A report issued today by
The report, “Climate Risk Disclosure by Insurers: Evaluating Insurer Responses to the NAIC Climate Disclosure Survey,” analyzes what leading U.S. insurance companies are saying about climate change in public filings with state insurance commissioners, and the extent to which the companies are factoring climate risks into their governance practices, management strategies and day-to-day decision making.
The findings are “illuminating and disillusioning,” notes the report: While the NAIC survey revealed a broad consensus among insurers that climate change will have an effect on extreme weather events, only 11 of the 88 companies reported having formal climate risk management policies in place, and more than 60 percent of the respondents reported having no dedicated management approach for assessing climate risk.
The report says the insurance industry’s “sluggish and uneven response” to the ever-increasing ripples from global climate change “could undermine both its own financial viability and the stability of the larger global economy.”
Ceres holds that its 2005 report, “Availability and Affordability of Insurance Under Climate Change,” served as the catalyst for the NAIC to focus on the issue, and in early 2009, the NAIC unanimously approved a mandatory climate risk disclosure standard for insurers.
Although only 11 of the 88 companies reported having formal climate change policies, more than three-quarters of insurers responding to the survey named perils that may be affected by climate change. More than half of the respondents named market segments, such as homeowners or marine insurance, which may be affected by climate change. And a third of insurers named climate-affected geographies. Even those insurers with no formal climate policy, no climate risk management structure and a stated belief that the company is not vulnerable to the effects of climate change still named perils that may be affected by climate change 20 percent of the time.
The survey did find that U.S. insurer’s perceptions about and responses to climate change varied by segment and size. “Some of the largest players in the industry—particularly in property and reinsurance—are investing considerable resources into understanding the risks and developing strategies that may drive more climate-resilient underwriting practices and capital decisions. Seven of the 11 companies that report having formal climate policies are multi-line insurers (those with diverse business, including life and health in addition to property/casualty) and one is a global reinsurer, most with annual premiums well above $1 billion. Only two life insurers, Prudential Insurance Co. of America and Genworth Life Insurance Co. of New York, report having a formal climate policy,” notes the report.
None of the 18 property/casualty companies surveyed have formal climate change policies or explicit board or executive oversight of this key issue.
Ceres notes that the industry appears to be largely focused on the implications of climate change for hurricanes and other coastal events, rather than looking at the effects of rising temperatures on smaller, non-modeled events, such as floods, droughts, snowstorms, hailstorms and tornadoes, even though those costs are seen as cutting into insurer profitability.
Further, the majority of insurers that reported using catastrophe models described them in the survey in terms that “suggest their company does not have a clear understanding of how the models can or cannot be used to anticipate changing risk,” notes the report.
The report’s analysis also revealed that only a few insurers have explicit investment policies in place for managing climate change. These exceptions include
“Without explicit education and dialogue between reinsurers, modelers, brokers and primaries, the gulf between the most sophisticated insurers and the rest of the industry in terms of the capacity to anticipate nonlinear climate change trends will persist,” notes the report’s author, Sharlene Leurig.
The report offers specific steps insurers can take to address the climate change/risk management issue.
Leurig stresses that action is needed now, calling on regulators and insurers to support mandatory, annual, publicly available climate disclosure. “Insurers must do more—as individual companies and collaboratively with their peers—to elevate research efforts on climate-related ripple effects and necessary responses across the industry,” says Leurig in the report.
