Climate Change And The Insurance Industry Commerce Essay

One of the most combative issues and the biggest challenge universe is confronting today is that of clime alteration. While there has been some incredulity around the subject, many scientists and taking authorities organisations have stressed the earnestness of the menaces that lifting planetary temperatures pose for the planet and its dwellers. Climate Change poses an tremendous challenge for socio-economic and natural systems. It has been impacting the natural environment and accordingly universe economic systems and the manner organisations are carry oning their concerns. Understanding planetary heating is going imperative for concerns and authoritiess so that they can measure the future reverberations of this phenomenon and extenuate its effects. This essay explores the issue of clime alteration, high spots major stakeholders and cardinal events that affected policy devising and statute law. In footings of the concern interface, it discusses how climate alteration is impacting the concern sector, peculiarly the insurance industry, and the industry ‘s response to the issue.

Climate Change: The Issue

Since the industrial revolution, industrial activities that involve combustion of fossil fuels have been major subscribers of planetary nursery gas emanations. The 3rd assessment study by the Intergovernmental Panel on Climate Change ( IPCC ) has provided strong grounds which suggests that planetary heating in the last 50 old ages has been mostly due to human activity, i.e. C dioxide emanations from combustion of fossil fuels. The study besides states that the C dioxide degree now is at the highest degree in the last 125,000 old ages ( Islam, 2010 ) . Industries like coal excavation, oil refinement, crude oil fuel burning, mush and paper, cement production, and the conveyance sector have been chiefly responsible for bring forthing most of the anthropogenetic nursery gases ( Islam, 2010 ) . Recent research has shown that planetary surface temperature has increased about 0.2 A°C per decennary in the past 30 old ages ( Hansen, 2006 ) . Harmonizing to IPCC, human activities along with natural drivers such as volcanic aerosols, and increased end product from the Sun etc ) are doing alterations in planetary temperatures and that nursery gas addition in the ambiance is the taking cause of the heating in the past century ( Garnaut, 2011 ) . In a 2007 study, the IPCC concluded that most of the heating since the mid twentieth century was likely due to human induced addition in nursery gas concentrations ( Garnaut, 2011 ) . Quickly runing ice has risen the sea degrees 4-8 inches over the past century and worldwide precipitation has besides increased by about one per centum ( Islam, 2010 ) .

Figure 1 below demonstrates alterations in planetary temperature over the past century ( Islam, 2010 ) .

Worldwide C dioxide emanations from fossil fuel burning were 24,409 million metric dozenss in the twelvemonth 2002. This figure is projected to increase to 33,284 million metric dozenss by 2015 and 38,790 million metric dozenss by the twelvemonth 2025 ( Islam, 2010 ) . Figure 2 below represents alterations in CO2 concentration in the ambiance after the twelvemonth 1950 ( Islam, 2010 ) .

Climate Change: Cardinal Events

Following is a timeline of planetary enterprises and cardinal events on clime alteration that has affected policy devising and statute law on an international degree ( Plan-ed ) .


Conference on Human Environment

First Global acknowledgment that environment was endangered


Greenhouse Effect

Convention on Long Range Transboundary Air Pollution

World Climate Conference demands pressing action on “ nursery consequence. ”

International lawfully adhering instrument to cover with air pollution


Convention for the Protection of the Ozone Layer

Created general duty for states to protect ozone bed


Bruntland Report “ Our Common Future ” published

Montreal Protocol

Dealt with sustainable development

Resulted in diminution in industry and usage of Chlorofluorocarbons



The Intergovernmental Panel on Climate Change was formed


Earth Acme


UN conference on Environment and Development

United Nations Framework Convention on Climate Change was formed


UN Commission in Sustainable Development

To heighten international corporation and determination devising capacity



The First Conference of the Parties: understanding on cut downing GHG emanations


Kyoto Protocol

States agreed on cut downing GHG ‘s and Kyoto Protocol was passed


Bonn & A ; Marrakech

IPCCC called the conference to convert other states to cut down emanations


Johannesburg Summit

World Summit on Sustainable Development



Adaptation of Bali roadmap-decisions on engineering transportations, decrease of emanations



Global clime understanding to guarantee long term security of energy supply


Stakeholders related to the issue of clime alteration would be people, parts, industries or communities that are impacted by or are potentially vulnerable to climate alteration. Relevant stakeholders and their functions are highlighted in the Table 2 below ( Gardner, 2009 ) .


Specific communities or parts in sensitive locations that are vulnerable to the effects of clime alteration


Federal, State and Local authoritiess play a cardinal function in policymaking and ordinance which can assist extenuate the effects of clime alteration

Infrastructure Management Agencies

Responsible for pull offing major substructure such as ports, air, land conveyance, H2O, energy and belongings.

Particular Industries

Forestry, piscaries, excavation, and car industries are responsible for bulk of the GHG emanations and can play a cardinal function in countering planetary heating

Nongovernmental Organizations

NGO ‘s are of import because they are frequently involved with issues that concern the environment and autochthonal people.

