by Irene Shulman, Intern
Climate change has the potential to affect the availability and affordability of insurance across most major insurance categories. Regulation changes, resource cost and availability, and frequency of natural disasters will impact both insurers and policyholders, and thus, are important factors to assess. The National Association of Insurance Commissioners (NAIC) adopted the Insurer Climate Risk Disclosure Survey in 2009, and in February 2012, California, Washington, and New York administered the survey to insurance companies that write in excess of $300 million in premiums annually. The survey addresses the implications of climate change for the insurance industry and how insurance companies are coping. Columbia Law School’s Center for Climate Change Law has now prepared a working paper that summarizes and analyzes the survey responses that were submitted to California, Washington, and New York in 2012 for the 2011 reporting year.
The working paper found that the majority of the 400 survey responses indicated that climate change poses some risk to company business, but most companies did not elaborate on those risks or provide detail on how they plan to cope with them. Among companies that did specifically identify threats related to climate change, increased hurricane frequency or severity was the most common threat discussed, followed by regulatory risks. None of the 400 insurance company provided quantitative data regarding the risks they mentioned except for Allianz Group Insurance Companies, which stated that it has experienced a fifteen-fold increase in weather-related claims over the last 30 years and expects average losses for the insurance industry to grow to $41 billion annually in the next decade.
The Insurer Climate Risk Disclosure Survey also addressed company methods to assess the risks of climate change. The working paper found that several companies, particularly property insurers, reported the use of computer modeling. One insurance company, AAA Northern California, Nevada and Utah Insurance Exchange, even noted that it has adjusted its computer models to utilize greater hurricane frequencies and warmer sea surface temperature, as opposed to data from historical records that would ordinarily be used in modeling.
The survey also inquired about efforts of insurance companies to mitigate GHG emissions in their operations. The paper reviews responses in this area of the surveys and found that they were longer, more detailed, and contained more specific quantitative information than did the discussion of climate change risks. Companies reported numerous efforts including shifting operations to LEED certified office buildings and increased reliance on paperless communication, and many insurance companies included quantitative data on how much they have reduced GHG emissions.
The working paper draws conclusions about the trends discussed above and makes suggestions for obtaining more thorough, detailed responses from insurance companies in the future.
The complete working paper may be accessed here.