Most Insurance Companies Lack Climate Risk Strategies
By Tyler Collins
Last year, the United States suffered eleven extreme weather events, resulting in $58 billion in losses for the insurance industry, more than double the average from 2000 to 2011. Superstorm Sandy, last year’s most costly event, accounted for about $25 billion of industry losses alone! Perhaps needless to say, but returns to shareholders in most insurance companies suffered.
Despite mounting weather-related claims due to climate change, a new report from Ceres, a nonprofit sustainable business advocacy organization, finds that most insurance companies do not have comprehensive strategies to cope with climate change.
The report, Insurer Climate Risk Disclosure Survey: 2012 Findings & Recommendations, summarizes responses from insurance companies to a survey on climate risk developed by the National Association of Insurance Commissioners (NAIC). Ceres found that of 184 companies surveyed, only 23 had such strategies, and most of those (13) are foreign-owned.
In general, almost all companies responding to the survey show significant weakness in their preparedness to address the effects climate change may have on their business. Interestingly, property and casualty insurers, comprising 8 of the 23 companies with strategies, demonstrated a greater understanding of climate risks and were much more advanced in their risk mitigation strategies.
The survey highlights five primary motivators for climate change strategy, including: impacts on revenue and profitability; emergent risks from future climate trends; client exposure to climate change; and sustainability and related reputational benefits.
“Every segment of the insurance industry faces climate risks, yet the industry’s response has been highly uneven,” said Ceres president Mindy Lubber. “The implications of this are profound… If climate change undermines the future availability of insurance products and risk management services in major markets throughout the U.S., it threatens the economy and taxpayers as well.”
Mike Kreidler, Washington State Insurance Commissioner, said in a recent interview, “If insurance is to remain available and affordable, companies will need to adapt. The last thing we want to see are unprepared companies simply pulling out of markets or seeking unreasonable rate hikes.”
Mention of specific companies or securities should not be considered a recommendation to buy or sell that security. Past performance is no guarantee of future results.
Posted: March 18, 2013