Insurance in a Climate of Change: Q&A

Q&A

Last updated: February 1, 2007

Why focus on insurance?
When parts of the insurance industry identified climate change as a risk in the early '90s, what was the general reaction of the rest of the industry?
How relevant are weather-related natural disasters for insurers, and is there any evidence that the situation is worsening?
What should I make of those charts of "normalized" hurricane losses that don't indicate any upward trend?
The link to property insurance seems clear, but what about liability insurance?
What is the significance of insurance companies identifying global warming as a problem, versus just focusing on extreme weather events as the problem?
Since people are increasingly moving into harm's way, do marginal increases in damages from tropical cyclones and hurricanes due to climate change even "matter"?
What impact will Hurricane Katrina have on this issue?
How would you describe the insurance industry's stance on the scientific evidence for global warming?
How will climate change affect the average consumer trying to purchase homeowners or car insurance?
What do the insurance regulators think about the issue?
How has American insurance companies' response to climate change differed from European companies'?
Are insurers simply fomenting fear about climate change in order to sell more of their product or raise prices?
What can consumers do?
Is there any good news in all of this?

Why focus on insurance?

Insurers are an important part of society's climate observing system, integrators of the costs of weather-related hazards, and messengers of the implications through their pricing and terms. Insurance is integral to economic development, the financial cohesion of markets, and peace of mind for many individuals. It also can be an agent of preparedness and recovery, essentially a component of society's adaptive capacity. Insurance is also interesting in the broader political discussion insofar as it represents a big industry—in fact the world's largest industry—that, unlike some others, sees climate change as a threat to its bottom line and sees action as being less costly than inaction. Insurer's interest in the issue shows that environmental concerns are often synonymous with business concerns, which provides an interesting counterpoint to other industries who assert that addressing cliamte change would be bad for business.

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When parts of the insurance industry identified climate change as a risk in the early '90s, what was the general reaction of the rest of the industry?

Actually, the issue was first publicly "flagged" by Munich Re way back in 1973. At any rate, Swiss Re and Munich Re are highly respected by their peers in the industry and are often looked to as sentinels for upcoming issues.

The insurers who became sensitized to the issue did various things, ranging from incorporating more sophisticated climatological research into their business practice to engaging in the public policy discussion. Munich Re, for example, built a geosciences group with several dozen people in it. Climate change is one of the core issues they work on. The industry has made a significant investment in improving their catastrophe models (or outside funded consultants to do so) yet they are still overly based on using the past to project the future — an insufficient methodology in a world with a changing climate.

By the mid-1990s, about 80 insurers from 25 countries (from North America to Europe to Asia to Africa to Australia — even a few American companies) had banded together to form the UNEP Insurance Industry Initiative, under the auspices of the United Nations Environment Program. As cosigners of a statement of environmental commitment, these companies routinely participate in the "Conference of the Parties (COP)" meetings concerning international negotiations on climate change, publish various reports, and work to introduce sustainable corporate management practices within their own companies.

These activities are notable in that people typically assume that big industry will always come down on the other side of this issue, i.e. saying that doing anything to prevent climate change would be bad for business and for the broader economy. The global industry is three-times larger than the oil industry and four times larger than the combined global military budget, and so is truly a BIG business. In fairness, it should also be pointed out that there are many thousands of insurance companies around the world, so, while those convened under UNEP include some of the largest companies from each continent, many insurers have yet to lift up their heads and look squarely at the problem.

The problem is palpable. Corrected for inflation, the average annual catastrophe losses from weather-related events were on the order of 1 billion dollars a year in the 1960s and then rose to almost $15 billion in 1990s. The year 2004 saw $35 billion, and 2005 will easily double that value. (In an average year, total economic losses—insured plus uninsured—are five-times these numbers.) Our chapter [PDF] in the Intergovernmental Panel on Climate Change (IPCC) Third Assessment report concluded that large events represent only about half the true level, since many statistical bodies exclude many "small" events. For example, the official industry stats in the U.S. only count events generating more than $25 million in insured losses. Of course, disentangling the effects of human activity from natural variability is extremely difficult, and insurers and the broader scientific community need to invest more effort in that important enterprise. People often forget that these human effects go in both directions; climate change will push losses up but the Herculean efforts we've been making at improving building codes, early warning systems, and the like should also be holding the losses down.

