This group brings together the best thinkers on energy and climate. Join us for smart, insightful posts and conversations about where the energy industry is and where it is going.


Insurance Industry Ill-Prepared for Climate Change Risks and Impacts

Tom Schueneman's picture

Environmental writer, journalist and web publisher. Founder of

  • Member since 2018
  • 202 items added with 130,475 views
  • Mar 15, 2013

Insurance companies need to prepare for climate change risksEleven extreme weather events took place in the US in 2012. Each left at least $1 billion in damages in their wake. Besides the cost in human life, Superstorm Sandy left behind some $50 billion in economic losses, along with insured losses by property & casulty (P&C) insurers in the tens of billions of dollars.

US insurance companies are well aware of the rising costs of increasingly frequent and more intense extreme weather events, as well as those associated with less sudden and intense shifts in weather patterns and climate. Yet most are ill-prepared and “only just beginning to address the effects climate change may have on their businesses,” according to a new report from Ceres, a coalition of investors, companies and public interest groups advocating from sustainability leadership.

“Climate change is potentially a serious financial threat to the insurance industry, and needs to be on insurers’ and regulators’ radar,” Washington State Insurance Commissioner Mike Kreidler, a leading advocate for stronger climate risk disclosure and action by insurance companies, was quoted in a Ceres press release. “If insurance is to remain available and affordable, companies will need to adapt. The last thing we want to see are unprepared companies simply pulling out of markets or seeking unreasonable rate hikes.”

Climate change and the US insurance industry

Insurance is vital to the smooth functioning of the economy. Extreme weather events such as Superstorm Sandy and a second consecutive year of widespread drought have big impacts on and ramifications for insurers, as do less abrupt and dramatic shifts in weather and climate.

Yet of 184 insurance company disclosures Ceres reviewed for “Insurer Climate Risk Disclosure Survery: 2012 Findings & Recommendations,”  only 23 in the property and casualty (P&C), life and annuity, and health insurance sectors of the industry have comprehensive strategies in place to deal with the impacts and effects of climate change.

“Every segment of the insurance industry faces climate risks, yet the industry’s response has been highly uneven,” Ceres president Mindy Lubber was quoted in a press release.

“The implications of this are profound because the insurance sector is a key driver of the economy. If climate change undermines the future availability of insurance products and risk management services 2012 proved to be the warmest year on record in the lower 48 US states, as well as ranking second in terms of the number of extreme weather events. in major markets throughout the US, it threatens the economy and taxpayers as well.”

Among Ceres’ key findings:

  • The quality of overall disclosure and performance by the 184 insurers was low – the average score, on a scale developed by Ceres, was 7.3 points out of a possible 50 points.
  • Of the 23 insurance companies with a comprehensive strategy to cope with climate change, 13 of those companies are foreign-owned, and eight are P&C companies.
  • Based on their climate risk disclosure responses, the industry leaders include: ACE Ltd., Munich Re, Allianz Group, Swiss Re Group, Farmers Group, The Prudential Group, Travelers Group, Hartford Insurance Group, Kaiser Foundation Health Plan and Zurich US Insurance.
  • Smaller insurance companies tend to be far less prepared to mange climate risk than larger companies.

With serious implications for both the asset and liability sides of insurer’s balance sheets, climate change impacts and effects are being felt across the entire insurance industry, not only P&C insurers. Life insurers, Ceres points out, own “hundreds of billions of dollars worth of real estate in vulnerable coastal areas.”

American taxpayers collectively are also on the line. Taxes are paying for losses sustained by the National Flood Insurance Program, as well as the rising spending on disaster relief, Ceres notes.

What to do

“As a long-term investor, CalSTRS is dedicated to making sure climate change is factored into the regular risk management practices of our portfolio companies,” Jack Ehnes, chief executive officer of the California State Teachers’ Retirement System (CalSTRS), the largest educator-only pension fund in the world and former Colorado insurance commissioner, told reporters at March 7 news conference in Boston.

“By integrating climate change risk management into their practices, insurance companies greatly improve their abilities to offer sustained shareholder value. This report gives us yet another tool as we engage with companies on climate change and other sustainability challenges.”

In its report, Ceres’ recommends insurers of all stripes do the following:

  • Treat climate change as a corporate-wide strategic issue, affecting all functions, at all levels, and formalize this in a public corporate policy statement.
  • Assess how a warming climate will alter extreme weather events, disease vectors, political risk and infrastructure resilience, and implement strategies to adapt their underwriting and investment practices accordingly.
  • Develop catastrophic models that anticipate the probable effects of climate change on extreme weather events.
  • Advocate for public policies that will help reduce carbon emissions and maintain an economy that is resilient to climate risk.

Insurance regulators need to take stronger action as well. Ceres recommends they:

  • Continue to mandate annual, public climate risk disclosure by insurers.
  • Engage with insurers, consumers and other public policy makers to better understand the nature of climate change risk, including how rates should be adjusted to reflect changing risks, and the steps insurers and regulators need to take to better incentivize consumers to reduce their vulnerability to these risks.

Image credit: David Shankbone, courtesy flickr

Tom Schueneman's picture
Thank Tom for the Post!
Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.
More posts from this member
Spell checking: Press the CTRL or COMMAND key then click on the underlined misspelled word.
Robin Carey's picture
Robin Carey on Mar 15, 2013

The property and casualty insurance brokers and their re-insurance backers are the financial front lines of climate change mitigation.  More importantly, their businesses cross national boundaries and have access to very sophisticated modeling.  Except for those periods when the insurers make a federal government the insurer of last resort (Katrina, etc.), the insurers have the greatest financial stake in making sure that climate change is, at least, predictable.  And as this article points out, it is their investors that can use their leverage to put the insurers on the line.  Global business cannot survive without insurance and risk mitigation....and that is a good thing.  Although the industry itself, when it comes to publicity, is incredibly risk-averse, they probably have more influence in affecting real improvements in climate change mitigation than all the Greenpeaces put together.

David Newell's picture
David Newell on Jul 29, 2013

Well, as a guy that spent 20 years working for the casualty insurance business,  and then 20 years working as an environmental risk coverage fellow, and who owns an environmental insurance agency (just sold),

i have a considered opinion on this.


First of all, no actuary has data to mine as regards the future loss prospectus:

therefore “risk” (the uncertainty of future loss) is a huge unknown.


Therefore, then,  “pricing” is, uh “problematic”, at best.

i could speak knowledgeably about retrospectively rated reinsurance,

and babble on AS IF it could add value..

but in point of significant fact,  the “at risk” component is civilization itself,

and therefore the idea of “funding it” through any methodology of risk management

constitutes misplaced optomism. 

As Mr. Baird points out in his URL reference, we currently have enough CO2 to support a 69 foot rise in sea level, and thus coastal defenses ultimately will be a lost cause.

So what is the insurable risk value of the exposure to what is ALREADY coming?

Wanna by some “Insurance Risk Default Swaps”??

My company is unrated by Bests, but my charges are a reasonable 1.5% of premium.


Send Money Now!


David Newell's picture
David Newell on Jul 30, 2013

It is not inevitable if we can effect direct air capture of currently circulating CO2.


Tell me who to write to in the insurance business that will lend me $20 billion for “my” invention, entitled

Pat.pend. Docket 11149


“Carbon Dioxide Direct Air Capture and Sequestration Utilizing Endorheic Basin Alkaline Deposits to Effect Mineral Carbonation”

I’ll await your advice, Sir

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »