Environmental Concerns Opening Insurance Markets

Businesses can no longer ignore the impact of global climate change, and that includes insurers, an insurance brokerage executive said during a panel yesterday.

Gary Guzy, leader of Marsh's emerging environmental risk practice, said that insurers are being asked by regulators to report information on how such meteorological changes impact their bottom line.

During the session sponsored by Marsh in New York, Mr. Guzy remarked that climate change has caught the attention of insurance regulators who are now requiring company filings to include climate loss trends.

Climate change, he noted, is impacting the availability and affordability of insurance in some locations.

Investors, said Mr. Guzy, are also focusing on how insurers are dealing with the effects of climate change, and those concerns can affect a carrier's own errors and omissions policy as risk increases.

As businesses deal with increased regulations over carbon emissions–which are blamed for warming the atmosphere and in turn causing climate change–the regulations are opening up new markets for insurers, Mr. Guzy advised.

One area is trading in carbon emission credits. The credits allow carbon emitters who do not have the technology in place to lower their emissions to sell credits to non-polluting or cleaner producing businesses, allowing the polluter in essence to produce less carbon and bring it into Kyoto Treaty (an international agreement to reduce carbon emissions that was supported by the Clinton administration but rejected by the Bush administration) and European Union regulatory compliance.

The idea, he said, is that it doesn't matter where the cuts come, just as long as there are reductions in carbon emissions. The point is to reduce emissions while working to create new technology that reduces emissions.

The market amounted to $25 million in trades last year, said Mr. Guzy, and there is a maturing insurance market of credit delivery guarantee, “and it holds tremendous promise.”

“The day is over when companies used to sit back and wait to see how the debate played out on these issues,” said Mr. Guzy. “The risks are too great and the opportunities are too significant at this point for most companies not to be proactively engaged in carefully managing these issues.”

The panel discussion was part of Marsh's continuing series “New Reality of Risk.” A replay of the event is available through the firm's Web page at www.marsh.com.