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How relevant are weather-related natural disasters for insurers, and is there any evidence that the situation is worsening?

Globally, we are seeing about $80 billion/year in weather-related economic losses, of which $20 billion (about a quarter) are insured. This is like a "9/11" every year. Weather-related losses represent about 90% of all natural disaster losses, and the data I just cited do not include an enormous amount of aggregate losses from small-scale or gradual, non-catastrophic events (e.g., lightning, soil subsidence, gradual sea-level rise).

Inflation-adjusted economic losses from catastrophic events rose by 8-fold between the 1960s and 1990s and insured losses by 17-fold. Losses are increasing faster than insurance premiums. The insured share of total losses has increased dramatically in recent decades, and variability is increasing (a key trouble sign for risk-wary insurers). Weather-related catastrophes have clearly visible adverse effects on insurance prices, and availability. Of particular concern are the so-called "emerging markets" (developing countries and economies in transition", which already have $375 billion per year in insurance premiums (about 12% of the global market at present, but rising). They are significantly more vulnerable to climate change than are industrialized countries. Emerging markets are the center of growth for the industry, yet they are also the center of vulnerability.

Increased exposures are surely influenced—and no doubt heavily in some areas—by rising demographic and socioeconomic exposures. Yet, the rise in losses has outpaced population, economic growth, and insurance penetration. The science of "attribution analysis" is still in primitive stages, and thus we cannot yet quantify the relative roles of global climate change and terrestrial human activities. Some have prematurely jumped to the conclusion [PDF] that demographic trends explain the entire rise in observed losses. In the year 2005, three independent refereed scientific articles drew linkages between hurricane trends and climate change.

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What should I make of those charts of "normalized" U.S. hurricane losses that don't indicate any upward trend?

This is an example of how some parties cherry-pick the data. Only 5% of global cyclonic storms occur in the North Atlantic — so it's not statistically possible (according to Kerry Emanuel) to discern trends — there are too few datapoints. This is why Emanuel as well as Webster et al. work with global data sets when they analyze what's happening with these storms. Also, economic damages are a poor proxy for what's happening because most storms don't make landfall and only some of those that do will do so in areas with valuable real estate. Any time-trend analysis should also normalize for the fact that humans have made non-trivial efforts to improve building codes and disaster preparedness/recovery (far from perfection, of course, but better than 100 years ago I suppose). The "normalized" charts I've seen include only the US, just landfalls, and offer no normalization for improved resilience. Factors applying in debates over whether or not we're yet seeing risking hurricane losses tend to fall by the wayside when we talk about climate change in a warmer world.

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The link to property insurance seems clear, but what about liability insurance?

The problem extends beyond property insurance. The specter of liability claims [PDF] is now coming to the fore.

This is happening in parallel with a groundswell of interest from the legal community, indicated by a flurry of symposia in recent months including Stanford Law School, UCLA School of Law, and UC Berkeley School of Law, plus private-industry meetings such as that held by Lexis-Nexus Mealey's in San Francisco this June.

The primary lines likely to be effected are general liability, product liability, environmental liability, vehicle liability (roadway accidents), political risk, and professional liability (e.g. D&O). Liabilities will also arise from the choices of technologies and strategies for combating climate change: consider the different risk profiles of efficient light bulbs and nuclear power plants. There will of course be insured defense costs in most cases, irrespective of which way the decisions go. As a highly weather-sensitive industry, insurers themselves will not be immune from liability claims from customers, shareholders, and others.

