Insurers and Actuaries Need to Address Unique Risks Posed by Climate Change

12/06/2010 — WASHINGTON, D.C., Nov. 8 -- Insurers and actuaries must act now to address the risks posed by climate change liability, attendees of the Casualty Actuarial Society (CAS) annual meeting heard.

Moderator Camille Minogue, Chief Actuary, Insurance Corporation of British Columbia, noted that a rising number of lawsuits related to global warming have been making headlines.

Minogue cited the example of the lawsuit brought against oil and energy companies by an Inupiat Eskimo village in Alaska that must be relocated due to the alleged effects of global warming. The case, which was dismissed and is now on appeal, raised some questions that over time may be resolved by developing legal theories.

Richard Faulk, Partner, Environmental Practice Group, Gardere Wynne Sewell, LLP, gave an overview of the litigation issues related to climate change.

Faulk noted that despite the failure of the climate change summit in Copenhagen last year and the demise of the Democratic majority in the House of Representatives, climate change concerns are not fading away.

“I’ll bet a lot of you in this room and certainly almost everyone on the street seems to believe we are now in a period of relative calm in climate change. However satisfying that perception, it is dead wrong.

“We are not in any sense at the end of the climate change controversy. In fact, we are just at the beginning when it comes to risk.”

Faulk cited a recent report issued by DeutscheBank that pointed to a dramatic increase in climate change litigation and related risks.

“These issues are important enough for major banking institutions and major investment houses to issue warnings,” he said.

Faulk observed that the Securities and Exchange Commission (SEC) recently issued guidelines requiring analysis and reporting of the impact of climate change on investments by public companies.

The National Association of Insurance Commissioners (NAIC) also now requires insurers to analyze climate change risks and to make certain disclosures.

“This should be enough to put people on warning that passivity in this situation is not acceptable. It is not an acceptable alternative to those people who are prudent about risk, especially insurers who insure against these risks.”

Lindene Patton, Climate Product Officer, Zurich Financial Services Group, agreed that now is the time for insurers to act when it comes to climate change risks.

“When there are circumstances where there is a social change in attitude it is something we should pay attention to because we don’t just underwrite the impacts of physical risks to society, we underwrite liability policies.”

Patton noted that just as insurance mechanisms were used to effect social change in the workers compensation arena, so the insurance industry’s products are being evaluated as tools to try to protect the environment.

“Make no mistake about it, public policy makers, non-governmental organizations and environment activists expect that the insurance industry will solve their problems when it comes to climate change.”

Patton noted that in terms of litigation there have already been more than 100 climate change liability claims worldwide.

“Twenty of these claims are in the U.S. Is this a U.S. tort liability issue? No, it is global.”

Patton went on to cite a recent report by TruCost that estimated the total cost of environmental damage attributable to emissions worldwide at $6.6 trillion.

Of this, some $2.2 trillion of the environmental damage was caused by the top 3,100 companies traded by market capital.

The scale of the climate change risk presents insurers with both a risk and an opportunity.

“With our instruments we are able to send risk-based price signals to businesses so they can better protect their assets and make efficient economic decisions,” she said.

The Casualty Actuarial Society fulfills its mission to advance actuarial science through a focus on research and education. Among its 5,400 members are experts in property-casualty insurance, reinsurance, finance, risk management, and enterprise risk management.

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Mike Boa, Director of Communications and Marketing

703-276-3100, mboa@casact.org