Filed Under:Markets, E&S/Specialty

Global Warming Issue Heats Up At NAIC Summit

NU Online News Service, Dec.10, 2:37 p.m. EST

SAN FRANCISCO--Insurers are increasingly offering products and promoting behavior that address the growing risk of climate change, according to presentations delivered at an insurance regulators' Climate Risk Summit.

The meeting here during which the science of and responses to global warming were discussed was sponsored by the National Association of Insurance Commissioners Climate Change and Global Warming Task Force.

At one point the sessions was enlivened with some debate concerning the disclosures from what some call "Climategate."

Insurers outlined an array of products and initiatives in which they are involved, and offered projections on how the industry can constructively participate in a warming global environment going forward.

Stephen Bushnell, product director at Fireman's Fund Insurance Company, which is an Allianz company, outlined products his company has designed to address energy emission-driven climate change, including coverage for certified green buildings and a green homeowners product in 2008, as well as variety of other green products ranging from coverages for manufacturers to automobiles.

Looking forward, he said insurers and policymakers can work together to build and rebuild property intelligently - updating building codes to reflect exposure to natural disaster risks associated with climate change.

Additionally, he said they can combine to promote energy efficient buildings as a priority in climate and energy policy.

Areas for cooperation were perhaps highlighted by two experts in separate fields citing different flaws with building codes.

Mr. Bushnell noted that energy efficient buildings, such as those that are certified under the Leadership in Energy and Environmental Design (LEED) rating system, do nothing for improving coastal, wind and fire resistance.

Meanwhile, Evan Mills, of the U.S. Department of Energy's Lawrence Berkeley National Laboratory, in an earlier presentation pointed out that structures built outside of flood zones and designed to withstand wind damage are not always the most energy efficient.

Mr. Bushnell recommended building codes that promote both sustainable and resilient buildings.

Lindene Patton, climate product officer of Zurich, said the insurance industry has a long history of reducing risks, and can do so again with climate change if insurers are allowed to price according to the risks they assume.

Her presentation noted, "No amount of insurance will make a poor project/site/product/operation good." Ms. Patton added, "Policymakers should engage insurance industry expertise and capital to most efficiently and effectively adapt to and mitigate risks of climate change."

But she said insurers must be allowed to use their core skills to "send risk based price signals."

Government indemnity or pools that spread or mask risks, she said, "may inadvertently increase moral hazard and overall risk."

Panelists also discussed Pay As You Drive (PAYD) insurance products - which price auto insurance policies according to miles driven - as a way to decrease driving and therefore cut auto emissions.

Justin Horner, transportation policy analyst for the Natural Resources Defense Council said 14 percent of total emissions come from light duty vehicles. Reducing that number, he said, requires less driving, lower emission cars and cleaner fuels.

PAYD insurance products, he said addresses the "less driving" part of the equation, he said, noting that drivers who choose such products have been shown to reduce their driving by an average of 5 percent.

It was pointed out that there is some controversy concerning how and what insurers may monitor when using telemetry devices with the PAYD products. Devices installed in cars can track how, where, and when a driver drives in addition to the miles logged.

In California, consumer advocates effectively lobbied to ban the use of GPS capabilities that can monitor where a driver is driving, related Adam Cole, California Insurance Department general counsel.

A representative from the Reinsurance Association of America held up his Blackberry and noted that it has GPS, and he can be tracked through the device, and questioned why such capabilities in telemetry devices was different.

Mr. Cole said the California department wanted the regulation authorizing the sale of PAYD products to be popular with everyone. If tracking a driver's location makes consumers uncomfortable, he said, the department was willing to ban it for now to gain wide acceptance.

California Insurance Commissioner Steve Poizner, Mr. Cole said, wanted the products authorized and used as much as possible for its environmental benefits.

Mr. Mills offered statistics showing the effects of climate change between the 1997 meetings in Kyoto, and the current summit in Copenhagen. In 1997, he said, scientists offered various projections regarding emissions. We have outpaced even the high-end projections, Mr. Mills said. The world is now pumping 90 million tons of carbon dioxide into the air per day, he said.

Climate related impacts are happening now, he said, and will only increase. He said it is the extremes in temperatures that are becoming dangerous, even if the average temperature is not necessarily changing a lot.

Aside from temperature-related impacts, the CO2 is acidifying the ocean, which is eating away the shells of animals and impacting coral reefs, he said.

Mr. Mills from the Department of Energy addressed the controversy surrounding the so-called "Climategate scandal," where scientist's e-mails denigrating global warming opponents and advocating blocking their efforts were revealed.

He said the "illegal breach" that exposed the emails represents a "desperate resurgence" of contrarian views, and he contended that it was an act of desperation.

He also said the "debate" around the scandal seems to be about "fear and ideology."

As for the substance in the emails, Mr. Mills said it shows scientists are human, get frustrated, and say bad things about each other.

But Bob Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies (NAMIC), commented to Mr. Mills that he was disappointed by the "frivolous attempt" to explain away the emails.

He called it "remarkable evasion" to dismiss the content of the emails, and cited a Wall Street Journal article that contended the emails showed the lengths some will go to in order to blacklist dissent, and that the computer models used to understand climate change are poorly designed.

Mr. Mills said if he was trying to evade the issue, he would not have brought it up in the first place.

Mr. Cole said the California Insurance Department will provide a guidance document online to assist insurers as they complete the Climate Risk Disclosure Survey developed by the NAIC.

Although the NAIC said it will not provide any further guidance, Mr. Cole said the California department will make available a four-page guidance document to help spell out what the survey questions mean. Some questions, he said, are not self-explanatory.

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