Insurers Acknowledge Climate Change
While climate deniers are rejecting scientists’ consensus opinion, one group has no doubt that climate change has arrived. It’s a group that studies rain and heat, hailstorms, hurricanes, flooding, and wildfires, and there is no doubting climate change in their minds, because their livelihoods depend on it.
Insurance companies employ climatologists, computer scientists and statisticians to design models that incorporate the effects of climate change in assessing damage and risk. Actuaries, the people responsible for converting risks into premiums, ranked climate change the top risk in 2019, ahead of terrorism, cyber damages and financial instability. Although the insurance industry is arguably the one most affected by climate change, its decisions impact every other industry, as well as private property owners.
An industry publication reported total losses from hurricanes in 2017 were nearly five times the average of the preceding 16 years. “Losses from wildfires were four times higher, and losses from other severe storms were 60 percent higher.” California wildfires in 2018 caused $24 billion in losses. When huge unexpected losses occur, insurance companies turn to the reinsurance industry, which in turn must raise its rates, and those costs ultimately are passed on to consumers.
A Wall Street Journal in October 2018 reported that some areas may become uninsurable due to risk probabilities, or the cost may become so high as to make insurance prohibitively expensive. “Allianz, one of the world’s largest insurers, says it sold the retail business of U.S. insurer Fireman’s Fund Insurance Co. in 2015 in part because climate change is increasing the risk of losses to coastal homes in California and Florida.”
Insurance companies are also investors, investing revenue from premiums in other businesses. Some have turned to ethical, social and governance (ESG) investment for their portfolios, taking into account ethical criteria when making investment decisions. Swiss RE, one of the world’s largest providers of reinsurance, moved its entire investment portfolio to take account of ESG criteria, reducing investments in companies that cause climate change. According to an October 2018 article in Financial Times, “insurers that have decided to stop covering coal — including Munich Re, Swiss Re, Zurich, Scor and Axa as well as Allianz — have all come from Europe.”
Some insurers have decided to apply the same ethical criteria in deciding which clients to insure. The same article reports, “A growing number have pulled back from insuring thermal coal companies, for example. If they are not investing in these companies, they argue, they should not be insuring them.” Natural disasters caused an estimated $340 billion in damage across the world in 2017. By their actions, insurance companies can lead the public, politicians, and business leaders in accepting that these costs are the result of increased climate change risk.