<a href="https://www.greenlifestylemag.com.au/blogs/leon#">The Business of Green</a>

The Business of Green

Money matters in the green world, by Leon Gettler.

Climate change: an insurance nightmare


Credit: sxc.hu

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Insurers are warning that climate change is the new asbestos. The New Lawyer magazine reports that while courts have until now dismissed climate change lawsuits against companies, insurer Swiss Re says the same could be said for asbestos-related claims that surfaced in the 1950s.

"By the 1960s, these asbestos-related claims were already becoming successful," Swiss Re said. "At issue is not any correlation between asbestos and climate change, but rather the speed at which an issue can become a widespread topic for collective actions . . . We expect, however, that climate-change-related liability will develop more quickly than asbestos-related claims and believe that the frequency and sustainability of climate-change-related litigation could become a significant issue within the next couple of years."

This is another reason why governments around the world should use the insurance industry to develop climate change adaption policies. There is also another very good reason for this: the insurance industry will be one of the hardest hit areas by climate change. Think of the damages claims that will come in from freak storms, rising seas and floods. Consider for example the $500 million payout for insurers after freak storms hit Victoria in March this year. According to the Herald Sun, this made those storms one of the five biggest events in insurance history in this country. Or consider the conservative $4.4 billion figure put on last year's Black Saturday fires by the Victorian Bushfires Royal Commission, including insurance claims of $1.2 billion.

This is why one of the world’s biggest insurers Allianz is lobbying politicians, business leaders and scientists in the lead up to the UN climate summit in Cancun.

The Insurance Journal reports that Allianz is warning that the impact of climate change will hit harder than the financial crisis. It notes that governments are sitting on their hands and the problem is getting worse. Allianz board member Joachim Faber has noted that in "our global industry insurance business alone, 40 per cent of damages are due to storms and floods. Also, for our asset management entities, we have to watch rising temperatures. Governmental climate policies affect the value of companies and hence influence our investment decisions.”

Similarly, the world’s biggest insurance companies are reported to be lobbying world leaders to use the insurance industry to develop climate adaption policies.

Senior underwriter Ken Wolslegel says that the insurance industry provides the prism through which we should view climate change because it is the biggest industry on the plane and secondly because it makes its money from anticipating losses.

The problem is finding the empirical proof of the damage that will be done by global warming. Climate science is not that exact. But then, if the insurance industry isn’t prepared, it will devastate the global economy because of the massive losses, many of which might not be reimbursed. We can’t expect governments to bail out people from the losses, particularly when government reserves have been depleted by the financial crisis.

Meanwhile, the problem is getting worse. The prospective payouts are going to be massive with warnings that by 2030, storm tides, which have always occured once a century, becoming one-in-20-year events before developing into an annual occurrence by 2070. That could send some insurers out of business.

The insurance industry needs to be given a more prominent role in developing policies seeking to deal with climate change. It’s not only for their self-protection. It’s to safe-guard the planet.