Climate change could slam US insurers
Environmental Finance, 9 September 2005 – Weather-related insured losses have grown 15 times larger over the last 30 years, according to a new report. Availability and Affordability of Insurance Under Climate Change, commissioned by advocacy group Ceres, notes that if present trends continue, climate change could make insurance unavailable or unaffordable for businesses and consumers.
“Insurance as we know it is threatened by a perfect storm of rising weather losses, rising global temperatures and more Americans than ever living in harm’s way,” said Mindy Lubber, Ceres president. “Insurers and regulators have failed to adequately plan for these escalating weather events that scientists predict will intensify in the years ahead due to global warming.”
Consumers in the US face higher premiums, lowered limits and increased coverage restrictions thanks to recent weather-related losses, even before the devastation wrought by Hurricane Katrina in New Orleans, according to the report. For example, seven private insurance companies stopped providing homeowner insurance in Florida after last year’s string of hurricanes, leaving the state as insurer of last resort, incurring $2.5 billion in losses.
The report also notes that weather-related losses in the US have grown from “a few billion dollars a year in the 1970s to an average of $15 billion a year in the past decade.” And this growth is 10 times faster than rises in insurance premiums since 1971.
However, very few US insurance companies have examined the business impacts of climate change, according to the report. Therefore, the authors urge US insurers to include climate modelling in their risk analyses and study the implications of climate change for their business and investments, among other recommendations.
“The insurance industry plays a vital role in identifying and quantifying catastrophic risks so that appropriate loss prevention and risk-spreading measures can be put in place,” said Joel Ario, Oregon Insurance Administrator and vice-president of the National Association of Insurance Commissioners. “Reinsurers who provide a backstop on large losses are engaged on the climate issue, but much more work needs to be done by the primary insurers who consumers rely on when catastrophes hit.”
The report was written by Evan Mills, a scientist with the US Department of Energy’s Lawrence Berkeley National Laboratory; Richard Roth, former chief property and casualty actuary and assistant commissioner at the California Department of Insurance; and Eugene Lecomte, president emeritus at the Institute for Business and Home Safety in Boston and a 50-year insurance industry veteran.
Author Environmental Finance
Publication Date 9 Sep 2005