Societal, Regulatory, Legal Context of Climate Change:

At an international degree, there are two models ( UNFCCC, Kyoto Protocol ) that address the issue of climate alteration. These models have helped states acknowledge the job and assisted in decreases of nursery gases.

The United Nations Framework Convention on Climate Change ( UNFCCC ) intends to accomplish stabilisation in nursery gas emanations globally. This is a lawfully non adhering Convention that applies a minimal criterion of emanations on its signers ( Native Title Report, 2008 ) .

The Kyoto Protocol to the UNFCCC is an international understanding that sets adhering marks and timetables for emanations decreases for developed states. Kyoto Protocol commits its signatory states to run into their marks and requires them to subject an one-year emanations inventory study and national study ( Native Title Report, 2008 ) .

At the societal degree, the International Human Rights Framework identifies and protects basic, cardinal rights that all human existences are entitled to. This includes menaces from peculiar state of affairss such as clime alteration. The model besides covers issues of ownership of traditional lands and districts, natural and cultural heritage, biodiversity, rational belongings rights, poorness decrease, and economic development. This model is linked to other international instruments such as the Universal Declaration of Human Rights ( UDHR ) , the International Covenant on Civil and Political Rights ( ICCPR ) , and the International Covenant on Economic, Social and Cultural Rights ( ICESCR ) ( Native Title Report, 2008 ) . The United Nations Permanent Forum on Indigenous Issues ( UNPFII ) advises on autochthonal issues related to instruction, wellness, environment, economic and societal development and human rights ( Native Title Report, 2008 ) .

At the domestic degree, Australia has developed its ain clime alteration policy and legal model that allows for autochthonal engagement in C markets by promoting partnerships between the private sector and autochthonal communities and carry oning research around scientific and market potency ( Native Title Report, 2008 ) . The Australian authorities has besides commissioned reappraisals to measure the impacts and challenges on clime alteration in Australia. These reappraisals include The Garnaut Review which evaluates the costs and benefits of extenuating clime alteration, and the Green Paper which introduces the Carbon Pollution Reduction Scheme ( CPRS ) . The CPRS or the emanations trading strategy purposes on cut downing nursery gas emanations through efficient, low cost schemes ( Native Title Report, 2008 ) . At the federal degree, the Environmental Protection and Biodiversity Conservation Act ( EPBCA ) provides a legal model to protect and pull off affairs of environmental significance which includes vegetations, zoologies, universe heritage sites, wetlands of international importance, and nationally threatened species ( Native Title Report, 2008 ) .

Business Interface: Impact and Response

There is adequate grounds to back up that planetary temperatures are lifting and it is mostly due to human induced heating. Concern over lifting planetary temperatures and altering clime has badly wedged concern activity around the universe. Directors and leaders are fixing themselves to cover with a scope of clime related issues that may impact their concern. These issues include increased hazard of drouth, desertification, runing ice, implosion therapy, hurricane activity and mass economic migration from harshly affected countries. Businesss are besides larning to react to increasing consciousness in public sing clime alteration ( Romilly, 2007 ) .

Impact on the Insurance Industry:

Insurance is one of the biggest industries in the universe today, and climatic events will hold a large impact on this sector. Recent hurricane activity, implosion therapy and drouths around the universe due to warming ocean has incurred losingss in one million millions of dollars for the insurance industry. For illustration, Hurricane Katrina incurred economic losingss of around US $ 135 billion and insurance losingss of around US $ 45 billion, doing it the most expensive insured loss in the United States. After the 2005 Hurricane Katrina, it was recognized that current calamity theoretical accounts do non decently reflect the loss exposure to natural calamities and that more work demands to be done to better the prediction theoretical accounts. Alternatively of merely concentrating on the figure of utmost conditions events in an country, the calamity theoretical account should “ quantify the extent of the bunch of these utmost events which would intend higher insurance premiums ” ( Romilly, 2007 ) . Insurance companies normally use historical conditions informations to calculate future events. With conditions forms going more unpredictable, insurance companies ( peculiarly belongings insurance companies ) are holding problem calculating the cost of claims. Even though Hurricane Andrew was non every bit ruinous as Hurricane Katrina, it still caused $ 25 billion in amendss of which insurance companies had sustained $ 17 billion. The impact of the losingss was such that it bankrupted nine little insurance companies in Florida. Since Andrew, insurance rates in Florida have gone up and many little insurance companies have closed their concern while big companies have excluded hurricane harm coverage ( Tucker, 1997 ) .

