Earth to the Earthly: Global temperatures are rising and threatening both commerce and the ecology -- a message that climate scientists want to convey on this Earth Day 2016. And they have an uncommon but strong ally: the insurance industry, which doesn’t want to get stuck with the bill.
Uncommon weather events are occurring with increasing frequency and are causing an enormous human toll and economic hardship. The marketplace has become the first-responders here, sidestepping a congressional stalemate. As such, insurers are pricing climate change risks into their policies while businesses are taking either mandatory or voluntary steps to cut their emissions.
Today, at least 150 dignitaries will meet at the United Nations to sign a global climate treaty agreed to last December in Paris -- an effort that will try to keep temperatures from rising more than 2 degrees Celsius by mid century. That will be a tough task, not just because climate scientists say that 2016 could be the hottest on record since such records were first kept -- the first three months have already registered as such -- but also because the developing world needs to, well, develop.
Insurers have a huge stake in the outcome. After all, they will likely be the ones to pay for the associated property damages from things like rising tides and eroding beaches. They have made efforts to get out their point of view but by-and-large, it’s not as concerted as that of other hell-bound interest groups.
“The heavy losses caused by weather-related natural catastrophes in the USA showed that greater loss-prevention efforts are needed,” says Munich Re board member Torsen Jeworrek. He says that the United States suffered $400 billion in weather-related damages in 2011 and insured losses of $119 billion, which were record amounts.
Insurers, meantime, are now pricing those risks into their policies. Munich Re and Swiss Re are among the major providers that actuarially measure climate hazards.
Consider: In 2011, 14 major weather events occurred costing at least $1 billion each, says the National Oceanic Atmospheric Administration. Superstorm Sandy alone was $20 billion. Droughts, earthquakes, floods, tornadoes, thunderstorms and wildfires are active and having widespread effects. In 2012, losses were well above the 10-year averages at $165 billion total, of which insurers paid $50 billion.
Meantime, Standard & Poor’s Ratings Services has issued a report saying that the credit ratings of sovereign countries would be affected by global warming. It pointed to Typhoon Haiyan in the Philippines, heavy flooding in Great Britain and the record cold temperatures this past winter in the United States, all of which caused economic damages and disrupted business practices.
But it adds that the developing nations in Africa and Asia are most at risk, namely because they are low-lying regions that are heavily reliant on farming and agriculture. At the same time, they are not in a financial position to handle catastrophic events.
“Climate change is likely to be one of the global mega-trends impacting sovereign creditworthiness, in most cases negatively,” says S&P, in its report. It’s a view generally supported by Lloyd’s of London, which has said that climate-associated risks must be considered when underwriting policies.
While the national governments are meeting in New York today, their representatives will convey that it is cheaper to address global warming now than it will be at some date in the future, after the damage has been done. To that end, insurers have a huge role, as does industry, which can employ the latest and greatest technologies to use energy more efficiently.
Ken Silverstein is editor-in-chief of Business Sector Media, publisher of Environmental Leader and Energy Manager Today.
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