The Insurance Industry and Climate Change. Nancy D. Israel, Ceres Cape Cod and Islands Climate and Energy Conference September 24, 2013

Transcription

1 The Insurance Industry and Climate Change Nancy D. Israel, Ceres Cape Cod and Islands Climate and Energy Conference September 24,

2 Topics Introduction of Ceres Insurers Are One Prong of Climate Safety; Could Be Leaders Weather Catastrophe Costs Are Rising, Both Insured and Uninsured Insurance Sector Sees Climate Change Risk But Could Do More Resources 1

3 Ceres mobilizes business and investor leadership to build a thriving, sustainable global economy Investor Network 101 members currently representing more than $12 trillion AUM The Ceres Coalition More than 130 organizations including environmental experts, public interest groups, and investors. Company Network More than 75 members in more than 20 sectors

4 Topics Introduction of Ceres Insurers Are One Prong of Climate Safety; Could Be Leaders Weather Catastrophe Costs Are Rising, Both Insured and Uninsured Insurance Sector Sees Climate Change Risk But Could Do More Resources 3

5 Insurers, government, individuals, and businesses all have a clear incentive to reduce and prevent extreme weather damages Climate Resiliency Framework Prep-paid paid in the form of Premiums Private Insurers Public Insurers (NFIP) Risk Reduction Infrastructure, Emergency Planning Risk Prevention Building codes, Land use planning Ad Hoc Costs to Taxpayers/Individuals Disaster Relief Appropriations Individuals & Businesses (self-pay) Prevention investments such that for every $1 spent, $4 are saved in damages Prevention policies that reduce the cost of resiliency investments Reconstruction n Prevention

6 Ceres promotes six steps insurance companies can take to become leaders on climate safety PLAN FOR THE FUTURE, NOT THE PAST BUILD COMMUNITIES TO LAST PROMOTE POLICIES THAT REDUCE CARBON POLLUTION DESIGN CLIMATE-CONSCIOUS PRODUCTS & INCENTIVES INVEST TO MANAGE CLIMATE RISKS REPORT ON ACTIONS TO COMFRONT CLIMATE CHANGE 5

7 Topics Introduction of Ceres Insurers Are One Prong of Climate Safety; Could Be Leaders Weather Catastrophe Costs Are Rising, Both Insured and Uninsured Insurance Sector Sees Climate Change Risk But Could Do More Resources 6

8 No area of the U.S. is immune from extreme weather 15% of U.S. population was affected by Sandy 80% of land mass of contiguous U.S. was affected by 2012 drought 33% of U.S. population had 100 temperatures for 10 days or more in extreme weather events across U.S. in 2012 caused over $1 billion in damage each Sources: Insurance Information Institute, NOAA, Congressional Research Service 7

9 Extreme Weather Nationwide Losses from Extreme Weather Disasters, (Loss figures are estimated economic losses unless otherwise noted) Source: Ceres based on public data 8

10 Insured weather catastrophe losses have increased in size and frequency over the past two decades Insured Catastrophe Losses, Source: Swiss Re, Sigma Natural and Manmade Catastrophes

11 U.S. Natural Catastrophes Uninsured and Insured Losses Rise, US$B 2012 experienced the second highest overall losses in over 30 years (constant dollars) Continues the trend of increasing costs of natural catastrophes Source: MunichRe NATCAT Service 10

12 The Coasts Are a Particular Challenge for Insurers 11

13 Coastal population is growing: 39% of U.S. lived on shoreline in 2010 Shoreline population projected to be 133 million by 2020 Image source: Shutterstock; Data source: ; Data source: NOAA, State of the Coast 12

14 Coastal property exposures are increasing 16% of the total insured residential and commercial properties in the US are along the Gulf and Atlantic Coasts NYC is riskiest or 2d riskiest city in world for coastal property value at risk of flooding $2 trillion AIR Worldwide projects that the value of insured coastal properties, currently $10 trillion, will double every 10 years Sources: Mark Fischetti, Storm of the Century *Every Two Years*, Scientific American, June 2013; AIR Worldwide, The Coastline at Risk: 2013 Update to the Estimated Insured Value of U.S. Coastal Properties

15 Atlantic Coast is Hot Spot for Sea Level Rise Sea level along the Atlantic Coast from Massachusetts to North Carolina is rising 3 to 4 times faster than the global average Image from Sallenger, etal; Used in Northeastern U.S. Coast Is Hot Spot for Sea-Level Rise, Wynne Parry, LiveScience, June 25, 2012: Increasingly red circles indicated locations where increases in sea level have been largest from 1950 to Researchers found a 'hotspot' of increased rates of sea-level rise from north of Boston, Mass., south to Cape Hatteras, N.C.

