Property and casualty insurers are on the financial “front lines” of climate change and its impacts. As a result, a small group of insurance groups have laid out plans for how their companies will deal with the problems that are expected to accompany stronger storms and rising sea levels.

That's the good news.

The bad news is that the majority of insurers are still not only unprepared, they’re down-right scaling back operations in this area, according to a new report from Ceres.

Two years ago, 2012, was one of the warmest years on record with a number of severe storms such as Superstorm Sandy which resulted in almost $64 billion in total losses with private insurance groups paying out close to $14.5 billion. Since then, government reports have said that rising sea levels are an increasing threat.

“The P&C segment’s reaction has frequently been to limit coverages or entirely withdraw from certain catastrophe-prone markets, especially coastal regions such as Long Island, Virginia, Delaware and Florida,” read the report. “In the long run, these coverage retreats transfer growing risks to public institutions and local populations, and reduce the resiliency of communities, which may struggle to pay the costs of post disaster recovery.”

Despite the expected losses that P&C insurers will have to face within the next century, only eight companies out of 193 surveyed have comprehensive plans on how to deal with climate change.

Eight!

“Every segment of the insurance industry faces climate risks, yet the industry’s response has been highly uneven,” said Ceres president Mindy Lubber in a press release. “The implications of this are profound because the insurance sector is a key driver of the economy. If climate change undermines the future availability of insurance products and risk management services in major markets throughout the US, it threatens the economy and taxpayers as well.”

However, insurance groups have claimed that the Ceres report is subjective and misguided.

“Ceres’ insurer ‘scorecard’ simply reflects the degree to which individual companies conform to Ceres’ agenda,” Bob Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies (NAMIC), told PC360. “If a company chooses a different path, it either doesn’t understand climate change risk or is ‘not addressing climate risk … in a comprehensive manner.’ It is hard to understand how anyone could take seriously this doctrinaire and simplistic approach.”

Detlefsen argued that insurers increase premiums and limit coverage because they are the most direct and effective tools to manage climate-related risk, not as a way of sneaking out and shelving burdens.

Click through to see who performed best in these areas, according to Ceres’ report.

Climate Risk Governance

Is there senior level management of climate change policies and risk?

Only 7% of P&C insurers earned the highest grade, “Leading,” while the vast majority of companies didn’t have senior leadership advising on climate matters. Many of the companies surveyed placed a high emphasis on the need for CEO’s and board members to be briefed regularly on policies along with the latest science regarding climate change.

Climate Risk Management Statement

Has the company released a public statement on their stance and approach to climate change?

A staggering 88% of insurers have not released a statement on climate change.

Some issues that would be addressed in such a statement include confirming and understanding the science of new climate change reports, explaining the risk involved with climate change and considering investments in climate risk. A public statement also gives companies an opportunity to rebrand themselves, according to Ceres.

Enterprise-Wide Climate Risk Management

How does the company utilize climate change in forecasting investments in capital and insurance needs for policyholders?

Over 100 companies have some kind of plan in place that analyzes both assets and liabilities in regard to climate change.

For example, ACE evaluates climate risk yearly and consults with senior management on the status of climate change in regards to their business and investments. However, only 12 companies earned a “Leading” score.

Climate Change Modeling & Analytics

Does the company take steps in using catastrophe (cat) modeling tools to analyze perils associated with climate change to determine the implications of plausible outcomes?

Cat models are the cornerstones of all P&C insurers and have been used for a wide variety of disasters. The majority of insurers surveyed had modeling practices in place, with 50 companies at a “Leading” rating. Many of the leading companies surveyed used a wide array of cat models and academic sources to determine risk for underwriting, rather than relying too heavily on worst-case scenarios.

Stakeholder Engagement

How much input and feedback does the company offer from their policyholders, shareholders and the public?

Five percent of P&C insurers actively took part in engaging with their customers and the public. This includes telling policyholders about green- and climate-friendly products or services. For many surveyed, rooftop solar panels or small window installations were underwritten in their policies. Also, partnering with independent researchers or even using technology as an outreach tool has helped in educating policyholders. SwissRe, for example, has a Flood Risk App available for free on iTunes.

Internal Greenhouse Gas Management

Does the company do their part in carbon reduction in their data centers?

Seventeen insurers were given “Leading” scores based on two categories: annual carbon reports done by the company and specifics on how their company takes part in reducing greenhouse gases. Only 28% of companies had earned a “Developing” grade but majority of insurers have little to no practices in reducing greenhouse gases.

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