It is notable that liability claims can arrive sooner than those due to the property-related claims from longer-term changing extreme weather events, e.g. if the costs or disruptions caused by prudent efforts to prepare for and adapt to future events become regarded as third-party damages. In the absence of regulations, companies are vulnerable to all kinds of interpretations of what are reasonable or safe levels of greenhouse-gas emissions. Meanwhile, as the science on the impacts becomes increasingly solid, the standard of care will increasingly call for consideration of climate risks. The scientific community first flagged the issue in the late 1800s, and insurers first publicly flagged it in the early 1970s.

There will be a variety of triggers for D&O claims. These will tend to stem from instances where plaintiffs perceive that corporate leaders do not adequately protect shareholder value in advance of climate change. Triggers could include failures to disclose predict or disclose liabilities, loss of revenues or market share, stock price drops, bad faith, trespass, misrepresentation, reputational damage, or even business opportunities missed in the clean-tech wave. Shareholders of weather-sensitive companies (e.g. agriculture) could be affected just as much as those of polluting companies.

A closely related insurance line will be Public Service D&O insurance, e.g. insurance carried by local government officials. I recently spoke to an audience of over 150 mayors from throughout Connecticut who where concerned about the various ways in which they could be impacted by climate change. It is just as incumbent upon them as it is upon private-sector executives to be proactive in planning for and minimizing the costs climate change.

We haven't yet seen contract language changed, although there have been rumblings ... most notably Swiss Re's requests to some direct D&O customers for disclosure of climate change activities and exposures. This will probably impact all three of the classic D&O insuring agreements: "Side A" where the company does not indemnify its officers and directors, "Side B" where the company does indemnify, and "Side C" entity coverage for securities violations. One can imagine a raft of potential exclusions and potential rescissions, depending on contract language.

Meanwhile, insurers and brokers are beginning to look at offering new services to help with managing these emerging risks. This is an excellent role for them to play. As an example Marsh, Yale, and Ceres have launched a collaborative effort to educate hundreds of independent corporate board members about the potential liabilities and strategic business opportunities global climate change can create for companies. Dozens of insurers are participating in the Carbon Disclosure Project, and some are encouraging their customers to do so.

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What is the significance of insurance companies identifying global warming as a problem, versus just focusing on extreme weather events as the problem?

It's significant in that it recognizes that the future may be different than the past, which is a departure from the way insurers understand many of the everyday risks they deal with. This is no small point, as insurers must anticipate and financially prepare for losses in advance of their occurrence. It also opens up the notion that insurers can play a role in the most profound type of risk management. They can actually stem rising losses by helping society address a root cause — in this case climate change.

There certainly are two major ways to approach risks: reactive and proactive. Insurers do both. Examples of the former include things like raising rates, withdrawing from certain exposures (like areas where hurricane risks are high, or from an entire category of loss such as household flood or certain crop risks), and shifting risks to governments as insurers of last resort Proactive measures include such things as improved building codes and more sensible land-use planning.

I don't think being proactive is a radically new way for insurers to approach these kinds of problems. After all, insurers founded the original fire departments, building codes, and institutions like Underwriters Laboratories. The specter of climate change is still novel in terms of its scale, the long timeframe of the issue, and the truly global perspective required to address the root causes of these losses. It is no small challenge, and insurers and their regulators understandably have their hands full in dealing with many other issues.

So, the good news is that insurers can use traditional tools to cope with these new risks. The challenge is that climate change presents an unprecedented set of risks and virtually all branches of the industry are vulnerable.

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Since people are increasingly moving into harms way, do marginal increases in damages from tropical cyclones and hurricanes due to climate change even "matter"?

Indeed, some argue that all that matters is our increasing exposure (development in harm's way) and vulnerability (poor or un-enforced building codes). Sadly, the "thrill of the debate" in this arena often seems to trump the search for facts. When scrutinized, the arguments tend to boil down to "proof by vigorous assertion", rather than well-reasoned and documented analysis. One such article is entitled "Human Factors Explain the Increased Losses from Weather and Climate Extremes" [PDF]. Oddly, in that article and elsewhere, reading below the headlines reveals highly qualified positions noting that human settlement patterns etc. are the "main" or "primary" cause of losses. The vast majority of scientists (including myself) agree, recognizing a secondary component linked to human-induced changes in extreme weather events.

