Geneva Association Issues Report on Insurance Industry & Climate Change

Insurance industry leaders underscored their concerns over the potential impacts of climate change last Thursday July, 2 with the introduction of a 138 page report from the Geneva Association*, the industry’s most important think tank.

In a well attended presentation in London, held in Lloyd’s old library, a select panel, introduced by Lloyd’s CEO Richard Ward, set out their views on the challenge the world in general faces – and the industry in particular – due to changing weather patterns and rising temperatures. The CC+1 [climate change +1] report is more than a scientific study. It sets out in clear terms the industry’s conviction that climate change is a real and ongoing worldwide threat, and what steps should be taken to meet that threat.

Kunio Ishihara, CC+1 co-chair, and Chairman of Tokio Marine & Nichido Fire led off the discussion by citing the recent [May 27-30] conference in Kyoto and the statement issued on its conclusion. The insurance industry representatives called for “international cooperation to reduce CO2 emissions,” he said, and they endorsed a “leading role” for the industry in achieving that goal.

The next speaker, Michael Butt, CC+1 co-chair, and Chairman of AXIS Capital noted, that although some local initiatives had been undertaken, “what’s missing is international coordination.” He pointed out that the Geneva Association is well placed as a “potential voice” to define climate change concerns as well as to develop “an action template” to address them.

Moreover Butt stressed that political concerns, which continue to weigh on commitments to action, “must be addressed.” He pointed out that the “insurance industry has a wealth and a depth of knowledge on assessing risks,” and that it “has a major part to play on climate change.”

Lloyd’s Director of Franchise Performance Rolfe Tolle followed Butt with a ringing endorsement of the 2007 report from the Intergovernmental Panel on Climate Change [IPCC – www.ipcc.ch]. “We believe that there is no longer a scientific debate over whether climate change is happening,” he said. “The IPCC report was a consensus review. It concluded that climate change is happening and that ‘man-made’ elements area a major cause.”

Tolle went on to describe the effects of higher temperatures – possibly an increase of up to C6° [F 10.8°] – which would impact property in low lying areas and river valleys, as fires, floods and tidal surges cause increasingly heavy losses. He also warned of increasing liability claims, not only against architects, engineers and builders, but also against major industrial firms, who produce pollutants.

As the enforcer of Lloyd’s rules governing how much risk its syndicates’ can accept, Tolle is equally concerned that the industry’s response to climate change impacts must take into account the levels of risk it can accept, and the absolutely “critical necessity” of observing “risk based pricing.” The industry needs to maintain the capability to both “pay claims and achieve a reasonable return on capital,” he said. In order to achieve that goal the industry should resist any attempts to “interfere with risk based pricing, and it should undertake to “work with policy makers” to mitigate risks where possible.

The industry and world leaders will have a chance to do just at the upcoming United Nations Climate Change Conference (COP15 – Conference of the Parties, Fifteenth session) scheduled for Copenhagen Denmark Dec. 7-18.

Appropriately, Christine Bosse, CEO of Danish insurer TrygVesta, urged participants at that conference to seriously consider the findings and suggestions produced by the Geneva Association. “We should “support its solutions,” she said, and we should “learn how to handle these new risks.”

Many of those risks, however, aren’t so new to the final panel member, Thomas Blunck, member of the Board of Management of Munich Re. The giant reinsurer “began studying them 30 years ago,” he said. He also noted that, because of its studies and its vast data base, a reinsurer like Munich Re, can “provide the data for making decisions and pricing risks,” which ultimately can “produce a ‘win-win’ opportunity” for the industry to develop new business.

The report, which should be essential reading for any insurance executive, is available from the Geneva Association at: www.genevaassociation.org.

*The organization’s official name is the “International Association for the Study of Insurance Economics.” It consists of “the CEO’s of 80 (statutory maximum) of the world’s largest insurers and reinsurers,” as stated in the report.

Topics Climate Change Market Lloyd's