Even though insurers are in the business of protecting others from risk, a new report shows that most major United States players are turning a blind eye to a serious threat to their own bottom line—climate change.
"It's shocking...most of the industry continues to be far behind where they need to be in terms of understanding and articulating [climate risk]," said study author Cynthia McHale, insurance program director at the Boston-based nonprofit Ceres.
This stands in stark contrast to other big businesses, from carmaker General Motors to candymaker Mars Inc., that are increasingly taking a public stand on climate change and devoting resources to combat it.
The heads of insurance departments in five states—California, Connecticut, Minnesota, New York and Washington—required large insurers to fill out climate risk disclosure surveys in 2013. The states wanted to know how the companies regard climate change, and what they might do in the face of it.
The participating 330 companies make up 87 percent of the American insurance industry. They are mostly U.S.-based and include both insurers and reinsurers, companies that cover against other insurers' losses. All companies fall under three large umbrellas of business: property, life or health.
According to the report "Insurer Climate Risk Disclosure Survey Report & Scorecard" released this week, around 90 percent of participating companies have yet to issue a public statement on their approach to climate change. To this point, the report said: "This near total silence on climate change is deeply troubling and is thwarting constructive public engagement on appropriate responses."
American-based Allstate and Europe's Zurich are the only two major companies that have issued such statements from America's top 10 list of property insurers.
State Farm, the country's No. 1 property insurer, has remained silent. So have Berkshire Hathaway Group and Nationwide, two other companies in the top 10. These three companies are also among a majority of property insurers whose top executives don't publicly acknowledge the issue.
The situation is more grave for life and health insurers.
Despite increasing evidence that changes in climate, such as longer and more intense heat waves, are likely to affect human health and lifespan, the report said these "insurers show widespread indifference to climate risk, both in regard to their core business" and their investments.
But it's not all bad news. Nine companies have emerged as clear leaders in the industry and 50 more are taking steps in the right direction.
The nine top companies include four American companies (ACE, The Hartford, Prudential and XL Group) and five international companies (Allianz, Munich Re, Sompo Japan, Swiss Re and Zurich Insurance).
McHale told InsideClimate News, "When you do have a breakaway group like that...industry competition kicks in and it can sort of create a bit of a tipping point.
"We [at Ceres] are of the mind that competition rather than science is going to move this industry at the end of the day and motivate insurers to take visible action on climate."
One of those leaders is Swiss Re, a major reinsurer based in Zurich. The company started tracking the issue closely 25 years ago when it considered protecting insurers against extreme weather events.
The company's mindset is "anything that can potentially make [extreme weather] worse is something we need to understand," and climate change fit the bill, said Mark Way, head of Swiss Re's sustainability department.
"We spend a lot of time peering over the horizon to see what new risks are coming," Way said.
Franklin Nutter, president of the industry trade group Reinsurance Association of America, points out that European reinsurers like Swiss Re have a corporate culture that's more open to "forward thinking" on emerging risks like climate change than many American counterparts.
Some of the risks bring new business opportunities. An example is the property insurer The Hartford, based in Hartford, Conn. Another Ceres-named leader, Hartford's leadership on the issue includes offering insurance coverage to renewable energy companies.
These two companies also have initiatives to limit their own carbon footprints.
In fact, so do many of the companies surveyed. But unlike Hartford and Swiss Re, these other companies often said their plans were motivated to save money and don't acknowledge the climate implications.
"It's quite hypocritical," said study author McHale. "It really begs the question: Why would you care if [you say] climate change isn't real and matters?"
Spreading the Blame
Next year, insurers operating in Illinois, and possibly New Mexico and Maryland, will be required to fill out the climate risk disclosure survey.
Every time a new state signs on, it's a sign that their insurance leaders "are really looking at this and thinking about this and publicly coming forward saying climate risk is really relevant to the insurance industry," said McHale.
The fact that only a handful of the 50 states require this survey suggests regulators are not yet fully committed to addressing climate change.
Nutter hinted at this when he explained that an American insurer who doesn't consider climate change as a risk to a business customer might simply blame the regulators.
"The regulatory system will not let [companies] factor in a risk or price rate for climate change," he said. "It's too speculative."
It's not just state regulators, apparently. National politics is also at play. Mark Way, the Swiss Re executive, said, "it would be a lot easier [for other companies to discuss the issue] if the leadership from D.C. was less adversarial on the topic at the policy level." He also called for more formal guidance on ways the industry could and should be approaching climate change.
American insurers and reinsurers often see climate change as a "red flag for energy policy," said McHale. These companies will actively talk about extreme weather and behind closed doors they are even talking about changes to observed extreme weather, said McHale, but they are reluctant to discuss the potential drivers of that weather, namely climate change.
In Europe, "it's such a dichotomy," she said. For example, last year, the insurance and risk think tank Geneva Association put out a statement on climate change that affirmed the latest science. Of the 66 major insurance companies that backed it, less than a handful were from the U.S.