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Ceres: Insurance Industry Unprepared for Climate Change

Words by Leon Kaye

One would think the insurance industry would be proactive confronting and preparing for the long term effects of climate change. The mounting costs of hurricanes, droughts and floods have already reached catastrophic levels. But last week’s assessment by Ceres on insurance and climate change revealed insurers are “not very” prepared for climate change’s impacts on their business.

The Insurer Climate Risk Disclosure Survey queried over 180 companies with at least $300 million in direct written premiums. These agencies filed documents related to climate-change risks in California, New York or Washington because insurance regulators in those states require insurers to disclose climate-related material information. The report’s findings, as well as Ceres’ suggestions, are important because without a viable insurance sector, business--everywhere--STOPS. With climate volatility on the rise, and trends still witnessing populations moving to at-risk coastal and arid regions, insurance companies have got to take more action in planning for climate change in order to withstand future disasters.

Some of Ceres’ conclusions include:

  • Only 23 of the 184 companies Ceres surveyed have a “comprehensive” climate change strategy. Most of those firms, not surprisingly, are in the property and casualty (P&C) segment. Health insurers as well as those companies that primarily underwrite life insurance and annuities (L&A) are far less prepared than their P&C counterparts, and often view climate change as an environmental concern, not as an overall business risk. Kaiser Permanente is one health insurer pushing the envelope on climate-related disclosures.

  • Insurers that do take action on climate change planning cited energy savings (i.e. “cost efficiencies”) as the main reason to take action. Reduced exposure to extreme weather events, not a holistic approach to climate change, was the second most common motivator.

  • Very few insurers actively engage their stakeholders on climate change issues. Such an “inward-facing” approach suggests insurance companies are vulnerable to the dangers change climate patterns pose because they lack the information needed to plan for the long run.

  • Rather than taking a hard look at carbon-intensive industries that could become susceptible to future regulations and market realities, insurers instead will sooner screen out vulnerable regions such as Florida’s coast.

Recommendations Ceres makes to the industry are as follows:

  • Climate change should be a corporate wide strategic issue, for all functions and across all levels. If current trends prove correct, natural disasters will increase in frequency and intensity: insurers must work with the insured to protect everyone’s assets.

  • The focus cannot just be on disasters, however; disease pathways, population migration and infrastructure failure also should factor into insurers’ future scenario plans. Companies also need to develop their own internal modeling to plan for this brave and hot new world and not rely so much on outside vendors.

  • Transparency and complete disclosures, as well as partnering with governments at the local and federal levels, will help build an economy and business climate braced for resilience.

  • Climate change is not just about threats: companies have an opportunity to create products and services tailored for a low-carbon economy prepared for climate change.

The insurance companies may keep their heads in the sand for a while, but that sand is washing away figuratively--and literally. Insurers and regulators should partner and share the information necessary to prepare for new developments that will rock the industry in future years. The time to do it was yesterday: Ceres had issued a report in fall 2011 with similar warnings, and yet nothing has changed despite even worse disasters. It should not take more events such as Hurricane Sandy for insurers to get a clue.

Based in Fresno, California, Leon Kaye is the editor of GreenGoPost.com and frequently writes about business sustainability strategy. Leon also contributes to Guardian Sustainable Business; his work has also appeared on Sustainable BrandsInhabitat and Earth911. Most recently he explored children’s health issues in India with the International Reporting Project. You can follow Leon and ask him questions on Twitter or Instagram (greengopost).

[Image credit: Wikipedia (JSquish)]

Leon Kaye headshotLeon Kaye

Leon Kaye has written for 3p since 2010 and become executive editor in 2018. His previous work includes writing for the Guardian as well as other online and print publications. In addition, he's worked in sales executive roles within technology and financial research companies, as well as for a public relations firm, for which he consulted with one of the globe’s leading sustainability initiatives. Currently living in Central California, he’s traveled to 70-plus countries and has lived and worked in South Korea, the United Arab Emirates and Uruguay.

Leon’s an alum of Fresno State, the University of Maryland, Baltimore County and the University of Southern California's Marshall Business School. He enjoys traveling abroad as well as exploring California’s Central Coast and the Sierra Nevadas.

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