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Report: Insurance Companies Still Unprepared for Climate Change Risks

Words by Leon Kaye

For an industry that is built upon gauging and managing risks, one would think the insurance industry would be more prepared to deal with climate change’s potential effects. But the most recent annual report by Ceres shows an overall lack of preparedness in confronting climate-related risks and addressing potential opportunities. Similar to last year’s report, Ceres found some leadership amongst 300-plus U.S. insurance companies it surveyed, but still finds a lack of innovation and long term planning.

The survey found that nine insurers, or three percent of the companies that responded to the survey, earned what Ceres described as a “leading” rating. Property and casualty insurers tend to have a greater understanding about how climate change could potentially affect their business; life and health insurers lag behind. And only about 10 percent of the surveyed insurance companies have publicly disclosed risk management statements that include climate change as a significant long term risk to their businesses. The larger companies pay more attention to climate change than smaller insurers, though exceptions, such as the Catlin Group, exist.

So who are some of the leaders?

Among the nine companies that Ceres said stands tall among insurers is Allianz. The company says it is adopting internal policies and processes to help the company develop its long-term climate change agenda. Allianz has also publicly supported the growth of a more low-carbon economy. Finally, one of its American divisions, Fireman’s Fund, is one example of how the company underwrites “green insurance” policies such as for environmentally friendly construction. Across the board, from stakeholder engagement to internal greenhouse gas reporting, Allianz consistently scored highly in the Ceres survey.

Another leading global insurer taking climate change seriously in Ceres’ eyes is Zurich Insurance Group. The company has publicly committed to investing up to US$2 billion in “green bonds,” which will fund a bevy of programs from energy efficiency in Mexico to clean energy projects in developing nations. Zurich is also an example of incorporating climate-related litigation into its strategy. This year it filed a class action lawsuit against dozens of municipal governments in the Chicago region, alleging they had not adequately prepared sewers and storm drains for flooding that occurred during spring 2014. The lawsuit was withdrawn, but this and similar episodes, insists Ceres, is one tactic by which insurance companies can protect their assets and customers—and hold companies accountable for what the United Nations Environmental Program (UNEP) describes as US$1.5 trillion in environmental damages worldwide.

Ceres’ final recommendations apply for any industry, but considering how another Hurricane Sandy-sized disaster can take a huge chunk out of any insurer’s assets, there is still much room for improvement within this sector. Ceres’ urges insurers to take the following steps:

  • Establish climate risk oversight teams or committees with the companies’ boards and c-suites.

  • Publicly issue a comprehensive policy on climate risk, especially so stakeholders know the company understands climate-related risks.

  • Integrate climate risks within a company’s enterprise risk management framework.

  • Develop a broad understanding about climate change’s impacts, both risks and opportunities.

  • Disclose climate change risks to regulators, the way companies in other sectors have done with increasing frequency the past several years.

The full report from Ceres can be viewed here.

After a year in the Middle East and Latin America, Leon Kaye is based in California again. Follow him on Instagram and Twitter. Other thoughts of his are on his site, greengopost.com.

Image credit: Acva

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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