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Insurance Companies Vulnerable to Climate Change
By Tyler Collins

As global temperatures continue to rise with climate change, increasingly frequent natural disasters pose a strong risk to the financial stability of insurance companies, says a recent report by Ceres.

This report, Stormy Future for U.S. Property/Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events, was released in the wake of 2011’s $32 billion in losses for U.S. property and casualty insurers due to extreme weather events.

Ceres makes the argument that investors in these insurance companies are not the only ones affected by these financial difficulties.  The rise in the frequency of natural disasters is already beginning to render many companies and businesses as uninsurable in the private insurance market, leaving the risks and costs to the government and taxpayers.  For just this reason, total government exposure to losses in hurricane-effected states has risen more than 15-fold from 1990 to $885 billion in 2011.

The report states that the calamities of 2011 and 2012 are not anomalies, as average temperatures have risen over the past century, while droughts, floods, heat waves, and other extreme weather events have become more frequent and intense.  With more than 25,000 new record highs in the U.S. in 2012 alone, the changes are causing substantial economic damages.Based on the analysis of current U.S. property/casualty insurance models by A.M. Best Company, Ceres makes a number of recommendations to improve the insurance sector in light of the effects of climate change, such as

  • Evaluate and price the increased risk exposure of insured property in the context of climate change and new/emerging extreme weather patterns.
  • Update insurance pricing and underwriting of risks to reflect changes in extreme weather impacts/changes on property damage loss trends.
  • Promote reduction of carbon emissions.
  • Encourage insurance companies to improve disclosure of climate change risks/opportunities and response strategies.
  • Create more shared resources to help insurers analyze and respond to climate-related risks and opportunities.

Posted: October 11, 2012