Filed Under:Risk Management, Corporate Risk

On CERES Call, Insurance, Business Experts Discuss Impact of IPCC Climate Findings

Climate change is here. It is unstoppable. It is warming the atmosphere, acidifying oceans and increasing sea levels. And it will get worse as humans, who have already burnt half of all available carbon in our quest for goods and energy, continue to burn fossil fuels.

These were the definitive conclusions of the International Panel on Climate Change (IPCC) report released this month, authored by scientists worldwide as a wake-up call for governments to begin finding alternatives to precious, yet greenhouse-gas emitting, fossil fuel resources.

It is also having an impact on business revenue and client interaction, said banking, manufacturing and insurance-sector leaders discussing the IPCC’s findings in a conference call hosted by Ceres.

“It is becoming harder to forecast our business. We commit to producing certain products for our customers, such as jeans, many months ahead, so it creates a lot of volatility in business planning,” said Letitia Webster, director of global corporate sustainability at clothing manufacturer VF Corporation, whose brands include Wrangler, 7 for All Mankind, and The North Face.  

“Cotton prices are always difficult to predict, as well as prices for synthetic (petroleum-based) products such as tents and jackets. With that said, cotton and oil are dramatically impacted by climate change,” she said.

In its 2013 report, the IPCC found that changes will continue “in all components of the climate system,” and it will not be regionally uniform.

Rainfall over mid-latitude masses will likely become more intense and more frequent by the end of the century, and the area encompassed by monsoon systems will increase. Global sea level rise will likely exceed that observed in the past three decades, between 10 and 32 inches by 2100, threatening all coastal cities.

Webster said, “We are dependent upon predictable, timely movement of goods. It’s been especially difficult to deliver products on time when catastrophic weather events disrupt communities where we move goods from one place to another along our very complex supply chain.”

Laura Mowery, managing director and head of global property specialty practice at Guy Carpenter & Company, LLC, gave an insurer’s-eye view of climate change.

She said, “From the perspective of insurers and reinsurers, climate change is breeding an uncertain environment and should be of significant concern in how they shape their business going forward. Planning and assessing risk will become more challenging as weather uncertainty increases in the future—the 10-year average for global cat losses was less than $10 billion in the 1980’s. In the past decade, that average has gone up to over $50 billion.”

After the IPCC released its last report in 2007, it received criticism for what some said was an exaggeration of the rate of glacial melting, and global warming evidence has come up against data that shows some slowing in the loss of polar sea ice.

The IPCC says the trend was temporarily hidden by data from a warm year in 1998 including an El Nino event in the Pacific, the impact of volcanic eruptions, and a cyclical decline in the sun’s output. They said the reduction will not last, and that temperatures will likely rise by 0.5 F to 1.3 F by 2035, depending on mankind’s continued fossil fuel output. Make that between 2.7 F to 8.1 F by the end of the century, if carbon output doubles.

In fact, 2005, 2011 and 2012 were the top three catastrophe loss years on record, according to Mowery.

“In many cases in the industry, people felt that 2012 was somewhat of a more moderate global catastrophe year, but in fact it was the third largest insured loss year on record. Inflation and population density factor into the trend, but given the IPCC conclusion on flood, drought, and weather pattern changes over the past 50 years, it is essential for insurers and reinsurers to assess how it will impact their future.”

She said it is essential for the industry in innovate products and risk strategies to account for erratic weather events rather because “putting more capital at risk cannot be the only solution.”  This includes geographically diversifying risks. 

“By accessing new catastrophe bond products to cover storm surge, it really represents the long-term option that diversifies a risk management strategy,” said Mowery.

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