Climate Risks Rise, Reinsurance Companies Take Notice
Posted on Thursday, April 05, 2012
By Steve Schueth
With most of the country experiencing a very short and extremely mild winter this year, even skeptics may be wondering whether the climate scientists have got it right.
But you can bet that insurance companies are adjusting their risk calculations. Extreme weather events in 2011 resulted in a record 99 federal disaster declarations and the U.S. property and casualty insurance industry suffered an extraordinary $44 billion in catastrophe-related losses last year.
At a Capitol Hill press conference on March 1, 2012, members of the reinsurance industry-defined by the Reinsurance Association of America (RAA) as "insurance for insurance companies"-called for meaningful action by policymakers to address the reality of climate change.
"Demographics and coastal urbanization are catastrophic force multipliers making weather events increasingly more costly," said Pete Thomas, Chief Risk Officer at Willis Re.
Why Have U.S. Insurers Been So Quiet?
If there's one industry that ought to be concerned about the threat of global warming, it's the insurance industry. When extreme weather causes damage, they pay.
Dave Jones, California's insurance commissioner, put it this way: "Climate change is an obvious physical threat to us all, but increasingly it also poses a serious financial threat to the insurance industry."
So, one might expect insurance companies to be calling for regulation of greenhouse gas emissions-to slow and maybe, eventually reverse global warming. And it would also be reasonable to expect insurance companies to steer some of their massive investment assets to clean energy or energy efficiency projects. But no, on both counts.
Insurance companies are all about risk, but unlike the big European reinsurance companies, insurance companies in the U.S. appear to be unwilling to risk speaking out about climate risks.
Of course, it's a heavily politicized issue, and insurance companies may see no gain in talking about a topic that many consumers are confused about and, in some instances, downright hostile to.
But more importantly, it should be understood that property/casualty companies write liability coverage for corporations that are being sued, or likely to be sued over climate related damages (e.g. oil and coal companies). It's likely that they will find themselves in court arguing that climate change isn't really causing all those damages.