Response of the industry:

In response to the uncertainness environing clime alteration, insurance companies have taken assorted stairss from abandoning riskier markets, to raising premiums, take a firm standing on greater deductibles, and declining to see belongings without proprietors holding on taking protective steps ( Tucker, 1997 ) . Fifty insurance companies worldwide have signed the United Nation ‘s Statement of Environmental Commitment by the Insurance Industry, plighting to back up sustainable development, environmental direction, public consciousness and communications ( Tucker, 1997 ) . Insurance companies like General Re, Chubb Corporation, St. Paul Companies, SAFECO, and USF and G have been taking stairss to go socially responsible by taking clime alteration into history when gauging expected losingss, prefering industries with low emanations, advancing good environmental patterns and going active in public consciousness and clime preparation ( Tucker, 1997 ) . While a batch of clime alteration related impact on the concern sector is negative, many concerns are get downing to acknowledge the possible chances in accommodating to the altering conditions. Switching from C to low C engineering will impact the oil industries negatively but at the same clip it will give a competitory border to alternative energy concerns. Construction industry will profit as people will get down to relocate to countries off from the coastal zone and increase inundation protection steps ( Romilly, 2007 ) .

Case Study:

Following is a instance survey about an insurance company ‘s response to the clime alteration issue. It describes how Travelers insurance company has adapted to altering conditions by changing their concern construction and modifying merchandises and services and what kind of response it is having.

The Travelers Companies, Inc is one of the largest suppliers of insurance merchandises in the United States with representatives in every US province and in Canada, Ireland, Singapore and the UK. It provides personal, commercial belongings and causality insurance merchandises. It besides provides insurance to little concerns every bit good as to Fortune 100 corporations. Not merely do they supply belongings and liability coverage to concerns, but they besides offer bespoke merchandises and to building, transit and oil and gas industry ( Sussman, 2008 ) . Travelers is one of the insurance companies to recognize the importance of accommodating to the altering clime and has late joined the Pew Center ‘s Business Environmental Leadership Council ( BELC ) . After the 2004 and 2005 Atlantic hurricane seasons, Travelers decided to alter its attack to climate alteration and formed internal working groups to measure the hazards and chances associated with the issue ( Sussman, 2008 ) .

Travelers has taken specific actions in response to the issue of climate alteration:

Reassessing coastal underwriting patterns. As per the definition of coastal countries, they are now further inland than what they used to be. Coastal clients now portion greater hazard than before and are provided with inducements to promote them to prosecute in loss control and version activities ( Sussman, 2008 ) .

Updating calamity mold. Due to uncertainness of clime alteration and increasing frequence and strength of conditions related natural catastrophes, Travelers late joined an attempt initiated by the Center for Health and the Global Environment at Harvard Medical School to concentrate on how catastrophe theoretical accounts can assist incorporate clime scientific discipline into their theoretical accounts that help foretell possible ruinous losingss ( Sussman, 2008 ) .

Offering “ Risk Control ” services. Travelers has been supplying consultancy services to people and concerns to assist them extenuate possible losingss and help with version to the altering clime. These services include supervising edifice codification criterions and ordinances in support of edifice resilience, helping with catastrophe readiness planning, and presenting concern continuity preparation ( Sussman, 2008 ) .

Redesigning pricing. Travelers offers inducements to householders who take protective steps by put ining storm immune constructing constituents such as shutters, and fortifies roofs that will defy terrible conditions. Businesss are offered inducements if they build harmonizing to the calamity immune edifice codifications ( Sussman, 2008 ) .

Prosecuting in community and authorities outreach. Travelers has been distributing catastrophe consciousness and encouraging householders and concerns to fix for prospective natural catastrophes. They have extended their consciousness attempts to authorities organic structures and have been informing them about benefits of long term extenuation schemes which include acceptance of enforcing rigorous edifice codifications and enhanced land usage planning ( Sussman, 2008 ) .

Other than the above-named schemes, Travelers has been supplying inducements and price reductions to proprietors of intercrossed autos and “ green ” commercial edifices ( Sussman, 2008 ) .


Harmonizing to a survey conducted by the Institute for Business and Home safety ( IBHS ) , enforcement of modern technology design-based edifice codifications has a positive impact on the public presentation of places during Hurricane Charlie in 2004. The survey found out that frequence of claims dropped by 60 per centum and claims that were filed were 42 per centum less terrible during the loss for places that were built harmonizing to the new edifice codifications ( Sussman, 2008 ) .

Decision: Current tendencies, Future responses, Potential deductions

Insurance suppliers are progressively recognizing the importance of cut downing hazard and keeping a trade name value alternatively of merely concentrating on fiscal hazard direction. Current response of insurance companies to climate alteration is more focussed on new markets and benefits associated with cut downing the badness of clime alteration impacts by extenuating nursery gas emanations ( White, 2008 ) . Many big graduated table insurance companies have been concentrating on supplying insurance coverage to concerns that use clean energy engineerings. Examples include, AIG ‘s Global Alternative Energy Practice, Allianz ‘s Climate Solutions and Chubb ‘s Green Energy Team ( Reacting to CC-Mills ) . Adaptation is the key to survival for any concern in a changing environment. There is non much that insurance companies can make to forestall clime related natural catastrophes, but being the biggest and the wealthiest industry in the universe, it can promote people and concerns to take precautional steps to cover with clime alteration by distributing consciousness and supplying them inducements and price reductions.