Insurance companies want to keep their premiums low. Philanthropy? No - good business sense. But natural disasters brought about by global climate change are threatening not only the lives and goods of the insured, but also the low-cost policies of the insurers.
 | Robert Shiver, of Crestview, U.S salvages his belongings from a flooded trailer after hurricane Georges had hit Florida. Worldwide, natural catastrophes have caused an estimated 11 billion dollars in insured losses in the first half of 2009 |
Insurers are among the most active businesses when it comes to climate change. Re-insurance giant Munich Re published its first report on the dangers of global warming in the 1973 when others where still speculating about global cooling.
The United Nations Environmental Programme collaborates with the global financial industry to develop sustainable business models and lobby for climate friendly policies. Allianz SE and the World Wide Fund for Nature (WWF) have teamed up to analyze the climate performance of G8-nations, some of the world's leading industrialized countries.
This green approach is not a marketing gimmick, but born out of common sense and rational business interest. According to the UN's report on climate change, global warming will lead to more and stronger natural catastrophes. This means more property destroyed and higher losses. In such a world, insurers might have little choice but to raise premiums for certain policies.
If the insurance company sold only a few very expensive contracts, one single catastrophe would be enough to endanger the whole idea of insurance - managing risk. An affordable insurance policy taken out by many people, on the other hand, creates a huge money pool that can sustain even very large damage without a tremor.
Increasing temperatures - increasing losses
Insurer efforts to keep premiums low cannot succeed if the severity of damages increases with every passing year. Every hailstorm, every hurricane, every flood causes damages the insurers have to pay for. Insured losses from natural catastrophes in the first six months of 2009 only amounted to 11 billion dollars.
“We see raising claims due to natural catastrophes and have a vested interest in reducing global warming," says Allianz board member Clement Booth. "Our industry has been at the forefront of this debate for a long time.”
Climate change is one of the great challenges that the insurance business has to meet. Small wonder that some of the most-detailed scenarios for the future of our planet are commissioned by insurance companies.
Working global and local
On a grand scale, insurance companies use what political and economical influence they have to create awareness for the consequences of global warming. But it's not just bad news, fighting climate change also creates new economic opportunities.
Green buildings, for example, use fewer resources and save energy and CO2 emissions, but they are also safer than normal houses. Fireman's Fund Insurance Company (FFIC), a U.S.-based insurance company owned by Allianz SE, offers building insurance that allows home owners to spend the extra buck and rebuilt their home with green features in case of damage.
"If they can make those buildings greener, it will be a better risk for us because we will have less electrical fires, less plumbing problems, and so on," explains FFIC's Steve Bushnell.
It's these second and third level impacts of climate friendly technologies and policies that make up for the initial investment, agrees Walter Stahel, responsible for risk management research at the Geneva Association, a think tank run by the world's leading insurance companies. "There are many advantages that go beyond the CO2 question. More intelligent use of energy in buildings will positively impact society and insurance. Things just become safer."
Read more about global warming and insurance:
"Can Insurance Cope with More Fires, Floods and Storms?"
"How Cat Bonds Help Prepare for a Stormier World"
editor: Karin Lindinger
Publishing date: August 24, 2009
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