The insurance industrie has natural interests to limit consequences of Climate Change and Global Warming.
Private insurer losses from Hurricane Katrina for damaged, destroyed, or flooded homes and businesses, and for offshore oil and gas platforms that were either damaged, lost or missing and presumed sunk in the Gulf of Mexico, are estimated to be in the range of $40 to $60 billion.
Lord Peter Levene spoke yesterday to the World Affairs Council at the National Press Club in Washington.
Some quotes from his speech ‘Catastrophe trends and climate change: A global insurer’s perspective’:
We live in challenging times. Conflict in the Middle East. Drought in Africa. Terrorism threats to our major cities and airports. Global trade strains. Fifty-dollar barrels of oil. Like much of the policymaking establishment in Washington these days, insurers are paid to worry. And there is no shortage of issues to chew over.
But in recent months I have begun to wonder whether these sizeable dilemmas will, in generation or two, prove minor in comparison to the threat posed by natural catastrophe trends. …
If we fail now to prepare and adapt quickly and vigorously, I believe that we will take responsibility for putting society’s future in grave danger. … Of course, we don’t pretend to have all the answers. But there are three key questions which we believe we need to tackle together, and I would like to discuss those today.
First, is the US a nation in denial? Today the insurance industry faces the prospect of a 100 billion dollar national disaster - that’s twice the size of Katrina. We need to wake up to the truth about catastrophe trends and radically review our public policy.
Second, is the insurance industry strong enough to protect its policyholders against Mother Nature? Insurance has a vital role to play as a supporter and enabler of the economy but it can only do that where free market forces prevail.
Third, what action can we take on climate change? We believe that International partnership which brings together governments and businesses is the only solution, and there are sound business reasons to change our behaviour. …
Weather-related catastrophes are costing the global insurance industry more than ever before. Between the 1960s and 1990s the number of natural catastrophes doubled. Insured losses increased nearly seven-fold, most of them weather-related. 2005 was the worst year ever, with total global insurance claims of 83 billion dollars, over 80 per cent from the US hurricanes.
We can only expect this to accelerate as climate change takes hold. Ten years ago, I was very much a climate change sceptic. Indeed, I think it’s fair to say that until very recently, world opinion on the subject was sharply divided. But the 10 warmest years on record have all been since 1995. Within the insurance industry, no-one seriously disputes climate change is happening any more.
So, two years after Katrina, and two years away from a national election, where’s the public debate on catastrophe trends? At Lloyd’s we do not subscribe to scare stories, but for all the reasons above, we believe that a 100 billion dollar US mega-catastrophe is getting closer for the insurance indutry and it could hit almost anywhere on the Atlantic coast. …
There needs to be wide and open discussion now, in our view. We need to see much greater willingness to consider radical land use policies for affected areas. The relationship between government aid and unsound building and location decisions needs to be examined. And we need to raise public awareness of risk in a transparent way, improving the standards and consistency of building codes and other risk mitigation programmes. …
Our clear view is that insurance markets operate most effectively and most efficiently when left to free market forces. Based on long experience, Lloyds believes that the vast majority of natural perils are currently insurable.
We are therefore very confident that the global insurance market is well equipped to respond to US catastrophe risks. We are able to model the impact of natural disasters with an increasing degree of accuracy, so that exposure can be managed and risk spread. …
With mega-catastrophes a growing threat, it is more important than ever that the entire insurance industry is free to underwrite and to share risk across all its boundaries. The US must ensure that it does not become bogged down in a plethora of rules that inhibit efficient global markets, real competition, and fair and transparent prices for policyholders. …
In July, Lloyds held a conference on the subject in London attended by 200 business leaders from insurance and other industries. A key conclusion was that we can only make progress if we have commitment from every major country on the planet.
Now while there is much discussion on Washingtons refusal to sign the Kyoto accord and submit to mandatory limits on man-made greenhouse-gases, it is positive to see important momentum for change taking place at other levels.
Many US state and local governments are working to cut carbon dioxide or CO2 emissions by Kyoto levels. And theres a groundswell of opinion which suggests action will become an increasing priority for business too. …
And lets not forget that climate change can provide plenty of new opportunities for business too. 90 per cent told us that companies which take climate change seriously have competitive advantage over their peers. And some of corporate Americas leaders are also beginning to figure out that going green can be good business. …
Conclusion
In conclusion, ladies and gentlemen, there is much to be done if we are to leave this planet in tolerable shape for our children and grandchildren.
- We cannot risk being in denial on catastrophe trends. We can expect to see US mega-catastrophes with100 billion dollars insured losses soon. We urgently need a radical rethink of public policy, and to build the facts into our future planning.
- The insurance industry will continue to play a vital role as enabler and rebuilder of the US economy. We must therefore ensure it is allowed to remain financially strong, and free to operate under market forces.
- And we need to take co-ordinated action on climate change. The good news is that there is an important role which business can play, and there is commercial benefit to be gained from doing so.
Mega-catastrophes and climate change are two powerful forces here to stay. We dont yet know exactly what the future will bring. And there is little or nothing that could be done now to turn back the clock. Even if we stop all man-made CO2 emissions now, we would still endure 30 years of warming before the effects take hold.
But we must not use that as an excuse not to act. History, and future generations will surely not forgive us if we do.
Thank you for listening.
CRS Report for Congress: Hurricane Katrina - Insurance Losses and National Capacities for Financing Disaster Risk
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