The Economist: It was a very wet summer in much of
Amid the long process of drying out and sorting through claims, a group of leading insurers gathered in London on Thursday September 13th to unveil a joint initiative to address climate change. Hailing what it called “a new era” in industry action to deal with the issue, the Association of British Insurers (ABI) put forth a series of principles—ranging from greater engagement in public-policy making to incorporating climate change in members’ investment strategies—that it dubbed ClimateWise. The goals are worthy, but the likely impact of the plan remains to be seen. The complexity and global nature of climate change calls for long-term, broad-based solutions.
Aside from the victims themselves, the insurance industry is among the first to feel the after effects of extreme weather. It is no surprise, then, that some of the biggest names in the business—firms such as Swiss Re, Munich Re, American International Group, Aviva and AXA—already offer an array of insurance products tied to climate change. These offerings include premium discounts for hybrid vehicles in countries including
The nature of insurance means that companies can generally control their exposure to catastrophic risks: most property and casualty policies last only one year, and many firms have limits on exposure. Premiums are adjusted to account for claims. Thus if catastrophe hits “it is a one-time surprise”, says Thomas Hess of Swiss Re. “A house can only be destroyed once and then you have to buy a new policy.” New money has flowed into the sector after some of the biggest losses in recent years, ranging from the terror attacks of September 2001 to the devastating hurricanes of 2005.
Government plays an important role as well. This can include clearing drains, improving storm barriers and coastal defences, or putting in place planning regulations to discourage development in high-risk areas such as flood plains. Intervention in pricing can be particularly dicey. In
Discussing the ClimateWise initiative this week, the ABI’s executive director, Stephen Hadrill, said the current arrangement would hold as long as the government does its part. “They keep flood risk in check at a certain level,” he said, “and we provide cover.” This arrangement is almost unique in