Climate Change Endangers Insurance Industry: Ceres

Public filings reveal patchwork approach to risks

Insurers are failing to adequately plan for climate change risks, according to a report by Ceres, thus endangering not only the consumers and businesses that depend on them but also their own survival.

Only one out of eight among the companies reviewed in the report have formal policies to deal with those risks, according to a mandatory 2010 survey. Ceres is a nonprofit coalition that seeks to help companies address ways to deal with climate change.

The report, “Climate Risk Disclosure by Insurers: Evaluating Insurer Responses to the NAIC Climate Disclosure Survey,” was released Sept, 1 and was to have been presented at a conference of the National Association of Insurance Commissioners (NAIC) that was canceled due to Hurricane Irene.

The report analyzed the public filings with state insurance commissioners of 88 leading insurers in the U.S. regarding climate change, and looked at the degree to which those companies are including it in their business plans. The disclosures came from filings with regulators in New York, New Jersey, California, Oregon, Pennsylvania and Washington.

Ceres President Mindy Lubber wrote in the report’s foreword, “The findings are both illuminating and disillusioning. While the survey revealed a broad consensus among insurers that climate change will have an effect on extreme weather events, few insurers were able to articulate a coherent plan to manage the risks and opportunities associated with climate change.”

The survey showed that larger companies, generally in property and reinsurance, are studying climate risk and working to accommodate it in their underwriting and capital decisions. However, the smaller companies that make up a big portion of the industry are not as concerned. Those smaller companies also are the ones to which consumers are most exposed and therefore present those consumers with the greatest risks.

While most are focused on hurricanes and coastal risks, few are looking at the way climate shifts might increase the number of violent inland storms, tornadoes, heat waves, snowstorms and flooding.

California Insurance Commissioner Dave Jones, who co-chairs the NAIC’s climate change task force, said in a statement, "Climate change is an obvious physical threat to us all, but increasingly it also poses a serious financial threat to the insurance industry, with the very real potential of negatively impacting consumers’ ability to purchase affordable insurance. This survey is a solid first step toward evaluating how prepared the insurance industry is to confront the impacts of climate change.”

Jack Ehnes, chief executive officer of CalPERS, said the lack of disclosure the report documents “means that investors—and regulators—have been flying blind, without a solid sense for whether the industry is taking the steps necessary to understand and respond to this profound risk. Our fear is that climate change poses a fundamental threat to the long-term availability and affordability of insurance.”

Ehnes, who is also a former Colorado insurance commissioner, added, “This has tremendous implications for the economy and that is why we, as investors, are focusing so acutely on this sector.”

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