Insurance risk may shift as climate changes are eyed
Omaha World – Herald, 8 September 2005 – Consumers and government will bear a growing share of the cost of natural disasters unless the insurance industry and others take steps to slow and reverse climate changes, participants in a national press conference said today.
“Something is changing in our weather that has resulted in climatic events at unprecedented levels,” said Nebraska Insurance Commissioner Tim Wagner, who also is chairman of the National Association of Insurmental organizations. Ceres commissioned a study on the impact of global warning on the insurance industry.
The report was to have been presented at a conference of insurance commissioners this weekend in New Orleans, but the meeting was canceled. Ceres issued the report electronically.
Although Hurricane Katrina can’t be directly attributed to global warming, the report said, “rising global temperatures in the coming decades are likely to cause significant increases in severe weather events, such as hurricanes, floods, hailstorms, wildfires, droughts and heat waves.”
The report said insurance companies need to collect more complete information on weather-related losses, take climate issues into account in their insurance practices, and encourage policymakers to reduce greenhouse-gas emissions.
The lead author of the report is Evan Mills, a scientist at the U.S. Energy Department’s Lawrence Berkeley National Laboratory in California.
Insurance companies are shifting more of the risk of damage to consumers by raising rates, increasing deductibles and excluding certain types of claims, he said. As more people can’t afford insurance, the government has to pay more for disaster relief.
The report said insured losses in weather-related events with more than $ 1 billion in damages, even before Hurricane Katrina, have increased 15-fold in the past 30 years, outstripping premium increases, inflation and population growth.
Mills said the driving factor in damaging weather events is temperature. Rising global temperatures contribute not only to large disasters such as hurricanes and droughts but also to smaller but more frequent problems such as increased lightning strikes, he said.”There is no serious debate about higher temperatures,” Mills said.
Oregon Insurance Administrator Joel Ario, who is vice president of the national commissioners’ group, said insurers’ traditional role is to help to prevent or mitigate losses and spread the risk of losses as widely as possible. So far, he said, that hasn’t happened in the case of disasters worsened by global warming.
“We need more engagement from the insurance community than we have had to date,” he said, especially from primary insurance companies in the United States that sell coverage to businesses and consumers.
Encouraging businesses to reduce greenhouse-gas emissions is one way insurance companies could help prevent claims, Ario said.
While there is growing evidence that climate changes are causing higher claims, he said, the industry still needs better data on the issue.
Mindy S. Lubber, president of Ceres, said the fact that insurance regulators planned to present the new study at their meeting shows the industry is paying more attention to global warming.
Insurance companies are “key engines for economic development and the financial cohesion of society,” she said. “The ability of our insurance industry . . . to put homeowners and to put businesses back on their feet is vitally important.”
Insurance companies can influence their clients, including corporations, to change business practices, Lubber said, such as limiting carbon emissions.
For example, an insurance company that provides liability insurance for corporate directors could insist that the company study its “climate risk” and inform shareholders of its findings. “Boards would take a much harder look at what the companies are emitting,” she said.
Also commenting on the Ceres report was Jack Ehnes, chairman of the California State Teachers’ Retirement System, which invests $ 130 billion in retirement funds for 750,000 teachers.”We take climate risk very seriously,” Ehnes said, but so far it’s difficult to measure the risk that climate changes create for individual businesses.
“Investors are very thirsty to better understand this issue,” he said. He said insurance companies should make a comprehensive analysis of the business implications of climate change and share the results with their shareholders.
Author Steve Jordon