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Climate Products
Developing Insurance Products to Facilitate Adaptation and Mitigation to Climate Change Risks
September 14, 2009
RIMS Canada
The Importance of Risk Based Price Signals in Assuring Resilience and Adaptation
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Disclaimer
The information in this publication was compiled from sources believed to be reliable for informational purposes only. All information herein should serve as a guideline which you can use to create your own policies and procedures. We trust that you will this information to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. Any and all information contained herein is not intended to constitute legal advice and accordingly, you should consult with your own attorneys when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. Moreover, Zurich reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy.
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Climate Change Is Happening ….
Potential increased frequency and severity of storms
Rising sea levels
Potential increased frequency and severity of drought
Natural resources stresses
http://www.independent.co.uk/environment/climate-change/sea-levels-rising-twice-as-fast-as-predicted-1642087.html
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In Canada, Climate Change has resulted in …
Increased severe weather events– Flood– Hurricane winds– Ice Storms– Fires …
Specific risks and effects of climate are regional in nature– Insects– Fish– Other species– Industry impacts
Economic consequences are dramatic …
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Climate Change or Asset Value Increase – either way – insurance is at the “eye” of the storm …
Source: Canadian Meteorological Service
Other examples more recent …(1) 2006 Vancouver, BC – hurricane winds; Property damage – millions; Power interruption 200,000 affected(2) 2005 Floods So. Alberta $400 M CN (3) Wildfires: 2003 BC / Alberta $700 M CN losses; 45,000 evacuated
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What is the Role of Insurance in Adaptation to and Mitigation of Climate Change Risk ?
History / Demonstrated Record of reducing risks
– Exploration into emerging markets
– Reduction of Fire Risk / Improvement of Existing Building Stock
– Improvements to Worker Safety
– Improvements to Vehicle / Driver Safety
– Risk Mitigation in Deployment of New Technologies
Policy makers should engage insurance industry expertise and capital to most efficiently and effectively adapt to and mitigate risks of climate change
– After all … insurers are in the business of risk …
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What Do Insurers Need to Assist Stakeholders to Adapt to and Mitigate Risk of Climate Change ?
Insurers must be allowed to use their core skills to send risk based price signals
– Higher cost should incentivize risk reduction– Government indemnity or pools which spread or mask risk may
inadvertently increase moral hazard and overall riskClimate Policy that addresses governance gaps
– Government should consider building code changes that recognize climate patterns and incorporate relevant resilience standards
– Policy makers must consider new / emergent resource / rights conflicts that present in a non-fossil fuel paradigm
Climate Policy that enables markets to function properly– Incentives should be constructed carefully to avoid moral hazard
increase and market instability– Transition from subsidy to independence must be mapped
Climate policy that recognizes the regional nature of climate change
– One size does not fit all impact risks– Solutions should be regionally tailored but globally aligned / compatible
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Insurance Can Be Applied to Facilitate Mitigation & Adaptation …
Insurance focuses on risks to private assets
Insurance is the ultimate economic shock absorber
Climate Change is about risks to both private assets and public good
The Key : Find the IntersectionsLand usePowerWaterTransportation
Focus on public / private partnership
Insurers are creating products today to facilitate adaptation and mitigation to climate change risk …
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Innovation: New technology & new land use new business models; new insurance needs to meet the 2050 Targets
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Current Zurich climate change product activities
Insurance products
responsive to government legislation,
consumer and policy creating
market demands
1. Carbon creditsa. Political risk coverage for carbon creditsb. Carbon credit securitization
for multilateral and multinational banks lending to CDM projects
2. Motora. Discounts for hybrid vehiclesb. Pay-as-you-drive auto insurance: telematics / other basis - commercial (in process)
3. Alternative energy: full suite of p/c coverage Solar Wind Hydropower Biomass Geothermal Wave / tide (under review)
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Current Zurich climate change product activities
Insurance products
responsive to government legislation,
consumer and policy creating
market demands
4. Directors and OfficersCoverage extension for climate
related / environmental mismanagement claims
5. Green BuildingConstruction Wrap: GL / WC / PI for “green” building projects
6. Recovery, buyback and disposal structured insurance of solar panels (WEE Directive)
7. Energy conservation insuranceproduct warranty (under consideration / review) derivative based coverage structures
8. Carbon capture and sequestrationCCSAGSFA
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Current Zurich climate change product activities
9. Green Edge / Better Green: Property coverages: commercial and personal lines
a. Green re-build extensions – addresses efficiency and sustainability b. Off-grid power BI extension – addresses DERc. Fortification / resilience recognition – addresses weather appropriate
10. Water Re-Use / Reinjection / Storm Water Run-Off Coverage (in process)
Products and other responses
to physical risks,
consumer demands and public policy