Fortunately, a more balanced view is prevailing. Thanks in part to a workshop [PDF] held by Munich Re and the University of Colorado at Boulder (see Nature news article [PDF]), a previous debate [PDF] has evolved into a consensus that climate change and variability are playing a role in the observed increase in the costs of weather-related damages, although participants agreed that it is still not possible to determine the portion of the increase in damages that might be attributed to climate change due to greenhouse-gas emissions.

We can nitpick about the historic record, but what matters most is what faces us going forward. A gathering of ~125 specialists hosted by the World Meteorological Organization (WMO) in November 2006 offered a consensus view (entitled "Statement on Tropical Cyclones and Climate Change" [PDF], see also summary [PDF]) that climate change can be expected to make these events stronger in the future. They also recognized that the El Nino Southern Oscillation (ENSO) is the primary factor affecting tropical cyclone activity. Indeed, ENSO itself may be amplified under climate change, which would only compound the likely effects of increased sea-surface temperatures and reductions in airborne particles that MIT's Kerry Emanuel believes are responsible for an anthropogenic component of the "natural" downward period on the hurricane cycle (i.e. masking any climate-change signal). If this latter process is at work, then worldwide efforts to clean up these particles will mean that future down-cycles in storms will not give as much relief as they have in the past.

This is of particular concern for insurers - 85% of their weather-related catastrophe losses are triggered by windstorm, versus about 35% of total economic losses. This is because flood is largely insured by the public sector.

It is worrisome that even "negligible" increases in storm intensity (e.g. 6% peak wind speed) have large impacts due to the cube law. The Association of British Insurers' report entitled "Financial Risks of Climate Change" [PDF] estimated significantly increased insured losses for large, rare storms equal to three-times what we experienced from Hurricane Katrina ($100 to $150 billion), $25 to $34 billion for Japanese typhoons, and $32 to $38 billion from large European windstorms. Total losses are typically 2x or so the insured fraction. These values will be even larger if our vulnerability and exposure continue to increase, while if we manage to reduce vulnerability and exposure (which is likely) then the share of losses from climate change will rise. Given the havoc wrought by Hurricane Katrina, one would be hard pressed to think that more of the same wouldn't "matter".

Yes, it was a quiet year IN THE NORTH ATLANTIC ocean basin. But, it's important to be wary of the frequent conflation of global and north-Atlantic hurricane trends. In a year like 2006, this has a profoundly unfortunate influence on public awareness because globally the number and intensity of these storms was not much different than in record-breaking 2005. In any case, one thing we can count on is that climate change will bring is increased variability on both sides of the norm.

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What impact will Hurricane Katrina have on this issue?

It has, in fact, already had a profound impact, first by elevating the importance of continued scientific work to understand the driving forces within hurricanes, and their linkages to climate. It will also have important near-term impacts in the marketplace, such as elevated insurance prices, increasing deductibles, reduced limits on payable losses, and insurer withdrawls from the market. It also sheds more light on the large degree of offshore exposures (i.e., involving oil and gas production infrastructure). In 2004, there were nearly $3 billion in insurance claims from this sort of hurricane damage, and the losses in 2005 will likely exceed that value by a factor of two or three. Even the leading catastrophe modelers have recognized [PDF] that they have systematically underestimated the impacts of these "super-CATs", and that major improvements in modeling are needed.

Katrina highlights the interactions between human activity and natural disasters. In a very real sense, Katrina was not a pure natural disaster. The damages represent the confluence of a perhaps natural event and extensive mal-adaptation and vulnerability of human systems. In addition, if climate change is boosting the power of hurricanes (by increasing sea-surface temperatures), the meteorological event itself is also un-natural in that respect. Lastly, Katrina exemplifies diversity of such events. Far from a simple wind storm, Katrina involved wind, flood, and fire, coupled with an array of post-event disasters including environmental contamination, business interruptions, crop losses, mold, health impacts, loss of life, etc.

