The present and future crisis of climate change, already driving up insurance losses, threatens investment portfolios as well. Insurance companies have been described as a combination of risk spreader and mutual fund. As such, they face a compound exposure. First, from increased losses due to stronger and less predictable windstorms, wildfires and floods. Second, due to the coming decline in value of investments in companies unprepared for the change in climate or regulatory response.
Joel Lang, in "The Insurance Industry is Feeling the Heat of Global Warming," Hartford Courant, Northeast Magazine (July 9, 2006) provides a concise briefing on the responses of leading insurance giants and public investment managers, including Lloyds of London, Marsh, Inc., American International Group (AIG), Risk Management Services (RMS), the investment coalition Ceres and the State of Connecticut's Treasurer Denise Nappier.
Ceres, an investor coalition formed to promote environmentally responsible corporate actions, offers Ceres Publications that include Availability and Affordability of Insurance Under Climate Change: A Growing Challenge for the U.S. (Dec. 2005), which includes a postscript on Hurricane Katrina.
One of its authors, Even Mills of the U.S. Department of Energy, wrote "Insurance in a Climate of Change," (Science, 12 August 2005), in which he described the $3.2 trillion insurance industry as a "lightning rod" for disruptions to the global economy.
Ceres manages INCR, Investor Network on Climate Risk, of which the State of Connecticut is a member. State Treasurer Denise Nappier, fiduciary of $23 billion in Connecticut retirement and trust funds, is one of the INCR participants pushing for greater disclosure of climate change risks by publicly held companies. INCR News - "$1 Trillion of Investors Call on SEC To Require Corporate Disclosure on Financial Risks of Climate Change" (June 14, 2006).
At Marsh, Inc.'s resource page on climate change, it offers a Risk Alert - Marsh - "Climate Change: Business Risks and Solutions" - that looks at the complex global issue from a risk management perspective. (free download, online registration required). Marsh affiliate NERA Economic Consulting provides additional information on the economic impact of climate change. NERA Economic Consulting | Focus Area.
Lang's article quotes AIG's policy statement accepting the reality of human-driven climate change: "AIG recognizes the scientific consensus that climate change is a reality and is likely in large part the result of human activities that have led to increasing concentrations of greenhouse gases in the earth's atmosphere." AIG’s Policy and Programs on Environment and Climate Change
Lloyd's of London, an important source of reinsurance and catastrophe insurance, has warned insurers in a May 6, 2006 press release that they "must act now to understand and actively manage risks from emerging threats such as greenhouse gases and rising sea levels. With recent scientific evidence suggesting that climate change is happening faster than previously thought, investment in research and a change in industry behaviour is long overdue." The warning is in Lloyd's report "Climate Change: Adapt or Bust".
At a June, 2006 conference, the National Association of Insurance Commissioners (NAIC) resolved to ask Congress to create a Natural Catastrophe Preparedness Commission. 2006 Amended Resolution in Support of a Comprehensive Legislative Solution To The Problems Presented by Natural Catastrophic Exposures For the Benefit of All Americans
Posted by dougsimpson at July 9, 2006 12:31 PM