Report: Insurance Companies Unprepared for Climate Change Risks

Eighty-three percent of insurance companies responding to an industry survey are lacking preparedness in addressing climate-related risks and opportunities, according to a report released today by Ceres and the National Association of Insurance Companies.

Only nine insurers, or 3 percent of the 330 responding companies, earned a “leading” rating, with the remaining insurers earning “beginning” or “minimal” ratings.

Other major findings include:

• Larger insurers showed stronger climate risk management practices than smaller companies.
• Property and casualty insurers showed more advanced understanding of the risks that climate change poses to their business, and are further along in developing tools needed to manage climate change risks when compared to the life and annuity and health insurance sectors.
• Despite increased evidence that extreme heat waves and other climate-related impacts will influence morbidity and mortality trends, life and annuity and health insurers showed widespread indifference to climate risk, both in regard to their core business lines and their investment strategies.
• Only 38 of 330 companies have issued public climate risk management statements that articulate the company’s understanding of climate science and its implications for core underwriting and investment portfolios.

In addition, the report notes that over the past 30 years annual losses from natural catastrophes have continued to increase while the insured portion has declined (see chart).

Key recommendations for all US insurance sectors include the following:

• Develop climate risk oversight at the board and c-suite levels.
• Issue a comprehensive, public corporate policy on climate risk.
• Integrate climate risk into enterprise risk management frameworks.
• Improve climate change scenarios and impact assessments.
• Evaluate climate risks and opportunities in investment portfolios.
• Engage with key stakeholders on climate risk.
• Provide comprehensive climate risk disclosure to regulators.
• Participate in joint industry initiatives on climate risk.

Today’s report echoes the findings of a similar report Ceres released in September 2011.

Global disasters related to the weather offer significant opportunities for companies positioned to help clients prepare for the consequences of climate change, according to a report released in August by Environmental Business International.