Insurers across all sectors are acknowledging the impact of climate change on their business, but they are failing to engage in discussions about how to stay ahead of the potential threats, a new preparedness study says.
"Every segment of the insurance industry faces climate risks, yet the industry's response has been highly uneven," says Mindy Lubber, president of Ceres, which conducted the study. "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."
Ceres conducted the study on 184 insurance-company disclosures to the National Association of Insurance Commissioners' (NAIC) climate-risk survey. The results showed that out of a possible 50 points ranking how the industry reveals its plans to deal with the organizational and business risks caused by climate change, the average score was 7.3. Ceres says that included in the 50-point scoring system are a company's awareness of increased severe weather on business continuity, pricing, and customer interactions; a plan of how company management deals with these risks; the innovation of products related to climate change; and even efforts to reduce greenhouse gas emissions.
Out of the 23 companies with a definite climate-change strategy, 13 are foreign-owned, and eight are Property & Casualty (P&C) insurers. Leading this group are ACE Ltd., Munich Re, Allianz Group, Swiss Re Group, Farmers Group, the Prudential Group, Travelers Group, Hartford Insurance Group, Kaiser Foundation Health Plan and Zurich U.S. Insurance.
The Ceres study found that for 60 percent of companies, impacts on operations, revenue and profits from the hazard risks of climate change is a motivating factor for mobilizing a climate-change strategy. However, about half view climate change as a future loss driver despite the International Panel on Climate Change (ICPP) Extreme Events reporting that it is already amplifying extreme weather and causing insured losses.
"Climate change is potentially a serious financial threat to the insurance industry, and needs to be on insurers' and regulators' radar," says Washington State Insurance Commissioner Mike Kreidler, a leading advocate for stronger climate-risk disclosure and action by insurance companies. "If insurance is to remain available and affordable, companies will need to adapt. The last thing we want to see are unprepared companies simply pulling out of markets or seeking unreasonable rate hikes."
He adds, "The underlying issue is that decades of underwriting practices conducted by the insurance industry are threatened because historical evidence is not going to be the guiding mark to what we will see in the future."
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