Few insurers ready to manage climate change risks, opportunities
There is broad consensus among insurers that climate change will have an effect on extreme weather events and, in turn, their businesses but according to a new report from Ceres, few insurers are able to articulate a coherent plan to manage the risks and opportunities associated with climate change.
The report, “Climate Risk Disclosure by Insurers: Evaluating Insurer Responses to the NAIC Climate Disclosure Survey” examined what 88 leading U.S. insurers are saying and doing about climate change in public filings with state insurance commissioners – and the extent to which they are factoring it into their business models.
“The findings are both illuminating and disillusioning,” Ceres President Mindy Lubber wrote in the report’s foreword.
Only 11 of the 88 insurers said they have formal policies in place to deal with growing climate change risks. Most insurers surveyed tended to focus on the coastal impacts of climate change, but recent events and expert analyses have shown that climate risks extend inland as well. Ceres noted that the National Weather Service said before a single hurricane made landfall this year, the United States had already tied its yearly record for billion-dollar weather disasters and the cumulative tab from floods, tornadoes and heat waves has eclipsed $35 billion.
The Ceres report also found that U.S. insurers’ perceptions about and responses to climate change vary significantly by segment and size, suggesting the potential for significant market dislocations and potential contraction as insurers with less capacity to identify and manage climate risks experience excessive capital losses. However, when it comes to catastrophe modeling, most insurers that employ them do not have a clear understanding of how models can or cannot be used to anticipate changing risk.
“These developments clearly point to a business model that must change,” said Sharlene Leurig, a senior manager of Ceres’ insurance program who authored the report. “The report paints a picture of an industry that, outside of a handful of the largest insurers, is taking only marginal steps to address an issue that poses clear threats to the industry’s financial health, as well as to the availability and affordability of insurance for consumers.”
The complete report is available online here.
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