The effects of climate change are affecting insurers' risk portfolios and creating new questions for carriers to consider in their underwriting, a brokerage firm advised yesterday.

That counsel was part of insurance broker Marsh's New Reality of Risk series, which included a teleconference panel discussion focusing on risk topics of interest to insurers.

At the World Economic Forum held last month in Davos, Switzerland, “Climate change was identified as one of the most significant emerging risks and one that presents a huge challenge not only to the environment, but also to the world economy,” said Brian Storms, chairman and chief executive officer of Marsh.

Mr. Storms said climate change “is also one of the most difficult risks to mitigate.”

“It is clear to us that no one will have all the answers to these challenges today,” he said, “but this is a great opportunity to help shape the insurance markets and for pioneering new approaches in responding to this global risk. It will be with us for a long time.”

To underscore the impact, Robert Watson, the World Bank's climate scientist, said scientific studies show that over the past 100 years greenhouse gases, which are responsible for global warming, have increased substantially in the atmosphere.

He said this translates into increased sea levels, extreme weather conditions, extended drought, and the spread of diseases that thrive in warmer climates.

Carol Browner, former head of the Environmental Protection Agency and a principal with the Madeline Albright Group, said despite Bush administration rejection of the Kyoto Protocols, an international agreement to reduce greenhouse gases, U.S. multinational companies are being affected by its provisions.

Firms with global operations have to respond to European mandates on emissions in order to do business there, she said.

Congress, states and businesses are coming to the realization that greenhouse reductions are needed and are making efforts to reduce the gases on their own, Ms. Browner added.

Gary Guzy, senior vice president of Marsh and former general counsel for the EPA, pointed out that climate change risk cuts across all industries and the exposure can be significant.

The recent hurricanes along the Gulf Coast underscored the need for careful business continuity and disaster recovery planning, he said.

Businesses realize they need sufficient business interruption and business liability insurance coverage because the severity of weather events is expected to increase, said Mr. Guzy. He added that companies need to consider how increased sea levels and the expansion of diseases could affect their locations.

One effort to clean up the environment involves carbon emission credits, which allow one company to increase its percentage of allowable emissions by purchasing emission credit from a cleaner-burning plant, he said.

Mr. Guzy said Marsh has been working with insurers to produce a carbon emissions credit guarantee program to insure the trading. Marsh is also involved in a host of other insurance products related to this burgeoning field of risk, he reported.

Christopher Lang, a managing general director in Marsh's financial and professional liability practice, discussed directors and officers insurance.

He said the increased regulatory climate is requiring company executives to pay increased attention to environmental exposures. Failure to disclose these issues, or not having the right corporate mechanisms in place to monitor them, he said, are becoming a growing area for litigation against managers and board members.

Carriers are just beginning to realize the potential magnitude of this issue, he said, and are increasing their underwriting around it. As this issue grows, he advised that policyholders need to work ever more closely to make sure the proper coverage is in place.

Special Reports /

Climate Change A Growing Risk Issue

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