The Ceres report on Insurer Responses to Climate Change has just been published. It is an updated version of the same report published 2 years ago. The report states that the insurance industry is in the front line of Climate Change, and the report makes for interesting reading.
Ultimately the Insurance Industry's interest in climate change lies in the volatility of underwriting experience. That means the losses caused by large scale natural events. In Australia we've experienced significant losses over the last 2.5 years, starting with the floods in Newcastle, and including the Blacktown hail, Brisbane floods, Victoria fires, and just large scale storm activity. In the long term the Insurance Industry needs to be profitable in order to attract capital. It therefore needs to deal with events causing losses. If the long term trends are changing, the industry needs to respond if it wants to stay profitable.
From a society perspective, we want to improve our disaster resilience. I have been amazed by the response to the Victoria Fires. It clearly was a terrible event and affected people in a most horrible way. The response to it has been overwhelming. The money raised for the event in a very short space of time nothing short of incredible. Nothing can ever replace the lives that have been lost, but the society will do a relatively good job of restoring the property damage. Insurance played a big part in that.
Contrast that with the widespread floods and destruction in Myanmar in May 2008. Some 90,000 people are known to be dead, and another 50,000 just missing. The natural disaster quickly turned into a man-made disaster with the poor handling by the Myanmar government of aid, and actually being slow or reluctant to issue visas for foreigners coming to help. A terrible example of a disaster against which the world was not resilient.
From the Ceres Report, some points of interest:
The scope of activities identified is wide. It ranges from disclosure, to product innovation, to carbon offsets, to industry participation, to leading by example.
The Ceres report identifies 643 specific activities from 246 insurance entities from 29 countries. A 50% year-over-year increase. The number of product innovations increased by a factor of 2.5, and is the biggest contributor to the increase in activities.
Disappointingly I think only 13 micro-insurance programs. Micro-insurance is very important for poverty alleviation efforts. We all have great protection in developed countries should something go wrong. Not the same in poor countries. The report identified microinsurance
products covering 7 million policyholders. The purpose of these products are to respond to food and water shortages in rural areas of South America, Africa, and Asia.
products covering 7 million policyholders. The purpose of these products are to respond to food and water shortages in rural areas of South America, Africa, and Asia.
Also interesting that the report says only 9 companies offering carbon offsets to their customers. Real Insurance's Pay As You Drive has a carbon offset option.
Also interesting the report says European insurers are much more advanced than their American counterparts. The exception in the US is AIG of all companies! AIG is progressive on the Climate Change front. So they may have broken the financial system, but at least they're saving the planet...
Another very interesting initiative is from Progressive. They've offered a $10m prize for efficient motor vehicle design. It is a pity that the auto industry is under so much pressure though.
The report does contain some numbers on Pay As You Drive successes, but it is unfortunately still sketchy. Nevertheless, the table is below:
A New York Times write-up of the report can be found here.
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