According to a new report released by Allianz Group and the Worldwide Fund for Nature (WWF) USA, the insurance sector is only now beginning to recognize and adapt to the risks of costly floods, forest fires, and hurricanes that many scientists project will accompany climate change.
 | The damage caused by the devastating hurricanes in 2005 - including Hurricane Katrina - cost insurance companies billions of dollars more than any previous year. |
The new report, "Climate Change and Insurance: An Agenda for Action in the United States," argues that more needs to be done by insurance companies to understand the risks of climate change, adapt to changing conditions, and take action to mitigate related risks.
The report focuses primarily on the challenges and opportunities for insurance companies in the United States, though many of the report's conclusions and recommendations apply globally - just as the threat of climate change is global in scale.
"Global warming is the greatest environmental threat facing the world, and the people and animals that inhabit it. The cost of doing nothing carries a price tag none of us can afford," says Carter Roberts, president and CEO of WWF-US. "The insurance industry has a vested interest in stepping up to the plate and being a part of the solution. Allianz has been a leader on this issue and we hope that the entire industry makes climate change a top priority."
The sheer economic impacts are already beginning to push climate concerns onto insurers' agendas in the United States. The damage caused by the devastating hurricanes in 2005 - including Hurricane Katrina - cost insurance companies billions of dollars more than any previous year. Other studies suggest the effects of even a one-degree increase in average global temperatures could cost hundreds of billions of dollars annually in the coming decades.
Concrete recommendations
One conclusion the report draws is that US insurance companies are not adequately integrating the potential future risks of climate change into their risk management strategies, something major European insurers and reinsurers have already begun to do. Incorporating future potential climate change impacts, such as continued sea-level rise and longer fire seasons into planning, rather than relying only on historical data of past weather events, is just one of the report's concrete suggestions for the industry.
 | Click here to download the studyClimate Change and Insurance: An Agenda for Action in the United States |
"In insurance we tend to look at the past instead of the future, and when you have a dynamic change taking place, looking at the past doesn't work so well," says Tim Wagner, co-chair of National Association of Insurance Commissioners' Climate Change Task Force, in the report.
The report also recommends that the industry move to correct market distortions and communicate appropriate signals to homeowners, businesses, and consumers moving into high-risk areas. The National Flood Insurance Program, for example, encourages overdevelopment in high-risk areas by masking the real cost of risk and keeping insurance rates artificially low. Insurers must also seek to wield influence on land use development and planning in high-risk areas. Conserving coastal mangroves, for example, provides a natural buffer from storms, surges and waves; forest preservation can reduce mudslides.
Promotion of storm-resistant and energy-efficient building materials via improved building codes and public awareness campaigns are also recommended. Fireman's Fund Insurance Company, an Allianz unit in the United States, will soon be introducing commercial insurance policies designed to support and encourage the development of "green" buildings that save energy and reduce emissions of greenhouse gases.
The Climate Change and Insurance report is the second major published collaboration between Allianz and WWF since 2005. The two organizations teamed up last summer to release a report about the impacts of climate change on the financial sector. With over 5 million members worldwide and projects in over 100 countries, WWF is a leading global conservation organization. Allianz AG is one of the world's biggest insurers with 60 million customers worldwide, as well as subsidiary companies in the United States.
"We need to better understand the effects of climate change and the changing environment for our customers," says Clement B. Booth, board member of Allianz. "If we can find a way to provide insurance in the face of major changes, from the first transatlantic voyages to global terrorism, then we can find new ways to address climate change."
editor: Valdis Wish
publishing date: October 16, 2006Do you have something interesting to add? Write a comment and discuss this topic with other readers. Comments should be on-topic, non-commercial, and not contain abuse of any kind.
Comment Policy
