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March 18, 2013
Insurers Still Unequipped to Deal with Climate Change
    by Robert Kropp

In a survey of 184 disclosures by insurance companies, Ceres finds that only 23 have climate change strategies, and few have policies in place to help prepare for the effects of climate change.

Last year, the US Congress passed the Biggert-Waters Flood Insurance Reform Act. According to law professor J.B. Ruhl of the Vanderbilt University Law School, the bill, which authorizes the Federal Emergency
Management Agency (FEMA) to account for changes in sea levels as well as extreme weather events when updating flood insurance rate maps, the bill is "the first federal legislative initiative putting climate change adaptation prominently into substantive law."

Elsewhere in his thought-provoking academic paper, Ruhl cited a 2012 survey by the Columbia Law School, which concluded, "The majority of insurance companies do view climate change as a threat to their businesses."

Also in 2012, Ceres published a report on climate related risks for the property and casualty insurance industry. "The threat of rising catastrophic losses triggered by increasing concentrations of insured assets, along with a changing global climate, present very real and significant challenges to the sector's financial future," the report states. "These increasingly visible trends could undermine some insurers' ability to manage and, in some cases, even survive, future catastrophic, weather-related loss events."

Last week, Ceres followed up on its 2012 report with the publication of Insurer Climate Risk Disclosure Survey: 2012 Findings & Recommendations, "based on 184 company disclosures in response to a climate risk survey developed by insurance regulators." Respondents "represent a significant majority of the American insurance market," Ceres stated.

According to the report, "almost all companies responding to the survey show significant weakness in their preparedness to address the effects climate change may have on their business."

"Only 23 of the 184 companies have comprehensive climate change strategies," the report continued. "Of those 13 are foreign-owned, and 8 are P&C companies." As last year's report from Ceres pointed out, companies in the property and casualty are most likely to feel the financial effects of climate change. Yet, the report states, "Few have explicit policies to identify or manage the trends of global climate change. Some insurers do not seem to understand the difference between climate variability and climate change."

Insufficiencies in other sectors of the industry are even more glaring. Companies in the health and life & annuity sectors "view climate change as an environmental issue immaterial to their business," the report found.

The report recommends that insurers treat climate change as a corporate-wide strategic issue; implement strategies to adapt their underwriting and investment practices to account for a warming climate; develop models that anticipate the probable effects of climate change; and advocate for policies that foster climate resilience in the national economy.

The report also recommends public disclosure with "enough detail to assist regulators and investors in understanding why the company takes a certain view on climate change." In 2012, three states California, New York, and Washington began to require climate risk disclosure by insurers that write in excess of $300 million in direct written premiums.

"We are concerned about how climate change will impact the financial health of the insurance sector and the availability and affordability of insurance for consumers," Joel Ario of the National Association of Insurance Commissioners (NAIC) stated in 2009.

Noting that the industry's preparedness has not improved a great deal since Ceres published its first report in 2011, Ceres president Mindy Lubber wrote in her foreword to the current report, "The insurance industry is a key driver of the national and global economies. If climate change undermines the financial viability of the insurance industry, it will have a devastating impact on the economy, as well."


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