We are also reminded of how risks are shared, e.g., through government-provided flood insurance. A very sizeable proportion of the total losses from Katrina will thus fall on government. And, of course, just a week following the event, the federal government was already providing tens of billions of dollars in immediate post-disaster aid.

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How would you describe the insurance industry's stance on the scientific evidence for global warming?

As for any large group or industry, there's no single answer. We still have a segment — much too large a segment — that hasn't thought much about climate change at all or looked seriously at the scientific literature. This group doesn't yet have a strategy. Then there's the group, including but not limited to insurers convened under a United Nations Environment Programme Initiative, who are tracking it very closely and are truly concerned and constructively engaged. And, lastly, there is a small and shrinking group that disputes or feels unqualified to evaluate the scientific evidence. I would say that the middle group fully accepts the authoritative finding of the Intergovernmental Panel on Climate Change that human activity plays a central role in observed and anticipated climate changes, and the first group is inclined to accept it when it's presented at a level they can understand and digest. Part of the challenge is bridging the scientific world and the financial world, which is what much of our research is about.

There are certainly a growing number of insurers that are taking initiative. In the mid-1990s, there was an impressive working group of insurers and their trade associations here in the U.S. that spent a lot of time looking at the issue, although they have not continued to be active. This is unfortunate, given the growing scientific consensus about the problem since that time and rapidly rising losses from weather-related events. This group included the:

Alliance of American Insurers
American Insurance Association
Insurance Institute for Property Loss Reduction (now the Institute for Business and Home Safety)
National Association of Independent Insurers
National Association of Mutual Insurance Companies
Reinsurance Association of America (RAA)
State Farm Insurance Companies

A letter from this group to then Vice President Gore can be found as an appendix to the report [PDF].

More recently, AIG (the largest US property-casualty insurer) has established a climate change activity, and, along with other US insurers, has recorded their concerns under the Carbon Disclosure Project.

Of note, the insurance regulators in at least half a dozen states, through the National Association of Insurance Commissioners, have taken very great interest in the climate change issue of late. I expect to see very constructive action from that quarter, in terms of fostering better modeling and data collection, assessment of potential financial impacts, etc.

In Europe, there are familiar names like Swiss Re and Munich Re, but many other insurers from Norway to the UK to France are also active. Most of the large largest Japanese insurers, including Tokio Marine, have been visible.

In addition the world's largest insurance brokers, AON and Marsh, have been active at various points in time, as have trade groups such as the Association of British Insurers, and the Reinsurance Association of America. Others, e.g. the American Insurance Association have seen less reason for concern.

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How will climate change affect the average consumer trying to purchase homeowners or car insurance?

As losses rise, so too will premiums. Similarly, deductibles can be increased or upper limits of coverage reduced. If done properly, this is appropriate. Like any industry, insurers need to cover their losses and generate a reasonable return for their shareholders. With the patterns of extreme weather events becoming more intense and more variable, the actuarial challenge will grow, and this will, in turn, put pressure on prices.

More importantly, however, is the question of whether certain hazards will become uninsurable as has already happened, in part, with flood and crop risks related to weather. Questions along these lines are already being asked with regard to things like windstorm and wildfire.

While obviously not weather-related, the recent history of terrorism shows what happens when the industry is faced with rapidly changing conditions and reduced predictability of losses — the government often has to step in and assume some risks. Ultimately, taxpayers finance spreading public sector risk, and so it indirectly comes back to consumers in the end.

We also need to keep in mind that this issue isn't limited to property insurance. There is a very real link to insured business interruptions, highway accident rates, and various forms of liability insurance. Increased extreme weather events will also have impacts on health and life. Witness the deaths of 22,000 to 35,000 people and uncounted health impacts from the 2003 European heat wave. This event was the hottest summer in the region in 500 years. We also expect more respiratory and coronary disease under climate change, thanks to increased pollen, airborne particles, photochemical smog, and smoke from wildfires.

