A representative for an independent insurance agent group in one state has penned an opinion column calling attention to the dangers posed by climate change.
“Going forward, our state remains vulnerable to the widespread devastation a significant hurricane can bring,” Joe Stewart, vice president of governmental affairs for the Independent Insurance Agents of North Carolina wrote in an opinion article in the Wilmington Star News this week. “And whatever your personal position on climate change, the evidence suggests global weather patterns very likely will produce more and worse hurricanes in the coming years.”
His op-ed referred to the effects large storms have on North Carolina communities locations and the need to plan for and mitigate their impact.
“Despite the political debate around climate change and associated sea-level rise, the insurance industry is compelled to confront this new reality,” he writes. “Earlier this year, the Society of Actuaries (the professionals who use data to determine risks and calculate insurance premiums) ranked climate change as the No. 1 risk.”
Climate change now outranks terrorism, cyber attacks, and financial instability for potential harm, he notes.
“That was driven home here in North Carolina in 2016, when the eastern part of the state was inundated by Hurricane Matthew, and just a few months later the western part of the state, which had been in extreme drought, was tormented by wildfires,” Stewart writes. “While 2018 saw record rainfall in parts of North Carolina (even before Florence), some of those very same locations had drought conditions in 2019.”
He notes that insurance industry is already employing climate scientists to help assess this risks, which are being built into the insurance business models as the cost of potentially greater losses due to climate change are calculated.
“For the insurance industry, it’s not about debating whether climate change is real; it’s about taking it into account for planning purposes,” he writes. “Bottom line, insurance is based in significant part on an assessment of risk, and the likelihood and magnitude of risk drives the cost of coverage. For the experts who calculate risk, the impact of climate change is seen as real and is being treated as a factor our state faces now and for the foreseeable future.”
The Bank of England on Wednesday announced plans to set up what appears to be a stringent climate change stress test for insurers.
It will test the balance sheets of the largest U.K. lenders and insurers, pledging to scrutinize how they would cope with more frequent severe weather events such as floods and subsidence.
The Bank of England published a discussion paper that sets out its proposed framework for the 2021 Biennial Exploratory Scenario exercise.
The objective of the BES is to test the resilience of the largest banks and insurers to the physical and transition risks associated with different possible climate scenarios, and the financial system’s exposure more broadly to climate-related risk.
“Whilst climate-related risks will materialise over decades, actions today will affect the size of those future risks,” a BofE statement reads. “It is therefore important that firms, and other stakeholders such as the Bank, continue to develop innovative approaches to measure climate-related risks before it is too late to ensure resilience to them. The BES will use exploratory scenarios to size these future risks and to explore how firms might respond to them materialising, rather than testing firms’ capital adequacy.”
The key features of the BES are:
- Multiple Scenarios that cover climate as well as macro-variables: to test the resilience of the UK’s financial system against the physical and transition risks in three distinct climate scenarios. These range from taking early, late and no additional policy action to meet global climate goals.
- Broader participation: both banks and insurers are exposed to climate-related risks, and the action of one will spill over to affect the other. For insurers, this exercise builds on the scenarios developed for this year’s insurance stress test.
- Longer time horizon: is needed as climate-related risks crystallise over a much longer timeframe than conventional risks. The BES proposes a modelling horizon of 30 years.
- Counterparty-level modelling: a bottom up, granular analysis of counterparties’ business models split by geographies and sectors is proposed to accurately capture the exposure to climate-related risks.
- Output: the Bank will disclose aggregate results of the financial sector’s resilience to climate-related risk rather than individual firms.
The plan is for the bank to consult on the design of the exercise and get feedback on the feasibility and the robustness of these proposals from firms, their counterparties, climate scientists, economists and other industry experts by 18 March 2020. The final BES framework will be published in the second half of 2020 and the results of the exercise will be published in 2021.
“Risk in the 21st century is energetic, robust and vital, and it’s everyone in the insurance industry’s responsibility,” a recent report states.
The Risk Institute at The Ohio State University, a research group made up of companies and academics that understand effective risk management strategies not only protect companies. Members of the institute include carriers Nationwide, State Auto, Ohio Mutual and FM Global. Broker members include Aon, Gallagher Bassett and Oswald Cos., a big regional broker in Cleveland. Numerous firms from other industry sectors, such as law firms, food makers and sellers, and credit card companies, are members as well.
The institute holds regular seminars on various topics related to, of course, risk management, and how to address emerging risks.
The latest series of seminars focused on weather and climate risk and building business and property resilience.
The institute recently identified the top five emerging risks that will be most important for companies to consider in 2020. The risks are as follows:
- Climate change and the downstream impact on business
- Aging infrastructure’s effect on supply chain
- The legalization of cannabis
- Distracted driving risks
- The need to build a strong resilience plan for cyber risk management
Lawsuits could spark an “existential crisis” in cities trying to survive climate change, according to an article this week in the Miami Herald.
“As local governments try to navigate the new world of sea level rise swamping their roads, one thing is clear,” the article states. “Whether they raise them or abandon them, someone is probably going to sue.”
The article focuses in on Miami Beach, where some residents have threatened lawsuits over the city’s $500 million plan to raise roads and install pumps in answer to rising sea levels, and in the Keys, where elected officials worried about possibility of upset residents siccing lawyers on the county for refusing to flood-proof roads.
“It has the potential to drive local government to an existential crisis,” Thomas Ruppert, a lawyer and coastal planning specialist, told the newspaper.
Lawyers say it’s a question of when, not if, these lawsuits are filed, the article states.
A few years ago, Coral Gables hired a lawyer to compile a white paper on the city’s potential liability under climate change, which found it’s a legal gray area that most courts haven’t dealt with yet.
“Hopefully the case law develops quickly so lawyers are discouraged from filing spurious suits,” she told the newspaper. “But at the end of the day you can’t stop someone from suing.”
- Report Urges Insurers to Eye Impact of Climate Change on Underwriting, Investments
- Are Employees Pushing Insurers to Shun Coal in Climate Change Movement?
- IBHS Chief Continues to Ask Congress to Embrace Tax Credits for Climate Resilience
- Regional Greenhouse Gas Initiative Grows by Another State
- Climate Change Tops List of World’s ‘Extreme Risks’
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