Insurance and Climate Change column

Moody’s ESG Notes ‘Death and Destruction’ from Climate Change

By | March 17, 2022
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A new report from Moody’s ESG Solutions drives home the point that climate change is here and now, and it is already causing death and destruction.

The report from Natalie Ambrosio Preudhomme, assistant vice president-outreach & research, for Moody’s ESG Solutions, draws on the recently released Sixth Assessment report from the Intergovernmental Panel on Climate Change. That report out earlier this month warned that climate change is leading to increasingly irreversible impacts, with a narrowing window to adapt to it.

The main takeaways include from the Moodys report include:

  • Climate change is causing death and destruction today, and changes in the vulnerability and exposure of communities, sectors, and economies to these impacts will be the largest driver of climate risk in the near- to medium-term, meaning that adaptation has a critical role to play in reducing risk.
  • While adaptation measures already exist, their value and feasibility must be determined in specific local contexts for investors, policymakers, and lenders to most effectively and equitably ramp up needed financing.
  • Effective adaptation requires both forward-looking climate data and community engagement.

“Harnessing forward-looking data during the planning and the due diligence phase of new developments and investments ensures the best return on investment over an asset’s life cycle and considering the characteristics of the surrounding community ensures the sustainability of the asset’s clients, employees and supply chains,” Preudhomme writes. “Financial stakeholders, governments and businesses have an opportunity to leverage climate data, alongside a local view on vulnerability, to integrate resilience into all investment decisions.

Supply Chain

Some more from the “here and now” department: Climate change is already disrupting the global supply chain, and is a greater threat than the global pandemic, according to a PBS News Hour story.

The story notes the pandemic is “a temporary problem” compared to climate change, which is “long-term dire,” posing risks to “every coastal community, every coastal transportation network.”

The greatest of the risks to the supply chain may be rising sea levels, “but years before sea level rise begins inundating ports and other coastal infrastructure, supply chain disruptions caused by hurricanes, floods, wildfires, and other forms of increasingly extreme weather are jolting the global economy,” the story states.

Examples called out include:

  • The Texas freeze in February, which caused an energy blackout⁠ and forced three major semiconductor plants to close⁠, “exacerbating a global pandemic-triggered semiconductor shortage and further slowing production of microchip-dependent cars.”
  • Heavy rainfall and snowmelt in February caused some banks of the Rhine River in Europe to begin to burst, triggering a halt in river shipping for several days, and late in April, water levels on the river, dropped so low that cargo ships were forced to load no more than half their usual capacity to avoid running aground.
  • Flooding in central China in July “disrupted supply chains for commodities such as coal, pigs, and peanuts⁠, and forced the closure of a Nissan automobile plant.”

“Scientists say that such climate-related disruptions are bound to intensify in coming years as the world warms,” the story states. “In addition, ports, rail lines, highways, and other transportation and supply infrastructure will be threatened by increases in sea level of an estimated 2 to 6 feet — and perhaps more — by 2100.”

Actuaries on Wildfire

Increasingly large and dangerous wildfires are being driven by the effects of climate change and more building in the wildland-urban interface. That notion may not be entirely new, but the scope of the increase laid out on Thursday by a group of actuaries was noteworthy.

Members of the American Academy of Actuaries Extreme Events and Property Lines Committee discussed wildfire peril, wildfire modeling, and potential responses from insurers, policymakers, and others in a webinar.

The webinar was moderated by Shawna Ackerman, chief risk and actuarial officer at the California Earthquake Authority. The speakers were Dave Evans, a consulting Actuary at Milliman, and Howard Kunst, chief Actuary at CoreLogic.

“You can see, over the last few years, 2017 to 2022, the significant increase the number structures destroyed,” Kuntz said.

He added: “We’re seeing these fires are becoming much bigger. We are seeing a significant increase in the number of structures that have been damaged or destroyed in the United States.”

Much of what was said on the webinar echoed the committee’s new paper, “Wildfire: An Issue Paper—Lessons Learned from the 2017 to 2021 Events,” which highlights key areas pertaining to wildfire risk, as well as the impact to the insurers and reinsurers.

The paper notes several factors that have led to the increase in wildfire events over the past few years, such as the impacts of climate change and population shift toward the wildland-urban interface.

Crop Insurance

Farmers received billions in crop insurance payouts because of extreme weather, payouts over the past two decades were due to crop damage caused by drought or excess precipitation, conditions exacerbated by climate change.

Shahla Farzan, a reporter with Harvest Public Media, writes this week that Midwest U.S. Farmers received tens of billions of dollars in federal crop insurance payouts since 2001, based on an analysis of federal data.

The analysis is by the Environmental Working Group, an advocacy organization, tracked yearly crop insurance payouts by county within a region that encompasses 13 states from Minnesota to Louisiana.

“Some environmentalists and farmers say the federal program, which is heavily subsidized by U.S. taxpayers, discourages growers from adapting to climate change and should be redesigned,” Farzan writes. “The U.S. Department of Agriculture oversees the program, which pays farmers when their yields or revenues decline. Farmers can claim losses for certain weather-related events, such as drought or flooding, as well as declines in crop prices.”

The writer notes that U.S. taxpayers cover roughly 60% of the cost of policy premiums and may also be responsible for insurance payouts to farmers in the event of widespread crop damage.

Missouri farmers received $4.9 billion in crop insurance payouts from 2001 to 2020, most of which were due to excess precipitation or drought, while at least 60% of all farmer payouts in Iowa, Kansas, Oklahoma, North Dakota and Illinois were related to excess precipitation or drought, according to Farzan’s reporting.

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Topics Climate Change

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