Insurance Companies' Financial Exposure to Climate Change
Whereas, Leading scientists on the Intergovernmental Panel on Climate Change (IPCC), nominated and reviewed by governments, warn that global warming -- caused by burning fossil fuel and emitting greenhouse gases -- is already underway.
The IPCC projects:
an average rate of global warming over the next 100 years exceeding that over the last 10,000 years;
(with the World Health Organization) increased spread of infectious diseases, and more frequent and deadly heat waves;
sea-level increases of 1-3 feet over the next century, putting 92 million people at risk in low-lying areas;
sea-level rises together with stronger storm surges, exacerbating the damage from hurricanes and tropical storms; and
a more vigorous hydrological cycle that will likely cause stronger precipitation, increased flooding in some areas, greater drought in others, and greater intensity and force of storms.
"The increased intensity of all convective processes in the atmosphere will force up the frequency and severity of cyclones, tornadoes and hailstorms, floods and storm surges… with serious consequences for all types of property insurance… In areas of high insurance density the loss potential of individual catastrophes can reach a level where the national and international insurance industries run into serious capacity problems" (Dr. Gerhard Berz, Head, Munich Reinsurance Geoscience Research Group, 1992).
"Insurance analysts say a hurricane or earthquake in a large metropolitan area could easily expose insurers to claims of $50 billion or more. That is enough to put some insurance companies out of business…[or] drastically reduce the amount of new insurance they sell. Claims of that size would also overpower the reinsurance industry, which sells policies to protect insurers from losses" (New York Times, 1995). "In two events… you'd cripple the industry" (Eugene Lecomte, former President, US Institute for Property Loss Reduction). "The industry is the first in line to be affected by climate change… it could bankrupt the industry" (Frank Nutter, President, Reinsurance Association of America, 1993).
The IPCC report makes clear that actions to reduce greenhouse gas emissions dramatically are critical now if these dangers are to be avoided. According to more than 2000 economists (including six Nobel laureates), the U.S. can reduce industrial emissions, slowing climate change without damaging the economy; and well-designed policies relying on market mechanisms "may in fact improve productivity in the long run… Climate change carries with it significant environmental, economic, social and geopolitical risk. Preventative steps are justified" (Reuters, 2/14/97).
"The time to consider the policy dimensions of climate change is... when the possibility cannot be discounted... We in BP have reached that point" (John Browne, Group Chief Executive, British Petroleum (BP) America, 5/19/97).
