I have been saying for a long time now, that the next revolution in this country will be led, not by ponytailed radicals, not by protestors in the streets, and certainly not by politicians; rather it will by led by accountants. Like an army that crawls on its stomach, the corporatocracy that America has become, crawls on its balance sheet. (Of course, here at Triple Pundit, we’d like to see her roll on the three wheels of people, planet, and profit, but right now we mostly have one big wheel and two tiny ones, which still essentially amounts to crawling.)
Wise men have known for ages that you really can’t separate the three in the long run, but then, wise men are not the ones running things.
That is beginning to change in the insurance industry. History has shown that insurance companies, whose ranks are filled with legions of sharp-penciled accountants and actuaries, and whose business is based on understanding and managing risk, don’t do too well with their eyes closed or with their heads in the sand. And they only need to look as far as their own checkbooks to see that something very disruptive and damaging is happening. In 2005, in the aftermath of hurricanes Katrina, Rita and Wilma, damages reached $173 billion worldwide. Here in the US, damages from catastrophic losses cost the insurance industry $62 billion that year, up by 50% from the 1990’s. Back in the 50’s that number was only $4 billion. The number of reported natural disasters has been climbing steadily from around 70 in 1975, climbing into the two hundred range in the 80’s, to an average of around 400 over the past decade. The awakening of insurance executives to the fact that, as Dylan once said, “something is happening here…” seems to be beginning with the re-insurance firms, those that insure the insurance companies that insure us.
Andrew Castaldi, head of the catastrophe risk unit for the Swiss Re America Corp, told the Senate’s homeland security and governmental affairs committee in 2007 that, “We believe unequivocally that climate change presents an increasing risk to the world economy and social welfare.”
Frank Nutter, president of the Reinsurance Association of America, told the select committee on energy independence and global warming in 2007, “The insurance industry’s financial interest is inter-dependent with climate and weather.”
The industry is becoming increasingly proactive. In September 2007, insurance industry firms formed ClimateWise to address economic risk associated with climate change. In 2008, Ernst & Young named climate change the number one risk to the insurance industry. A year later, Lloyd’s of London warned that climate change could contribute to “resource-driven conflicts; economic damage and risk to coastal cities and infrastructure; loss of territory and resultant border disputes; environmentally induced migration; government fragility; political radicalisation; tensions over energy supplies and pressures on international governance.”
This past month, Munich Re – the world’s biggest reinsurer – stated that, “The devastating floods in China are of a dramatic dimension – a phenomenon that has unfortunately occurred in China with increasing frequency over the last few decades. Every year, millions of Chinese are victims of weather-related natural catastrophes. And the risk is steadily growing, for climate change harbours the potential for torrential downpours while the risk of drought in certain regions is also on the rise.”
So what is being done? Besides acknowledging, insurance companies are also investing. Munich Re, for example, along with Allianz SE are increasing their investments in renewable energy. Munich Re’s Plainsboro, NJ facility is being refitted with a 2.5MW solar power system from SunPower Corp that is expected to save $500,000 per year in electricity.
According to the Guardian, “European reinsurers have taken the lead in this outburst of rational behavior, with their counterparts in the US lagging in their wake. In Europe, insurance companies have pressured their governments to push policies that mitigate the human role in climate change, while in the US, insurance firms have tended to focus more on extreme weather events and how to adapt to them.”
Property insurers are taking the lead, with life and health insurance firms trailing behind.
A recent article by Reuters entitled Can the insurance Industry Survive Climate Change? states that this year’s spate of tornadoes in the US midwest will cost insurers more than $7B, with $3B of that coming from Joplin, Missouri alone. Some of these costs will be passed on to consumers in the form of higher premiums, but it’s likely to put a squeeze on profits.
According to a white paper by NRDC, insurance companies can take a number of actions to help prepare themselves and their customers for the impact of global warming, including:
- Creating risk models that account for the uncertainty of a changing climate.
- Assessing the exposure of different lines of insurance to global warming risks.
- Protecting solvency by factoring global warming risk and opportunities into investment decisions.
- Addressing global warming at its source
- Encouraging policy makers to require caps on heat-trapping pollution.
To this last point, insurance industry lobbyists outspent oil and gas lobbyists last year, mostly in their efforts to put their mark on health care reform. Still, with that kind of spending ($157 million), they should have the cash-hungry congressional panhandlers’ attention.
Perhaps they can help persuade them to pull their collective heads out of the sand.
RP Siegel is the co-author of the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water. Like airplanes, we all leave behind a vapor trail. And though we can easily see others’, we rarely see our own.
Follow RP Siegel on Twitter.