop new products and services. It identifies 422 real-world examples from 190 insurers, reinsurers, brokers and insurance organizations from 26 countries. That’s more than double the 192 products and services that we identified in a similar report done by Ceres in August 2006.
Ceres notes that only one in ten of the insurers in the report are working in a visible way to understand the mechanics or implications of climate change. Only a third are offering innovative products and services. Insurers themselves have a major opportunity to reduce their own carbon footprints; for 20 major insurers reporting their emissions to the Carbon Disclosure Project, there is an eight-fold range in emissions per employee. Companies have tended to focus on reducing their risk exposure through financial means, by raising prices, excluding coverage and generally pulling back from at-risk areas. However rational that might be in the short-term, it is leading to a backlash from consumers and regulators and won’t work in the long-term.