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How Green Was My Policy

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As the headlines over extreme weather conditions and the cost of natural disasters swell, some insurance companies are rising to the challenge. Recent news stories indicate that a number of groups feel there is more to be done, and the industry may not be keeping up as much as they would like.

In early January, blogger/reporter Marc Gunther, who writes about sustainability and business, questioned how prepared the insurance industry is for climate change, considering its tremendous potential for financial ruin.

In an article for, Gunther looked at insurers of last resort, such as the Citizens Property Insurance Program in Florida, which provides coverage for coastal development not covered by private insurance, and the National Flood Insurance Program, which offers coverage for such events as the flood devastation caused by Hurricane Irene in areas not normally prone to such phenomena. These programs, he says, are currently $20 billion in the red. Those are taxpayer-supported programs, he points out, and, as such, leave all of us on the hook when disasters occur. Further, he adds, the NFIP not only insures in areas where private coverage can be largely unavailable, meaning there is no way to share the risk as commercial insurers do, it also “causes environmental damage by externalizing the risk of building in ecologically sensitive floodplains.”

Such programs may provide protection to developers and homeowners in disaster-prone areas, he says, but at a cost to everyone that is basically unsustainable. Citing the opinion of Sean McGovern, general counsel and director of North America for Lloyds of London, Gunther quotes him saying last fall, “We don’t believe that the U.S. has the balance between industry and government intervention right. The cost to the U.S. taxpayer is huge and is not sustainable.”

While European reinsurers, Gunther wrote on his blog at, have been actively warning about the risks of climate change for the past several years, American companies have been largely silent, despite the record cost of natural disasters in 2011.

In 2009, the National Association of Insurance Commissioners (NAIC) announced that it would require insurance companies to complete a survey intended to indicate their potential exposure to climate change and any steps they might be taking to mitigate such exposure. (See “Out in the Open,” Investment Advisor, May 2009.) Originally, the survey was intended to be mandatory and public, but it was instead scaled back and made voluntary and confidential in 2010.

The commissioners for California, New York and Washington have joined together to require companies that write more than $300 million in direct premium to complete the survey, created by NAIC.

Dave Jones, California insurance commissioner, said on the Skoll Foundation blog, “The survey data will provide regulators with substantive information about the risks to insurers posed by climate change. The survey will also explore the actions insurers are taking in response to their understanding of climate change risks.” 

According to Andrew Logan, director of the insurance program at Boston-based Ceres, a nonprofit that works for climate change, the data obtained by the survey “are pretty basic. What the regulators are trying to get a sense of is whether companies have thought about the cost implications for their businesses.”

Mike Kreidler, the Washington insurance commissioner, said in the Skoll report, “Our job as regulators is to confirm that companies are adequately addressing the impact of climate change on their risk profiles and ensure that the public has access to insurance to cover these severe weather events. The data from this survey will give us a real time benchmark for how insurers are preparing for the impacts of climate change.”

Jones pointed out that investors could also benefit from the survey results, and Jack Ehnes, the chief executive of the California State Teachers’ Retirement System, agreed. “If we feel insurance or energy companies are not incorporating climate risk into their analyses and their boards of directors are not recognizing it, that failure to do so endangers the value of that investment,” Ehnes said. Rather than resulting in divestment, he continued, such a failure would result in “engagement” with such companies in an effort to make them better caretakers of their businesses. Ehnes is a former Colorado insurance commissioner.

[An earlier version of this article indicated CERES was the originator of the climate change survey; NAIC wrote the survey. The article has been updated with the correction.]


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