Study faults insurance industry’s response to climate change
Extreme weather across the country the past several years has taken a toll on homeowners and communities, and on insurers.
After superstorm Sandy roared across the northeastern United States two years ago, many homeowners on Long Island — even those who escaped the worst damage — lost their property insurance. The same thing happened in coastal Virginia after Hurricane Katrina, which hit hundreds of miles away along the Gulf Coast.
Today, from Florida to Delaware, property insurance near the water is becoming harder and harder to find.
“In the long run, these coverage retreats transfer growing risks to public institutions and local populations, and reduce the resiliency of communities, which are less able to finance post-disaster recoveries,” according to a new report from Boston-based Ceres, a nonprofit group dedicated to sustainable business practices.
Last year, less than a third of the $116 billion in worldwide losses from weather-related disasters was covered by insurance, according to data from the reinsurer Swiss Re. In 2005, the year Katrina struck New Orleans, insurance picked up 45 percent of the bill.
The Ceres report said higher global temperatures from climate change are to blame for rising sea levels and more extreme weather events, including Sandy, which caused more than $29 billion in insured losses, including $292 million in Ohio.
Columbus-based Nationwide said it had insured losses of more than $400 million from the storm; State Auto recorded $7.3 million in losses.
Given recent trends, the report criticizes insurers for not doing enough to prepare for the escalating risk from climate change.
“Despite being on the ‘front line’ of climate risks, most of the company responses show a profound lack of preparedness in addressing climate-related risks and opportunities,” Ceres President Mindy Lubber said. “A big positive in the report’s findings is the strong leadership among a small number of property-and-casualty insurers — a trend that needs to become far more mainstream if the industry is to accelerate global responses to this colossal threat.”
The group didn’t limit its criticism to property-and-casualty insurers.
The report said life insurers, for example, aren’t accounting for the potential that their property holdings could drop in value because of climate change and that health insurers aren’t considering what climate change could do to disease patterns and human health.
The report, however, discounts what insurers already are doing, one industry group says.
“There is no industry that is better prepared and has a proven track record of being prepared than the property-and- casualty industry,” said Bob Hartwig, president of the Insurance Information Institute that includes property-and-casualty insurers. “No insurer would be able to operate for decades without the ability to respond to changes and the volatility of climate.”
The report ranked the nation’s biggest property and casualty, health, and life and annuity insurers on what they are saying and doing in response to climate change based on a survey that the insurers completed. The 330 companies represent 87 percent of the total market.
The report ranked the companies on a half-dozen climate-related indicators, including investment strategies and greenhouse-gas management.
The companies were scored on a 100-point scale broken into four tiers. Insurers with the best scores earned a leading rating followed by ratings of developing, beginning and minimal.
Only nine of the 330 companies got a leading score, while 276 earned beginning or minimal scores.
Nationwide earned a score of developing, and the much smaller State Auto received a score of minimal.
“We’re in the early stages of understanding the risk of climate change to our business,” said Kyle Anderson, a State Auto spokesman. “Our view of that risk is different than that of a national or international company. We do recognize that climate change can have a financial impact on our business. Changes to the frequency and severity of the national catastrophes are always a risk to our business, and we design catastrophic models and use historical results to assess that risk.” amp; amp; amp; amp; amp; lt; /p
Nationwide said it, too, monitors an assortment of risks and exposures for its business, including climate change.
“For instance, the company monitors the findings of the scientific community regarding climate change and weather patterns,” spokesman Eric Hardgrove said. “We employ a range of advanced modeling technologies and approaches to proactively assess long-term climate risks, and ensure we are positioned to sustainably protect our members. We provide education to the consumers and businesses we protect in an effort help them identify and respond to risk.”
The report recommends that insurers develop comprehensive climate-change policies and improve their catastrophe models of the potential damage caused by climate change.
Hartwig counters that property-and-casualty insurers already use the latest technology and big data to help predict industry trends. Property-and-casualty insurers have record amounts of capital to cover claims, he said.
“There is no evidence, no data, no support to suggest that the industry is anything other than the vanguard on this issue of readiness,” he said. “No insurer would have been able to operate the past decade were it not able to cope with the change and variability in climate.”
Information from The New York Times was included in this story.