Insurance News

Climate meeting portends change

Posted on: November 4, 2009

COPENHAGEN, Denmark?High hopes may be dimming for a global agreement to reduce greenhouse gas emissions at the U.N. Climate Change Conference in Copenhagen, Denmark, but risk managers and insurers do expect changes to come from the historic meeting in December.

World leaders are debating whether to try to forge a treaty at the Dec. 7-18 conference to replace the Kyoto Protocol, which was signed in 1997 and went into effect in 2005. It set targets to reduce greenhouse gas emissions by 2012 for countries that signed the document.

Recent weeks have seen growing pessimism that an agreement in Copenhagen can be reached to cut emissions and replace the Kyoto Protocol.

Yvo de Boer, executive secretary of the United Nations Framework Convention on Climate Change, is among those who have said that reaching such a consensus would be difficult. In addition, developed countries are at odds with emerging nations such as China and India over the size of any emission cuts.

The United States did not sign the Kyoto Protocol and speculation has arisen as to whether it will embrace a new treaty if firm commitments on emissions are not made by developing countries.

Rhetoric over the issue has heated up, too, with British Prime Minister Gordon Brown saying in a speech last month in London that failure to reach an agreement in Copenhagen to reduce emissions could lead to catastrophic floods, droughts and heat waves. If the opportunity passes to forge a new treaty in December, no future agreement will be able to undo damage from unregulated emissions, he said.

?I agree with him,? Jorge Luzzi, director of corporate risk management at Milan, Italy-based Pirelli & C. S.p.A. and president of the International Federation of Risk & Insurance Management Assns. Inc., said of Mr. Brown’s remarks. ?Politicians sometimes use strong words to make people react, but the solution is not easy.?

?I am totally in favor of a reduction in emissions,? said Mr. Luzzi.

Insurance market sources are hopeful that an agreement on emission reductions and other issues, such as a fund to help poor countries adapt to climate change, can be worked out in Copenhagen, but they acknowledge that the details may take some time to develop.

?I think it is very likely that there will be an agreement on emission targets, the emission reduction framework, as well as on the adaptation fund in general terms,? said David Bresch, head of sustainability and emerging risks at Zurich, Switzerland-based Swiss Reinsurance Co. ?But further discussions are likely to follow to get the implementation details fleshed out.?

Mr. Luzzi said the worldwide financial crisis is not helping efforts to forge a treaty that would lower emissions. Some countries likely will resist any new standards that could require investments to meet, he said.

Pessimism about reaching a new emissions agreement is understandable, said Mr. Bresch. ?This is the first time humankind has tried to get a global agreement on how human society will develop in a severe-climate scenario. We should have high expectations,? he said, ?but we shouldn’t try to overload the boat.?

Any decision coming out of the conference will affect risk managers, said Peter den Dekker, president of the Federation of European Risk Management Assns. and corporate insurance risk manager at Stork B.V. in Naarden, Netherlands. ?I’m sure the whole risk management community will watch closely anything that comes out of the Copenhagen conference,? he said.

How much effect the conference has on risk management remains to be seen, said Mr. den Dekker. ?Will they really reach an agreement and set clear measures and ratios on what we all want to achieve and work towards?? he asked. ?Will there be room for interpretation according to countries and regions??

It is clear, though, that if tougher emission limits are set, ?companies will have to look at how to manage their pollution and (carbon dioxide) emissions,? Mr. den Dekker said. ?Whether that is where they want to go is still vague; it is up to the politicians to make decisions.?

Insurers and reinsurers hope to have some influence in climate-change decisions at the conference.

?A global agreement on reducing emissions is extremely important to insurers and reinsurers as climate change is viewed by many as one of the biggest risks we have ever faced,? Tony Cabot, Zurich, Switzerland-based director of global programs at XL Insurance, said in an e-mail.

?Our industry has taken a strong position in regards to a successful outcome of the Copenhagen summit and the need for clear agreements,? Mr. Cabot said. He said insurers and reinsurers worked closely with the Geneva Assn., an insurance think tank, on climate change research and its economic impact on insurance. The research findings are due to be presented at the conference.

Swiss Re will participate in a side event at the conference as part of the Economics of Climate Adaptation Working Group, a group formed last year to develop economic strategies to deal with the effects of climate change. The group prepared a report, Shaping Climate-Resilient Development, that will be discussed with delegates and others attending the conference.

The report provides a methodology to determine the risk of climate change on economies by determining an area’s ?total climate risk,? which is calculated by considering existing climate risks, climate change and the value of the region’s future economic development.

?The ECA report provides a methodology to devise an adaptation strategy? based on specific needs of a region and the climate threats it faces, Mr. Bresch said.

While the report does not factor in potential emissions reductions, it notes that adaptation measures should not be a substitute for action to reduce carbon emissions.

?There clearly needs to be a reduction of greenhouse gases,? said Mr. Bresch. But even if all such emissions were stopped immediately, the climate will continue to react to the damage already done, he said.

Lindene Patton, Washington-based climate product officer at Zurich Financial Services Group, agreed that it is important for any climate-change solution to recognize regional differences since ?certain issues do not affect all areas.?

While some regions may need programs to address drought, others may need solutions geared toward flooding, Ms. Patton said.

Copyright © 2009 Crain Communications, Inc.

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