Thursday, September 07, 2006

Insurers: Warming to Global Warming

It's a Green issue: money and the enviroment. Financial losses from the last few seasons of increased Hurricane activity have made the insurance industry pay attention to the issue of global warming. Affordable home insurance is a big problem in Florida and other coastal areas.

This report offers details about changes and financial incentives that are underway in the insurance sector. It might be all smoke and mirrors, but I'm just impressed with the idea that big business is finally taking global warming seriously.

Here is the text:

"Dozens of new insurance activities, such as 'green' building credits and incentives for investing in renewable energy, are emerging to tackle the causes of climate change and rising weather-related losses in the U.S. and globally, according to a major new report issued today by the Ceres investor coalition. But the report also states that more insurance companies need to be offering similar services to minimize losses and make the most of business opportunities related to climate change.

"Climate change poses unprecedented risks to the insurance industry, but it also creates vast opportunities for new products and services to help consumers and businesses reduce their losses, while also reducing the pollution causing global warming," said Mindy S. Lubber, president of Ceres.

"We've seen encouraging progress from big-name insurers and brokers since last year's devastating hurricanes, but many more creative services will be needed as we confront what is perhaps the biggest threat in the industry's history."

The report comes on the heels of devastating back-to-back hurricane seasons in the U.S. that caused a record $75 billion in insured losses during 2004 and 2005, including $45 billion from Hurricane Katrina alone.

While no individual weather event can be attributed to global warming, a growing body of new scientific data show that rising temperatures are likely increasing the intensity of hurricanes, floods, drought, wildfires and other extreme weather events in the U.S. and globally.

The report, "From Risk to Opportunity: How Insurers Can Proactively and Profitably Manage Climate Change," highlights the insurance industry's unique, powerful role historically in helping the country grapple and manage emerging risks.

The report, written by two insurance industry experts, identifies 190 innovative products and services available or in the pipeline from dozens of insurance providers in 16 countries. Many provide win-win benefits, by reducing financial losses and greenhouse gas emissions. More than half of the activities come from U.S. companies, covering climate change solutions including energy efficiency, green building design, carbon emissions trading and sustainable driving practices. Among the recent offerings that show promise for customers and insurers:

Green Coverage and other Innovations

* Firemen's Fund Insurance is launching a first-of-its-kind 'green' coverage, including rate credits and other incentives, for commercial building owners who re-build damaged properties using green and LEED-certified (Leadership in Energy and Environmental Design) building practices. California-based Firemen's Fund will begin seeking state regulatory approvals this month so that the products can be offered in states around the country this fall.

* Marsh, the world's largest insurance broker, and AIG, the world's largest insurer, have launched carbon emissions credit guarantees and other new renewable energy-related insurance products that are allowing more companies to participate in carbon offset projects and growing carbon emissions trading markets. The carbon trading market in the European Union alone is expected to hit $30 billion by the end of 2006.

* Insurer-initiated hurricane loss prevention methods used at nearly 500 commercial locations incurred eight times less damage from Hurricane Katrina than properties that did not make the engineering improvements, avoiding $500 million in property damage. Insurer FM Global says the $500 million in savings came after customer investments of only $2.5 million, and helped make the company profitable in a year when few insurers were.

* A Japanese insurer, Tokio Marine & Nichido Life, has reforested more than 7,500 acres of mangroves in Indonesia, Thailand and several other countries to minimize losses from rising cyclone-related risks.

Wake-up Call

"The insurance sector is poised to make a major contribution to long-term national and international efforts to curb the growth of greenhouse gas emissions, while helping to fortify society against the near term impacts of climate change," Mills said.

"Last year's hurricanes were a real wake up call for the industry and many U.S. insurers are creating programs to help businesses minimize future losses. Many of these strategies represent new profit centers for insurers, rather than simply symbolic and charitable activities."

However, the report concludes that the vast market potential related to climate change/other increasing weather damage is still largely untapped by the industry. The report also outlines the growing crisis of insurance availability and affordability in regions of the U.S., especially along the Gulf Coast, Florida and New England.

Ceres ( is a national coalition of investors and environmental groups working with companies to address sustainability challenges such as climate change. Ceres directs the Investor Network on Climate Risk (INCR), a network of 50-plus institutional investors that collectively manage more than $3 trillion in assets."

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