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Risky Business: How insurers are adapting to climate change

Risky Business By Dan Haugen In September 2005, Al Gore was scheduled to address the National Association of Insurance Commissioners in New Orleans about the potential impact of climate change on the insurance industry. The meeting was postponed—due to Hurricane Katrina. But the message got across. The hurricane itself served as a wake-up call to the industry, violently illustrating the type of extreme weather climate scientists predict will become more common as the planet grows warmer. In the years since, insurers have launched hundreds of efforts to better assess and mitigate climate change risks. Ceres, a coalition of investors and environmentalists, surveyed insurers in 2008 and counted 643 climate-related initiatives underway at 246 companies worldwide. The efforts range from funding research for new risk models to innovating new products and policies aimed at reducing carbon emissions, such as pay-as-you-drive auto insurance. Altogether, they paint a picture of an industry in the early stage of reevaluating both its risk and its responsibility with respect to climate change. What spurred this newfound sense of urgency was the largest single year on record for U.S. catastrophe-related insurance payouts. Average weather-related losses had already been growing faster than premiums, population or the economy, from an average of about $1 billion per year in the 1970s to about $17 billion per year in the decade leading up to and including Katrina. The total for 2005: $71 billion. Allianz, Europe's largest insurer, has said it expects weather-related losses to surge 37 percent during the current decade as intensity and frequency of flooding, wildfires and tropical storms grow due to global warming. U.S. insurers are highly sophisticated when it comes to projecting risk based on historic trends. However, in a changing climate, logic suggests that what happened in the past becomes less telling for the future. The challenge, insurers say, is that most climate change research focuses on long-term global or regional impacts, while most insurance decisions revolve around short-term risk to a specific address or property. There may be strong evidence that climate change will bring more frequent and intense weather-related events. But where? And when?

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