THE CLIMATE CHANGE PERIL THAT
By John Morrison and Alex Sink
Thursday, September 27, 2007; Page A25
Washington Post Op-Ed
Montana is burning again. This summer, some of the nation's worst wildfires
incinerated homes, barns and fences, killing livestock and forcing families
to evacuate. Wildfires have increased fourfold since the 1980s, and they are
bigger and harder to contain because of earlier-arriving springs and hotter,
bone-dry summers. Last year's fires broke records; this year could be worse.
As courageous firefighters beat back the flames, insurance companies
continue to pay out billions for wildfire losses across the West.
Meanwhile, Florida is bracing for the duration of the hurricane season even
as rebuilding continues from the eight hurricanes that crisscrossed the
Sunshine State in 2004 and 2005. Storms grow ever more intense: Since the
1970s, the number intensifying to Category 4 or 5 hurricanes has almost
doubled, costing insurers tens of billions of dollars.
Montana and Florida are not the only states suffering huge insurance losses
from natural disasters. Increasingly destructive weather -- including heat
waves, hurricanes, typhoons, tornadoes, floods, wildfires, hailstorms and
drought -- accounted for 88 percent of all property losses paid by insurers
from 1980 through 2005. Seven of the 10 most expensive catastrophes for the
U.S. property and casualty industry happened between 2001 and 2005.
Ten years ago, Peter Levene, chairman of Lloyds of London, was skeptical
about global warming theories, but no longer. He believes carbon emissions
caused by human activity are warming the Earth and causing severe
weather-related events. "At Lloyds, we feel the effects of extreme weather
more than most," he said in a March speech. "We don't just live with risk --
we have to pick up the pieces afterwards." Lloyds predicts that the United
States will be hit by a hurricane causing $100 billion worth of damage, more
than double that of Katrina. Industry analysts estimate that such an event
would bankrupt as many as 40 insurers.
Lloyd's has warned: "The insurance industry must start actively adjusting in
response to greenhouse gas trends if it is to survive." The Association of
British Insurers has called on governments to "stem ominous weather related
trends" by cutting carbon emissions. U.S.-based companies AIG and Marsh --
respectively, the largest insurer and broker -- have joined with other
corporate leaders to urge Congress to reduce U.S. greenhouse gas emissions
60 to 80 percent by mid-century. AIG's policy statement on climate change
"recognizes the scientific consensus that climate change is a reality and is
likely in large part the result of human activities that have led to
increasing concentrations of greenhouse gases in the earth's atmosphere."
Marsh issued a similar statement, as did European insurance giants Swiss Re,
Munich Re and Allianz. The chief research officer of Risk Management
Solutions, an industry risk forecaster, responded to an April report of the
Intergovernmental Panel on Climate Change by announcing that climate change
is already increasing "financial losses from extreme weather catastrophes."
A.M. Best, the historical voice of insurance, began a series in the August
edition of Best's Review on the risks, regulatory issues and economic impact
of climate change.
Nervous investors have begun asking insurers to disclose their strategies
for dealing with global warming. At a meeting of the National Association of
Insurance Commissioners, Andrew Logan, insurance director of the Ceres
investor coalition, representing $4 trillion in market capital, warned that
"insurance as we know it is threatened by a perfect storm of rising weather
losses, rising global temperatures and more Americans living in harm's way."
Ceres cites estimates that losses related to catastrophic weather have
increased 15-fold in the U.S. property casualty industry in the past three
Insurance companies are reacting. Some have simply abandoned
catastrophe-prone markets or are jacking up rates. Other insurers have taken
steps in the battle against climate change by offering premium incentives
for "green" construction and hybrid cars, investing in companies that cut
carbon emissions or develop clean energy, and offering "pay per mile" car
insurance. Still others are reducing their own carbon footprints, promoting
markets for carbon-credit trading and even moving to protect
Insurance companies make money by accurately assessing risk. For decades
environmentalists have been sounding the alarm about global warming. Now
major insurers are becoming engaged as they look after their own assets and
those that they cover. Federal reluctance to commit to international
agreements on climate change, or otherwise cap total carbon emissions,
appears to be driven by influential businesses that fear the limitations
will hurt their bottom lines. But the risk perceived by the insurance
industry -- the world's largest economic sector -- may shift that political
balance. At the least, it should tell us something.
John Morrison is the state auditor of Montana. Alex Sink is the chief
financial officer of Florida. Both oversee state insurance departments and
are members of the Climate Change Task Force of the National Association of