Thursday, March 14, 2013

On climate change, a do-nothing strategy is not risk-free

Evan Mills is a longtime friend of this blog, and he has a hard-hitting piece in Property Casualty 360: Whatever insurers may think about the presence or causes of climate change, one thing is certain: the business climate is changing, rapidly.

New technologies are entering the market for saving and supplying cleaner energy in buildings, transport, and industry—and insureds are adopting these “green” technologies left and right. Renewable energy investment around the world topped $257 billion in 2011 (80% of the investment in fossil fuel capacity), approaching half of all new electrical generating capacity globally.  Energy efficiency and “green-buildings” have also become multi-billion-dollar markets, and growth is showing no signs of slowing.

With this comes a need to assess and manage associated emerging risks, as well as be an early mover to capture business opportunities and stay in tune with customers who are increasingly “going green.”

I have cataloged over 1100 climate-oriented activities conducted by 378 insurance entities in 51 countries.  Surprisingly more are based in the U.S. than any other country, although some of the most concerted efforts are to be found elsewhere. [You can find the Evan Mills report here.]

Care should be taken that these well-intended efforts to curb greenhouse-gas emissions don’t have inadvertent consequences. That said, some pundits have focused myopically on potential downsides, without considering the prospective co-benefits. For example, insurers have long found that facilities that institutionalize a “culture” of careful energy management experience fewer losses.

New technologies, by definition, certainly lack a history of loss experience. This fact of life has been part of the insurance landscape since the times of Hammurabi. Consider the first car, the first boiler, or the first airplane. While insurers may have temporarily shied away from these new risks, doing so would clearly not have been a prudent or necessary long-term strategy. Instead, efforts were proactively made to engineer risk out of the green equation....


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