Insurance CEOs Call on Industry to Get Proactive About Climate Change

The insurance industry is in a unique position in the fight against climate change: It can encourage behavior changes simply by doing what so many governments have avoided – putting a price on ignoring the danger.

Just as insurance discounts can encourage safe driving practices, insurers can persuade their clients to embrace energy efficiency and reduce greenhouse gas emissions with financial incentives. Their massive investment power can further pressure corporations and states to take action.

The self-interest is obvious: The potential for insured losses is enormous as global warming brings on stronger storms, longer droughts and more intense heat waves.

“Perhaps no industry is more aligned with the world’s self-interest in preventing the destructive effects of climate change than the insurance industry,” says Mike McGavick, CEO of XL Capital Ltd.

Just look at some of the recent numbers:

✻ Severe flooding in central Europe in August 2002 caused damages estimated at 15 billion to 20 billion euros, about 0.7 percent of the countries' combined GDP.

✻ France’s deadly 2003 heatwave cost agriculture alone about 4 billion euros.

✻ Hurricane Katrina in 2005 resulted in losses of about $125 billion, just under 1 percent of the United States’ GDP.

✻ In Kenya, droughts in 1999 and 2000 racked up damage amounting to 16 percent of GDP, about a quarter of it due to hydropower loss.

Yet, even though insurers are the masters of risk assessment, they're still stuck in reactive mode when it comes to climate change, a group of insurance CEOs and climate experts writes in a new report from the International Association for the Study of Insurance Economics, better known as the Geneva Association.

The investor network Ceres, which follows the industry, came to a similar conclusion earlier this year, writing: “The scale of risk this industry faces — and the opportunities that can be capture by those who act — call for much more dramatic and far-reaching action.”

Both reports give dozens of examples of how insurers have taken positive steps to help corporations reduce their exposure to climate change — Ceres found a 50 percent increase in climate-related activity by insurers from 2007 to 2008. Yet both also see a far greater, untapped potential.

“Climate change represents the greatest long-term challenge to the industry,” the CEOs write in the Geneva Association report.

Their report spells out in detail the threats that civilization — and the companies putting up trillions of dollars to insure it — face as the planet warms and climates change.

Accompanying it is a statement signed by 56 industry leaders affirming their commitment to climate change research, products that incentivize reducing greenhouse gas emissions, services that support climate change adaptation, and investments in clean energy products.

“Climate change is considered as one of the most serious risks which could affect the whole socio-economic structure of any country in the world," the report's authors write.

“Climate change has caused a rise in average temperatures, localized torrential rain, drought and water shortages in various parts of the world. These phenomena have caused not only damages to property but have also led to economic losses such as the deprivation of income opportunities, which are all as a result of natural disasters. Further more, climate change will also have a serious impact on human life, health, the ecosystem, biodiversity, which also needs to be considered.

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