So, the answer will reflect, in part, how the industry decides to respond. What I referred to earlier as the "reactive" strategies will tend to result in the greatest burden for consumers, whereas the "proactive" strategies will help reduce the long-term losses and maintain both the availability and affordability of insurance. And, importantly, reactive measures ultimately translate into a contraction of the insurance market itself and a shift to more self insurance, which isn't desirable for insurers either.

Given their mission of safeguarding the solvency of insurers, adequate availability and affordability of insurance policies, it is clearly incumbent on the insurance regulators to become more engaged in this discussion.

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What do insurance regulators think about the issue?

In the U.S., insurance is regulated at the state level. The National Association of Insurance Commissioners (NAIC) recently formed an executive-level Task Force to explore this question. This is a significant development, as insurance regulators can play dual constructive roles in safeguarding the solvency of insurers under changing climate regimes while helping maintain the affordability and availability of insurance for consumers.

A key element of this latest "tipping point" in the discussion is that leading CAT modelers (notably RMS) have begun to incorporate the effects of climate change in their work. Regulators are in an ideal position to foster continued efforts along these lines, with the aim of improving the scientific rigor of CAT modeling and rate setting by giving visibility to emerging loss factors that were previously not analyzed or accounted for.

NAIC's engagement in the climate change discussion helps dispell the old myth that responding to the threat of climate change is contrary to the interests of the business community. NAIC recognizes that the prudent response is to be proactive, and that the costs of doing nothing can be greater than intelligently managing the risk based on a marriage of good science and actuarial analysis.

We provided a series of recommendations to NAIC [PDF].

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How has American insurance companies' response to climate change differed from European companies'?

It's dangerous to generalize about "Europe versus America", because there are so many companies and notable exceptions to the rule on both sides, and because the industry has become quite globalized: i.e., many U.S.-based insurers have a major presence overseas, and visa versa. U.S. insurers, for example, write about $40 billion of premiums in other countries each year.

With that proviso, I could say that the Europeans (and insurers from most other continents and Canada) seem to have a longer view and put far more resources into cultivating scientific information. Consumers in many of those countries also tend to be more interested in "green" corporate practices, which encourages the insurers to move in that direction. Perhaps one of the most striking differences is that few if any U.S. insurers seem to perceive business opportunities in the climate change problem, whereas this is a routine point of discussion and activity elsewhere within the industry. I'm talking about things like insuring the renewable energy technologies that will be rolled out to reduce emissions, insuring emissions-reduction/trading market transactions, and otherwise participating as major investors in the technologies and strategies that will ultimately solve the climate change problem. Insurers in most other countries also receive strong affirmative signals from their governments that climate change is real, is a problem, is solvable, and requires constructive engagement from the business community. Another reason for the slow uptake here in the U.S. is that insurance regulators have only recently begun to look at the issue in earnest. I think that the Journal of Insurance Regulation had one article on the question of climate change way back in 1994, and the only other one was a piece I wrote in 2002 [PDF].

An interesting exception to these generalizations is that there has been more U.S. insurer involvement [PDF] in energy-efficiency and renewable energy than in Europe. Also, did you know that the U.S. life insurers were among the top investors in the early years of the now wildly successful wind energy industry here in the U.S.? This is refreshing and I predict we'll see more of it.

American companies were more focused on climate change in the mid-1990s. I think that other crises such as asbestos litigation, corporate governance scandals, tobacco litigation, and terrorism have contributed to a diversion of their attention. It does seem that there is a resurgence of interest again. For example, the American Association for the Advancement of Science held a session on the topic at their well-attended annual meeting last February, and myself as well as RAA and a leading U.S. actuary gave presentations [PDF].

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Are insurers simply fomenting fear about climate change in order to sell more of their product or raise prices?

