The insurance industry must play a key role in spurring positivemovement on dealing with the environmental issues caused by climatechange, says a report from the advocacy group Ceres.

Failure to act would leave carriers at the mercy of increasingcatastrophe losses from weather events, causing them to move out ofcertain geographic markets and strain the budgets of stategovernments forced to become insurers of last resort.

“Just as insurers historically asserted their leadership tominimize risks from building fires and earthquakes, insurers have ahuge opportunity today to develop creative loss-preventionsolutions and products that will reduce climate-related losses forconsumers, governments and of course themselves,” says MikeKreidler, Washington state's insurance commissioner, in a forewordto the report, “Stormy Future of U.S. Property & CasualtyInsurers.”

The report knits together the opinions of institutionalinvestors, atmospheric scientists and catastrophe risk experts tohighlight the impact of climate change on the P&C industry andmakes recommendations for companies to respond to its threats anddamages.

Last year's $32 billion in catastrophe losses made 2011 one ofthe worst on record for insurers, coming in second only to 2005,the year in which Hurricane Katrina struck. Combined with asluggish economy, low investment yields and an unpromising outlookon future weather events, this is a particularly bad time for theinsurance industry to experience continued erosion of capital, thereport says.

In a conference call to discuss the report, authors CynthiaMcHale, Ceres's insurance program director, and Sharlene Leurig,called climate change “economic ground zero in the industry'sexposure to weather events, environmental liability lawsuits andinvestment risks.”

They note that when insurers experience mounting losses thatforce them to leave markets, their loss experience trickles down totaxpayers who fund state pools to insure property in areasabandoned by the private market.

Hurricane-riddled Florida exemplifies what happens in aproperty insurance vacuum. There, Citizens Property InsuranceCorp., the government-backed insurer of last resort, is the state'slargest property guarantor.

Florida is also home to two of the five U.S. metro areas thatare most exposed to property damage from fears of growing tropicalcyclone activity caused by climate change.

During the call, Kreidler says, “As an insurance commissioner, Icare deeply about making sure that insurance companies are able tofulfill their promises and remain affordable and available. Thelast thing I want to see are insurers pulling out of marketsbecause of catastrophe events.”

He continued, “It is not unusual for insurancecompanies to withdraw from markets after a major hurricane orearthquake. However, the problem is that when you start to seelong-term hurricane or hailstorm patterns, companies start lookingat rate increases or seeking to withdraw from markets.”

New York, California and Washington are requiring insurersoperating in those states to submit responses to the NationalAssociation of Insurance Commissioner survey on climate changeimpacts and mitigation strategies.

Instead of politicizing or avoiding the issue, say thoseinvolved with the report, insurance regulators and executives needto create granular models that align with current weather patternsand enact stricter, sturdier building codes.

Jack Ehnes, chief executive officer of the California StateTeacher's Retirement System said during the call, “As investors, welook to a company's exposure to climate change as part of our[investment] analysis. Insurers like Swiss Re and Munich Re havebeen warning about this for some time, but the industry's overallresponse is still short of what we need.”

Ehnes, along McHale and Leurig, cited several companies andorganizations, such as Travelers, the Institute for Business andHome Safety, Habitat for Humanity and Swiss Re, that have beentaking steps to turn the charged topic into a point of action.

The report says that the entire insurance industry will need tomake the effort to take the necessary steps to protect this vitalindustry by:

• Pricing risk exposure of exposed property in the context ofemerging extreme weather patterns.

• Undertaking research on regional forecasting of catastrophepatterns.

• Developing reliable forecasts for non-modeled events likethunderstorms and wildfires.

• Informing land use and infrastructure design to assure theinsurability of highly-exposed markets.

• Promoting reduction of carbon emission to soften its futureblow to the climate.