Wild Weather Is The New Normal And Insurance Companies Must Act

by Mindy Lubber, via Ceres

Severe weather has been clobbering insurance companies, and the headlines just keep coming. “Drought to cost insurers billions in losses,” said the Financial Times a few days ago. “Many U.S. hurricanes would cause $10b or more in losses in 2012 dollars,” the Boston Globe said about the latest hurricane forecasts. “June’s severe weather losses near $2 billion in U.S.,” said the Insurance Journal earlier this year.

This year’s extreme events follow the world’s costliest year ever for natural catastrophe losses, including $32 billion in 2011 insured losses in the United States due to extreme weather events. This is no short-term uptick: insured losses due to extreme weather have been trending upward for 30 years, as the climate has changed and populations in coastal areas and other vulnerable places have grown.

The U.S. insurance industry continues to be “surprised” by extreme weather losses. But the truth is that weather extremes are no longer surprising. Back-to-back summers of devastating droughts, record heat waves and raging wildfires are clear evidence of this. Last year’s crazy weather triggered near record underwriting losses and numerous credit rating downgrades among U.S. property and casualty insurers.

And in the face of a changing climate, such events can be expected to increase in number, and severity.  It’s time for insurance companies to recognize this new normal, and incorporate it into their business planning—for the sake of their shareholders, their industry’s survival, and the stability of the U.S. economy.

Ceres, a business sustainability leadership organization, has been researching the effects of climate change and severe weather on the insurance sector. In a report to be released next month, titled Stormy Future for U.S. Property and Casualty Insurers, we will detail our recommendations for insurance companies, investors and regulators to help strengthen the insurance sector so it can better weather the challenges ahead.

For insurance companies, using catastrophe models that can better anticipate probable effects of climate change on extreme weather events are key. And especially in vulnerable markets, insurers’ guidance on insurability should inform decisions that communities make on land-use planning, infrastructure decisions, and building codes.

Insurers can also encourage the transition to a low-carbon economy—one built to forestall the worst effects of climate change—by offering products and services that encourage clean and efficient energy, encouraging customers to adopt climate-change mitigation plans, and encouraging policymakers to act to reduce carbon pollution.

This would not be the first time insurance companies have helped change American society. By making insurance contingent on smoke detectors, insurers cut down on deaths and losses from building fires. By backing seat belt laws and including seat belt violations in rate calculations, they helped save lives on the road.

By engaging fully on climate change and energy policy—inside and outside of the boardroom – insurance companies can lead the way once again. It would be the right thing to do, both for their business, and for our future.

Mindy Lubber is President of Ceres and Director of the Investor Network on Climate Risk. This piece was originally published at Ceres and was reprinted with permission.

8 Responses to Wild Weather Is The New Normal And Insurance Companies Must Act

  1. Joan Savage says:

    I’d like to see a survey of the de facto responses of the insurance industry to climate-changed events, even if they don’t admit that’s what is happening.

    The responses seem to be all over the lot. Some make more sense than others. Increased premiums or dropped policies for at-risk locales are not a surprise.

    Increased premiums for everyone regardless of their location or complicated policies with exemption clauses are unpleasantly devious.

  2. Mike Roddy says:

    Underwriters are already adjusting their rates to reflect climate related dangers.
    Insurance is a timid, conservative industry that is rarely proactive or outspoken.

    The big dogs run things in this country. Insurance is big, but fossil fuels and the banks that finance them are much, much bigger.

  3. Tami Kennedy says:

    When Insurers’ costs rise climate changes become science.

  4. Paul Magnus says:

    Insurance co are toast.

  5. Doug Bostrom says:

    There’s a paradoxical problem with US insurance companies. If they acknowledge GHG impacts, they’re on the hook for damages relating to lawsuits against some of their customers. On the other hand, guidance to investors requires they point out the liabilities they’re exposed to thanks to GHG.

    So far their choice has been to stay mum, unlike their counterparts in other regions of the world.

    See this article at Yale360 for more details: Insurance Companies Face Increased Risks from Warming

  6. Mulga Mumblebrain says:

    Big, rabid, un-housetrained, dogs.

  7. Paul Magnus says:

    Home repair businesses, especially those specializing in repairs to basements and foundations, can barely keep up with demand. Drought-related home damage is reported in 40 of the 48 contiguous states, and experts say damage to homes could exceed $1 billion.

  8. dennis baker says:

    I guess insurance should invest in solutions!

    The solution to climate change

    The primary source of GHG is fossil fuel burning electrical generating facilities.
    7 Billion humans generate vast quantities of excrement. I believe this excrement is capable of providing all human electrical demands.
    Right now hydrogen is perceived as a negative by product, of Nuclear Energy, when it should be the product, as the Pentagon has considered. reference info Request for Information (RFI) on Deployable Reactor Technologies ……
    Large scale conversions sites are intended to replace fossil fuel powered electrical facilities the Primary Source of Carbon Emissions.
    In what officials now say was a mistaken strategy to reduce the waste’s volume, organic chemicals were added years ago which were being bombarded by radiation fields, resulting in unwanted hydrogen. The hydrogen was then emitted in huge releases that official studies call burps, causing “waste-bergs,” chunks of waste floating on the surface, to roll over.

    Dennis Baker
    106-998 Creston Avenue
    Penticton BC V2A1P9
    cell phone 250-462-3796
    Phone / Fax 778-476-2633