Lloyd's Wages Battle Against Climate Change

The reality of climate change can no longer be ignored by U.S. policymakers, and coordinated action needs to be taken between government and business for the sake of future generations, the chairman of Lloyd's of London warned today.

"We cannot risk being in denial on catastrophe trends. We urgently need a radical rethinking of public policy, and to build the facts into future planning," Lord Peter Levene, chairman of Lloyds, said in a speech in Washington, D.C., to the World Affairs Council at the National Press Club.

The number of natural catastrophes has doubled since the 1960s, he said. At the same time, insured losses have increased nearly seven-fold, most of them weather related.

The worst insurance year on record came in 2005 with total global insurance claims of $83 billion, over 80 percent from U.S. hurricanes.

"Over the coming years, with warmer sea surface temperatures making landfall more likely, particularly destructive storms are a likely scenario," said Lord Levene. "We can expect the storm season to lengthen, and we will be at risk over a wider geographical area than ever before," he predicted.

There was a growing acknowledgement among insurers that global climate change was playing an adverse role, said Lord Levene.

"We need to take coordinated action on climate change," he continued.

However, he was critical of current U.S. policy, from government, business and individual homeowners, asking if are taking the prospects of global warming seriously.

"Society must make some tough decisions and be prepared to change its behavior," he said, adding, "Here in Washington, does the will and the commitment exist to encourage that process?"

He was equally critical of talk that would punish the profitability of the insurance industry with a windfall tax, suppress rates, and "otherwise rein-in a so-called 'greedy' industry."

The insurance industry, by its cyclical nature, enjoys short periods of profitability between long periods of looses, said Lord Levene. Those periods of profitability act as a restorative period to allow the industry to catch-up with its losses.

The prospect of prolonged and severe losses in the future make talk about containing industry profitability could profoundly damage the industry's ability to provide the capital for rebuilding after a catastrophe, he said

"Ultimately," he said, "we cannot put the financial health of the insurance industry--and therefore the consumers they represent--at risk due to the demands of politicians whose views may be clouded by the need to attract votes."

Lord Levene said Lloyd's is taking steps to address climate change by investing in new scientific research in the U.S. and U.K. Lloyd's also insures new green technology, including a third of insurance for waste-to-energy recycling plants and a quarter of the world's wind farms.

"There is an important role which business can play and there is commercial benefit to be gained from doing so," said Lord Levene.

With the insured value of properties in U.S. coastal areas doubling over the last decade to more than $7 trillion, Lord Levene said insurers must push for action to limit the potential threat of climate change.

"Two years after Katrina, and two years away from a national election, where's the public debate on catastrophe trends?" Lord Levene asked, adding Lloyd's has recently developed a $100 billion loss scenario for a major windstorm hitting the U.S. Gulf or East Coast.