Report Examines The Risk Climate Change Poses To Insurers And Their Customers

The impacts of global warming could drive up insurance premiums in high-risk areas like coastal zones, which could make insurance unaffordable for customers in those areas, according to a report released by insurance company Allianz Group and the World Wildlife Fund (WWF).

According to the report, released on Oct. 10, insurance premiums in states vulnerable to hurricanes are already increasing, and in some cases, insurers are exiting these markets altogether.

The report calls for the insurance industry to do more to address the growing impact of climate change-induced damages. This is the first time that a major insurance company has publicly released a study of this kind in the United States. The report examines the latest scientific findings about climate change, specifically on forest fires, storms and floods, and the potential impact on the insurance industry and its customers.

As detailed in the report, Climate Change and Insurance: An Agenda for Action in the United States, climate change has the potential to significantly alter and intensify destructive weather patterns in the United States, leading to increased flooding, forest fires, and storm damage. The most direct risk to the United States will likely come from hurricanes, which are expected to become more frequent and powerful. Additionally, rising sea levels over the coming decades could inundate many U.S. coastal cities, and portions of some coastal states. Forest fires could become even more frequent and larger.

Allianz and WWF intend to engage the insurance industry, governments, regulators and others to better manage the risks associated with climate change. "We need to better understand the effects of climate change and the changing environment for our customers," said Clem Booth, member of the board of Allianz AG, "but if we can find a way to provide insurance in the face of major changes, from the first transatlantic voyages to global terrorism, then we can find new ways to address climate change."

"Global warming is the greatest environmental threat facing the world, and the people and animals that inhabit it. The cost of doing nothing carries a price tag none of us can afford," said Carter Roberts, President and CEO of WWF-US. "The insurance industry has a vested interest in stepping up to the plate and being a part of the solution. Allianz has been a leader on this issue and we hope that the entire industry makes climate change a top priority."

The report provides several recommendations for addressing the potentially adverse consequences of climate change in the United States. One key recommendation is for both governments and insurance companies to help correct market distortions and communicate appropriate signals to homeowners, businesses and consumers moving into high risk areas. The report points to the need by regulators to consider carefully the impact of programs like the National Flood Insurance Program, which keep insurance rates artificially low. By masking the real price of risk, such policies encourage overdevelopment in high risk areas.

In addition, the report suggests U.S. insurers begin incorporating future potential climate change impacts such as continued sea level rise and longer fire seasons into planning, rather than relying only on historical data of past weather events.

The report also recommends that insurers influence land use development and planning in high risk areas. For example, conserving coastal mangroves provides a natural buffer from storms, surges and waves; forest preservation can reduce mudslides. Another way to minimize losses related to climate change, the report says, is to promote storm-resistant and energy-efficient building materials, improved building codes and better public education about their benefits. "This emphasizes the win-win opportunity for customers presented by energy efficient buildings that also incorporate state-of-the-art protection against wind damage, fire, and water influx," Booth said.

Fireman's Fund Insurance Co., a unit of Allianz AG (Charts), this fall plans to introduce commercial insurance policies designed to support and encourage the development of "green" buildings that save energy and reduce emissions of greenhouse gases. One of the products will provide a discount to LEED (Leadership in Energy and Environmental Design) or Green Globes certified buildings. A second commercial property product will upgrade customers to energy efficient or "green" products when replacing damaged items such as roofs, windows, equipment, lighting systems and hot water heaters. Finally, a third product will provide commissioning coverage to inspect systems such as HVAC after installation for proper installation and efficiency.

In line with the report's recommendations, Allianz is taking several actions to help develop solutions for its customers and the industry as a whole. These include investing $600 million in renewable energy projects over the next five years, introducing a new tool based on Google Earth in the United States to help customers better manage their exposure to natural catastrophes, and cutting its own greenhouse gas emission by 20 percent by 2012. In light of the report's findings, Allianz is also planning to begin developing new products that address global warming and will start researching ways to integrate the anticipated potential future impacts of climate change into its risk models.

The report can be accessed in PDF format either at or

This article originally appeared in the 10/01/2006 issue of Environmental Protection.

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