16 What this means for insurers: The past is not the guide to the future Companies looking to make better business decisions and manage their catastrophe risk more effectively simply cannot rely on scarce historical loss data to project future losses. Case in point: if Hurricane Andrew were to recur today, it would cost insurers nearly $60 billion. Source: AIR Worldwide, About Catastrophe Modeling

17 Topics Introduction of Ceres Insurers Are One Prong of Climate Safety; Could Be Leaders Weather Catastrophe Costs Are Rising, Both Insured and Uninsured Insurance Sector Sees Climate Change Risk But Could Do More Resources 16

18 Insurers are recognizing (cautiously) that climate change has major implications Global climate change is the top risk management issue of the moment. Joe Plumeri, Chairman and CEO, Willis Group Holdings The insurance industry continues to be tested as catastrophic weather events have recently become more common and more severe. A.M. Best Company Whether it s global warming/climate change, I think as an industry we have to assume this is a new normal and we ll run our business consistent with that. Liam McGee, CEO, The Hartford 17

19 Many companies openly acknowledge climate change risks (annual reports and 10K filings) We cannot predict how legal, regulatory and/or social responses to concerns around global climate change may impact our business. Climate change could impact the frequency or severity of weather events and wildfires Climate change may have a material adverse effect on our results of operation and financial condition. we are well aware that climate change could result in a range of compound risks and opportunities that affect our entire business. We analyze the potential impact of global climate change, that may affect our ability to manage our exposure under the insurance policies we issue as well as the impact that laws and regulations intended to combat climate change may have on us.

20 However, far fewer insurers articulate a clear position on climate change (annual reports) AXA s position regarding climate change is not only to adapt, but to provide solutions. AXA is committed to reducing its direct impact on the environment as well as carbon emissions... AXA is also conscious of the role it can play in promoting environmental protection awareness and committing to address climate change. Allianz is committed to supporting the development of a low-carbon economy. The Hartford Financial Services Group Inc. recognizes the clear consensus within the scientific community that climate change is real and an increasing concern We are committed to understanding, managing and mitigating the risks associated with global climate change. We are committed to leading the debate on climate change and participating in forums...

21 Despite broad awareness of climate change threats, most insurers could be better prepared Ceres Scores of Companies from 2012 Climate Change Survey Maximum Score = 50 points Results from 2012 Climate Risk Disclosure Survey 20

22 Innovative Ways Insurers Are or Could Confront Extreme Weather and Climate Change 21

23 Insurers are partnering with a variety of national organizations to better understand risk and help policy makers Building Science One of a kind research lab Researching construction techniques to reduce loss costs Residential & Commercial Insurance Companies NFIP Reform Advocate Advocate for National Flood Insurance Program reform Seek policies, such as tax incentives, that promote resiliency Risk-priced insurance Practical Application Practical application of building science from IBHS Building FORTIFIED homes in costal areas with Travelers grant money Economic Analysis Financial analysis of the cost benefit of stronger building codes Third party analysis with prominent higher learning institution with internal risk management department Building Code Advocate Public policy advocate of stronger building codes Advocating minimum statewide codes Stronger codes lead to reduced loss costs 22

24 Innovative Building Climate Resiliency Workshops Boston Workshop May 2012 San Diego Workshop March 2013 Infrastructure Providers Property Owners Catalyzing Local Climate Stakeholders Local Authorities Resiliency Developers Toronto Workshop June 2013 Insurers Re-Insurers Economic enablers/ influencers Risk Managers Brokers 23

25 Best ideas for how the insurance sector could collaborate with local stakeholders on climate risk preparedness and reduction Improvements to Resiliency at the Single Entity or Single Infrastructure Element Level: Actions that local government, insurers and other stakeholders could take now, at a single entity or single infrastructure element level, to help adapt a city s businesses, residents and infrastructure to climate change stresses New Approaches to Resiliency at the Community Level: Innovative approaches to managing the stresses of climate change that go beyond single entities could help close the gaps and make a city more resilient, and thus insurable, over the long-term 24

26 Climate Change Is an Economic Opportunity for Insurers Expanded private flood insurance in the US?: Flood is definitely insurable (Swiss Re Head of Flood Risk) Innovative products: Pay-As-You-Drive Insurance (Allstate, State Farm, Progressive) Investments in resiliency: $1 spent for prevention saves $4 in disaster costs and costs of claims Sources: Webcast Transcript: The State of Flood Insurance in the U.S., Best s Review (Jens Melhorn); FEMA Press Release Number citing study by the Multihazard Mitigation Council of the National Institute of Building Sciences 25

27 Topics Introduction of Ceres Insurers Are One Prong of Climate Safety; Could Be Leaders Weather Catastrophe Costs Are Rising, Both Insured and Uninsured Sector Sees Climate Change Risk But Could Do More Resources 26

28 Useful Ceres Resources Ceres, Stormy Future for U.S. Property/Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events Ceres, Insurer Climate Risk Disclosure Survey Ceres, The 21 st Century Investor: Ceres Blueprint for Sustainable Investing, 27

29 Other Useful Resources NOAA National Climactic Data Center, Extreme Events, NOAA, Digital Coast MunichRe, NatCatService Insurance Institute for Business and Home Safety, 28

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31 Thank You! Nancy D. Israel Ceres Senior Manager, Insurance Program 30