Insurers are Learning to Adapt to Climate Change

A new study receiving attention in science journals claims the insurance industry is beginning to expand its efforts to accommodate for climate change.

"Weather- and climate-related insurance losses today average $50 billion a year. These losses have more than doubled each decade since the 1980s, adjusted for inflation," says the study's author Evan Mills, a scientist in Lawrence Berkeley National Laboratory (Berkeley Lab)'s Environmental Energy Technologies Division. "Insurers have become quite adept at quantifying and managing the risks of climate change, and using their market presence to drive broader societal efforts at mitigation and adaptation."

Internally, insurers, catastrophe-loss modelers and partners in the research community have been using analytics to quantify and diversify their exposure to climate change risk, more accurately price and communicate risk, and get adaptation and loss-prevention efforts up and running, according to the study.

The report points to Hurricane Sandy as only the most recent U.S. example of the kinds of increasing liabilities posed by severe weather events in a changing climate.

According to the report, the insurance industry has become a significant voice in world policy forums addressing the issue, as well as a market force, investing at least $23 billion in emissions-reduction technologies, securities and financing. In addition, the study notes $5 billion in funds with environmental screens, seeing risks to investments in polluting industries and opportunities in being part of the clean-tech revolution.

"Insurers from North America, Asia, and Europe worked with scientists through the three latest Intergovernmental Panel on Climate Change assessments dating back to the mid ’90s to better understand their exposure to climate change risk," Mills said. "They expanded these collaborations into such projects as harmonizing economics-based insurer catastrophe models with climate models."

According to the study, 1,148 climate change adaptation and mitigation activities have emerged from 378 entities in 51 countries, representing $2 trillion (44 percent) of industry revenue. For example, 130 insurer products and services encouraging the spread of more energy-efficient homes and commercial buildings by paying claims that encourage rebuilding to a higher level of energy efficiency after a loss.

A new study receiving attention in science journals claims the insurance industry is beginning to expand its efforts to accommodate for climate change.

"Weather- and climate-related insurance losses today average $50 billion a year. These losses have more than doubled each decade since the 1980s, adjusted for inflation," says the study's author Evan Mills, a scientist in Lawrence Berkeley National Laboratory (Berkeley Lab)'s Environmental Energy Technologies Division. "Insurers have become quite adept at quantifying and managing the risks of climate change, and using their market presence to drive broader societal efforts at mitigation and adaptation."

Internally, insurers, catastrophe-loss modelers and partners in the research community have been using analytics to quantify and diversify their exposure to climate change risk, more accurately price and communicate risk, and get adaptation and loss-prevention efforts up and running, according to the study.

The report points to Hurricane Sandy as only the most recent U.S. example of the kinds of increasing liabilities posed by severe weather events in a changing climate.

Many insurers even have programs to reduce their own greenhouse gas emissions and purchase offsets, and 26 claim they have reached carbon-neutrality, according to Mills. A creative example is the mangrove restoration by Tokio Marine and Nichido Insurance Co. taking place in India and Southeast Asian countries. Begun in 1999, this project is close to reaching its goal of restoring more than 20,000 acres of mangrove forests in coastal areas of seven countries.

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