Doubtful. If the industry was thus motivated, they would be sounding a much louder alarm. Moreover, at least in the U.S., insurance regulators do not allow price increases based on projected losses, and price competition is stiff — so scare tactics would have little value. Also, if anything we're seeing insurers doing less business in at-risk areas (look at the withdrawals along the U.S. coasts), not more. In contrast, the prospects for forced reductions in coverage, loss of market share, periodic bankruptcies, eroded reputations, and regulator rejection of requests to withdraw from markets, are material business risks. Moreover, insurers are additionally vulnerable as major investors in the financial markets. Some insurers will be inappropriately opportunistic (and society should frown on such behavior), but those who have expressed concern are actively supporting climate change adaptation and mitigation, which does not foment fear, and, ultimately, will make the world safer and keep rates down.

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What can consumers do?

It's important not to focus singularly on large catastrophes. Relatively small, localized weather-related events cause more aggregate losses in an average year than headline-catching CATs. Issues of concern include wildfires, lightning strikes, local storms, localized floods, mudslides, crop losses, weather-related roadway hazards, and a host of weather-related risks to health and life. There are also a host of gradual impacts that do not necessarily strike abruptly, such as coastal erosion and drought. Well-rounded educations will address all of these issues.

A comprehensive strategy for education should combine better preparedness and more resilient infrastructure with efforts to address the root causes of disasters. Human-induced climate change is working in tandem with natural variability to create elevated weather-related damages, and rising uncertainty for insurers. Consumers and businesses can beneficially address the causes of climate change by increasing energy efficiency, which makes sense in any event since most investments in improved efficiency yield substantial energy cost savings and attractive payback times. Many consumers also are able to choose green power today, which reduces the "carbon content" of electricity used in their homes.

Green and energy-efficient buildings are more disaster-resilient, both because they are cited in a more environmentally responsive way (e.g. outside of riparian areas) and because they tend to be built of more durable and disaster-resilient materials (e.g. people are safer from heat catastrophes in well-insulated buildings, dual-pane windows break less easily in fires or windstorms,....).

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Is there any good news in all of this?

By all means. Insurers need to look no farther than their roots as founders of the original fire departments, early advocates for building codes and fire safety, etc. That is to say that insurers' history is all about risk management and loss prevention. The same thinking can apply in the case of climate change. Just as insurers fought fire risks through encouraging fire safety, better modeling, and fire suppression, so too can they be part of the climate change solution. This can take many forms, ranging from providing new insurance products (e.g., for carbon trading or energy savings insurance [PDF]), to promoting energy-efficient and renewable technologies [PDF] that also help prevent everyday losses, to engaging in the broader policy discussion on climate change. Insurers can also be part of improving the underlying science of climate change, modeling, and impacts assessment. We maintain an extensive compilation of examples of how leading insurers are stepping into the arena in a constructive manner.

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Insurance in a Climate of Change

The Greening of Insurance in a Warming World

Q&A

Why focus on insurance?

When parts of the insurance industry identified climate change as a risk in the early '90s, what was the general reaction of the rest of the industry?

How relevant are weather-related natural disasters for insurers, and is there any evidence that the situation is worsening?

What should I make of those charts of "normalized" U.S. hurricane losses that don't indicate any upward trend?

The link to property insurance seems clear, but what about liability insurance?

What is the significance of insurance companies identifying global warming as a problem, versus just focusing on extreme weather events as the problem?

Since people are increasingly moving into harms way, do marginal increases in damages from tropical cyclones and hurricanes due to climate change even "matter"?

What impact will Hurricane Katrina have on this issue?

How would you describe the insurance industry's stance on the scientific evidence for global warming?

How will climate change affect the average consumer trying to purchase homeowners or car insurance?

What do insurance regulators think about the issue?

How has American insurance companies' response to climate change differed from European companies'?

Are insurers simply fomenting fear about climate change in order to sell more of their product or raise prices?

What can consumers do?

Is there any good news in all of this?