Climate change – Linkages to Insurance

Posted on December 7, 2010 by

According to the Munich Climate Insurance Initiative, an international effort of Munich Re, the UN, World Bank and other experts,

“climatic change is already influencing the frequency and intensity of natural catastrophes. . . . 2001 to 2004 were among the five warmest recorded worldwide since 1861. . . . Since the 1970s, major tropical storms both in the Atlantic and the Pacific region have increased in duration and intensity by about 50 percent. . . .

If the scientific global climate models are accurate, the present problems will be magnified in the near future. These models suggest that we should expect: increase in the frequency and severity of heat waves, droughts, bush fires, tropical and extra tropical cyclones, tornados, hailstorms, floods and storm surges in many parts of the world; new exposures (like hurricanes in the South Atlantic); and more extensive damage, economic, social, and environmental impacts from weather-related disasters.” (Source: Munich Climate Insurance Initiative)

Pakistan’s current flooding, the worst recorded natural disaster in the country’s history. Many scientists and analysts believe that these events are harbingers and now is the time to consider how insurance can protect companies against future climate-related disruption and risk.

Till now, no one has yet successfully sued a company for climate change damage allegedly caused by greenhouse gas (“GHG”) emissions. There are lawsuits blaming industrial emitters for GHG emissions responsible for global warming, extreme weather events and other natural disasters. These lawsuits have arised across Alaska, Washington, D.C., California and Louisiana. Awareness among stakeholders, mostly the shareholders has resulted in resolutions that force companies to limit their carbon emissions. Corporate executives and risk managers are becoming more than ever concerned about business risks related to climate change.

Though the climate change issues and claims are still relatively new and not as of yet commonly applied concepts, some businesses have already started thinking about policies for their portfolios. Such policies include comprehensive general liability, directors and officers liability, and first-party property damage and business interruption policies.