Insurance companies struggle to address climate risks

Hurricane damage, insurance

Unpredictable extreme weather events make insurance companies’ job a lot harder. A new Ceres report explores which insurance companies are responding effectively to climate risks.

Insurance companies struggle to address climate risks

By Alex Amonette

Does your insurance company take climate risk seriously? Odds are, probably not.

A recent report by Ceres, a nonprofit sustainability group, only awarded 22 insurers “High Quality” ratings for the evaluation of climate risk in their investment, underwriting, and governance decisions. Ceres evaluated 148 insurance companies total, who represent about 71% of the U.S. insurance market. So if you use John Hancock, MetLife, or Prudential—a few of those “High Quality” insurers—count yourself lucky.

Unpredictable challenges

People in our country, and around the world, have been losing their lives, their pets, crops, livestock, possessions, and homes due to hurricanes, floods, tornadoes, wildfires, heat waves, droughts, and other impacts of our changing climate that has put our natural weather variations on steroids. It’s affecting our health. It’s terrifying and becoming more and more commonplace as our world continues to warm.

Moreover, these devastating events cost billions of dollars. Even the National Flood Insurance Program has been insolvent since Superstorm Sandy. Lawmakers are proposing rules for private insurers and banks to come to the rescue; in the meantime, we are all vulnerable.

In their foreword to the report, insurance commissioners Mike Kriedler (WA) and Dave Jones (CA) point out, “The insurance industry is pivotal to our nation’s economy, with $1.8 trillion in written premiums in 2014. Insurance can make a difference between financial security and devastation in people’s lives.” Unfortunately, climate change is also changing how we insure ourselves. They explain:

“Insurance companies rely upon historical loss records to guide their underwriting and set their prices. More and more frequently, the climate is behaving in ways that we can’t predict. Weather patterns are shifting, and the severity and breadth of damage are intensifying, resulting in more costly disasters than we’ve ever seen. There is no basis in historical data for events like Hurricane Sandy, the Joplin, Missouri tornado, the Oso landslide in Washington state, and record-breaking landslides in Western states. In 2016 alone, 31 major disaster declarations were reported to the Federal Emergency Management Agency (FEMA) by the end of August.”

Slow improvement

In 1954, I was 4 years old. Hurricane Hazel struck the Jersey coast, where I was on Long Beach Island with my mother and twin brother in an ocean-side house we rented. The ocean met the bay. I don’t remember how we were rescued. All I remember is being terrified on the third floor of that house, looking out the window, seeing all that water covering the island. Hazel killed as many as 1,000 people and particularly devastated Haiti and Toronto.

Even as events like these increase in frequency and unpredictability, this new report from Ceres shows that we and our insurers aren’t much better prepared today than in the past.

The report finds:

  • The insurance industry has improved on disclosure of climate risk since 2014
  • Most of the 148 insurers still have an “overall lack of focus in addressing climate risks and related opportunities”
  • Only 22 insurers (16%) of the total 148 companies scored by Ceres earned a High Quality rating
  • 64% of the total insurers (148) earned Low Quality or Minimal ratings
  • Health insurers in particular show a “continued general lack of understanding about climate risks,” despite increased risks from air pollution and airborne pathogens

Please download Insurer Climate Risk Disclosure Survey Report and Scorecard Report: 2016 Findings and Recommendations and see how your insurance company is responding to the challenge of climate change. The report also makes specific recommendations for every insurance segment, so share the report with your insurance agent too. We need all the protection we can get as we weather the present and future storms in our changing climate.

Alex Amonette
Alex Amonette is a freelance technical and grant writer/editor, lives in cattle and sheep country, and raises vegetables and hay.