Ceres on Katrina, insurance, and weather-related risk
Ceres, the "national network of investment funds, environmental organizations and other public interest groups working to advance environmental stewardship on the part of businesses," has just released a report on the enormous challenge to the insurance industry represented by escalating weather-related losses. You can read the executive summary here and the full report here (PDF).
Yet, despite these rising insurance risks, climate change has received little attention to date from U.S. insurers, regulators and governments. Among the problem areas highlighted in the report:
- Only a small fraction of U.S. insurance companies have seriously examined the business implications of climate change and fewer still work closely with climate scientists or present their analyses publicly.
- Insurers and regulators currently do not have a comprehensive capacity to assess the cumulative weather-related risks from both catastrophic events and the growing number of small-scale events.
- The U.S. government’s full financial exposure from insurance programs (flood, multi-crop insurance etc), disaster relief and other forms of weather-related assistance has never been assessed.
The report recommends the following actions, among others:
Insurers need to: collect more complete data on weather-related losses; incorporate climate modeling into their risk analyses; analyze the implications of climate change on their business and investments and share the results with shareholders; and encourage policy action to reduce greenhouse gas emissions.
Regulators need to: include climate risks in company solvency and consumer-impact analysis; review the “standards of insurability” to identify new challenges, including climate-related hazards in the US and abroad; encourage insurers to collect more comprehensive data on losses; elevate standards for catastrophe modeling; and assess exposure of insurer investments and adequacy of capital and surplus to extreme weather events.
Government needs to: foster and participate in public-private partnership for insurance risk spreading; comprehensively assess the government’s overall financial exposure to weather disasters; reduce vulnerability to disaster losses through improved early warning systems, land use planning and other measures; and take policy action to reduce greenhouse gas emissions.