Good News, Major Insurance Companies Recognize Climate Change is Happening…But will that make a difference?

How will insurance companies handle increased risk of disasters, like flooding?

During the Q&A session I asked speakers at a March 19, 2015 Weston Sustainability Round Table about insurance and climate change.  Did insurance companies have the clout, perspective and willingness to advocate strategies that reduce the magnitude of climate change?  Would such businesses support a carbon tax?  For the record, “murky” seemed to characterize the situation as they described it.  Their answer parallels comments made by an Insurance industry expert who spoke on a Citizen’s Climate Lobby monthly conference call in 2014.  According to both presentations, insurance companies, and reinsurance companies in particular, recognize the reality of climate change and its human causes.  Unfortunately they have not, and likely will not, advocate for mitigation strategies (policies and techniques that dramatically reduce carbon pollution) to reduce the size of climate change.  Instead they will continue to modify their business models so they continue to make money.

That seems to mean they will assess and adapt to changing risks with tactics like higher premiums, higher deductibles, more exclusions and more property owner precautions.  More likely than not, they will at best advocate for adaptation strategies (e.g. better sewers and other flood control infrastructure).  Practically speaking, mitigation strategies such as Revenue Neutral Carbon Fee and Dividend, while good for humanity overall in the long run, won’t likely save the companies any insurance claims payouts in the next 10-30 years .   Steps today to  reduce green house gas emissions and carbon pollution won’t eliminate the impacts of climate & weather changes already happening due to current  levels  in the atmosphere.  Lobbying for mitigation, for cures to climate change, instead plunges them into a political firefight without improving next quarter’s, next year’s or even next decade’s profits. Lobbying for adaptation, on the other hand,  avoids politically contentious questions of human cause and responsibility while keeping them profitable for the time being.  It reduces the amount of damage and associated insured costs from the inevitable climate change induced extreme weather events.

 One speaker – Joan Schmitt, UW Madison professor – did remark that the culture in Europe seemed to predispose executives there to have more concern about public and community stakeholders and the broader societal impacts of their decisions than in the US.  In remarks during and after the formal presentation Schmitt seemed to suggest that insurance companies at best might be motivated by civic mindedness to lobby for mitigation, but not by economic or business interests.  She also bemoaned the fact that  Florida in particular was not allowing true risk-based insurance rate setting.  This meant to her that US taxpayers would get stuck with the inevitable major bills once climate change induced rising sea levels lead to hurricane driven massive flooding damage.  (Of course, things are already getting pretty bad even in Miami.)
The other speaker, Jim Swank, Insurance Industry consultant saw an interesting glimmer of hope.  He noted that the climate for climate change action might change through liability law suits.  For instance some might file claims for extreme weather event damage against major sources of green house gases (e.g. owners & operators of coal fired power plants).  To him such cases have the potential for major social impacts like the asbestos and cigarette cases of previous decades.  He cited one example of an insurance company that sued to deny claims from municipalities in Illinois for not exercising prudence (e.g. improving sewer systems and taking other appropriate adaptation steps) before extensive flood damage.
Regrettably, as much as insurance companies may see the reality of human caused climate change, they don’t see money in fixing the root problems.    At best we can hope appeals to corporate civic mindedness  might sway them to apply their weight for not just protecting their profits, but protecting our planet.