Washington, D.C. – From stepping up with renewable energy projects to incorporating futuristic underwriting models, the insurance industry must do more to address the growing impact of climate change-induced damages, according to a new report by World Wildlife Fund (WWF) and Munich-based global insurer Allianz Group.

The report, Climate Change and Insurance: An Agenda for Action in the United States, examines the latest scientific findings about climate change, including the impacts of forest fires, storms and floods, and the potential impact on the insurance industry and its customers.

“Global warming is the greatest environmental threat facing the world, and the people and animals that inhabit it," says Carter Roberts, President and CEO of WWF-US.

"The cost of doing nothing carries a price tag none of us can afford," he added. "The insurance industry has a vested interest in stepping up to the plate and being a part of the solution. Allianz has been a leader on this issue and we hope that the entire industry makes climate change a top priority.”

According to the report, climate change has the potential to significantly alter and intensify destructive weather patterns in the United States, leading to increased flooding, forest fires and storm damage. The most direct risk to the U.S. will likely come from hurricanes, which are expected to become more frequent and powerful.

Additionally, rising sea levels over the coming decades could inundate many US coastal cities and portions of some coastal states. Forest fires could become even more frequent and larger. These changes could make insurance unaffordable for customers in high-risk areas. In fact, insurance premiums in states vulnerable to hurricanes are already increasing, and in some cases, insurers are exiting these markets altogether.

Allianz and Washington-based WWF intend to engage the insurance industry, governments, regulators and others to better manage the risks associated with climate change, said the organizations.

“We need to better understand the effects of climate change and the changing environment for our customers,” says Clem Booth, member of the Board of Allianz AG, “but if we can find a way to provide insurance in the face of major changes, from the first transatlantic voyages to global terrorism, then we can find new ways to address climate change.”   One key recommendation for addressing the potentially adverse consequences of climate change in the U.S. is for both governments and insurance companies to help correct market distortions and communicate appropriate signals to homeowners, businesses and consumers moving into high-risk areas. The report points to the need by regulators to consider carefully the impact of programs, like the National Flood Insurance Program, which keep insurance rates artificially low. By masking the real price of risk, such policies encourage over-development in high-risk areas.

In addition, the report suggests U.S. insurers begin incorporating future potential climate change impacts, such as continued sea-level rise and longer fire seasons into planning, rather than relying only on historical data of past weather events.

The report also recommends that insurers influence land-use development and planning in high-risk areas. For example, conserving coastal mangroves provides a natural buffer from storms, surges and waves, while forest preservation can reduce mudslides.

Another way to minimize losses related to climate change is to promote storm-resistant and energy-efficient building materials, improved building codes, and better public education about their benefits.

“This emphasizes the win-win opportunity for customers presented by energy-efficient buildings that also incorporate state-of-the-art protection against wind damage, fire and water influx,” added Booth.

Fireman's Fund Insurance Company, a unit of Allianz AG , plans to introduce commercial insurance policies designed to support and encourage the development of "green" buildings that save energy and reduce emissions of greenhouse gases. One of the products will provide a discount to LEED (Leadership in Energy and Environmental Design) or Green Globes certified buildings.

A second commercial property product will upgrade customers to energy efficient or “green” products when replacing damaged items such as roofs, windows, equipment, lighting systems and hot water heaters. And, a third product will provide commissioning coverage to inspect systems such as HVAC after installation for proper installation and efficiency.

“Our new products will promote energy efficiency, resulting in a reduction of greenhouse gas pollution as well as cost savings for our customers," said Fireman’s Fund CEO Chuck Kavitsky.

"Energy-efficient construction can also help make buildings and homes more resilient, while double pane windows are less likely to shatter during fires,” he said. “A lot of building owners are concerned about climate change but don’t know what to do. Here’s one thing building owners can do that addresses more than their bottom line.”

In line with the report’s recommendations, Allianz is taking several actions to help develop solutions for its customers and the industry as a whole. These include investing $600 million in renewable energy projects over the next five years, introducing a new tool based on Google Earth in the U.S. to help customers better manage their exposure to natural catastrophes, and cutting its own greenhouse gas emission by 20% by 2012. Allianz is also planning to begin developing new products that address global warming and will start researching ways to integrate the anticipated potential future impacts of climate change into its risk models.

Source: World Wildlife Fund, Allianz Group


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