Insurance News

Copenhagen Climate Accord Failure Leaves Insurers Guessing On Risks

Posted on: February 23, 2010

Failure to achieve a binding agreement at the United Nations Framework Convention on Climate Change held in Copenhagen, Denmark last December has left insurers with no clear direction to address the growing risk from global warming, according to industry observers.

?It is fair to say that Copenhagen did not deliver the full agreement the world needs to address the collective climate change challenge, and that just makes the task at hand more urgent,? said Yvo de Boer, executive secretary for the UNFCCC, during a news conference in January. ?It means that the window of opportunity to come to grips with this issue is closing faster than it was before.?

Organizers hoped the conference would build on the 1997 Kyoto Protocol to produce a legally binding international agreement to cut carbon dioxide emissions that an overwhelming consensus of scientists agree is the major factor for global warming.

Instead, Copenhagen was almost a bust. But a last-minute political agreement to respond to cutting carbon emissions, and a pledge to help finance developing nations, at least averted a total breakdown.

Mark Way, head of sustainability-Americas for Swiss Re?which was part of the Swiss delegation representing the Swiss Insurance Association?said the outcome was better than where the conference was headed, but attendees had thought they would ?be further down the road.?

Unfortunately, he said, the outcome leaves an uncertain future on how to deal with the pressing issue of climate change? one in which insurers have an important role to play.

Climate change is causing disruption to weather patterns, bringing more rains to some regions and severe drought to others, he noted.

Nations will have to deal with this new reality, according to Mr. Way, adding that insurance can play a critical role that will aid investment in climate adaptation for individuals around the world.

?It is clear that the most effective way to deal with this issue is with a portfolio of measures, and insurance is key,? observed Mr. Way.

The measures can range from beach re-nourishment or roof strengthening in Florida, to weather insurance to protect against drought and irrigation in Africa, he said. The insurance answers, yet to be fully developed, can range from the macro, dealing with regional issues, to micro policies aimed at rural farmers in developing nations such as Africa or the Caribbean, he added.

J. Wylie Donald, an attorney and partner in the Wilmington, Del., office of McCarter & English, LLP?and co-chair of the firm?s climate change and renewable energy practice?said the problem for the insurance industry is that without any broad, binding agreement out of Copenhagen, carriers are left in a quandary over what exposures they might be called upon to cover and where they should be investing their capacity.

Without a clear definition on how governments are going to treat carbon dioxide production, investors are left without direction. That means insurers, as well as other financial players, cannot make long-term investment choices without that guidance, Mr. Donald said.

The failure to make these choices also leaves underwriters guessing what risks they should write and how they should measure those exposures. Some are getting ahead of the curve, he noted?questioning a manufacturer, for instance, about where it may plan to build a facility. If it is located at a greater distance from a shoreline, then that could mitigate the potential for storm surge, affecting both cost and exposure.

The treatment of carbon exposure could also loom large, he said. If it becomes a risk, then the question arises?how will policies be written in the future? Also, does current language in a general liability policy already indemnify a client?

?I don?t think you need an international convention for individual businesses to do what is in their best interest as they understand the climate change risk,? said Mr. Donald.

He added that if an insurer is trying to make an underwriting profit in a location that is affected by climate change, the carrier will react to environmental changes ?regardless of whether the government does anything at Copenhagen or not.?

Mr. Way acknowledged that on this issue the major insurers such as Allianz, Zurich and others are paying attention, while U.S. domestic insurers are not as involved with the issue.

?There is a huge amount of interest [today] compared with where we were,? he noted. ?In a couple of years? time, maybe there will be more progress. Insurers and governments understand the risk that is at hand and understand that insurance is a possible solution.?

?Insurance is not the silver bullet, but it deals with a holistic approach,? he continued. ?It is an important component to dealing with climate change.?

Failure to achieve a binding agreement at the United Nations Framework Convention on Climate Change held in Copenhagen, Denmark last December has left insurers with no clear direction to address the growing risk from global warming, according to industry observers.
?It is fair to say that Copenhagen did not deliver the full agreement the world needs to address the collective climate change challenge, and that just makes the task at hand more urgent,? said Yvo de Boer, executive secretary for the UNFCCC, during a news conference in January. ?It means that the window of opportunity to come to grips with this issue is closing faster than it was before.?

Organizers hoped the conference would build on the 1997 Kyoto Protocol to produce a legally binding international agreement to cut carbon dioxide emissions that an overwhelming consensus of scientists agree is the major factor for global warming.

Instead, Copenhagen was almost a bust. But a last-minute political agreement to respond to cutting carbon emissions, and a pledge to help finance developing nations, at least averted a total breakdown.

Mark Way, head of sustainability-Americas for Swiss Re?which was part of the Swiss delegation representing the Swiss Insurance Association?said the outcome was better than where the conference was headed, but attendees had thought they would ?be further down the road.?

Unfortunately, he said, the outcome leaves an uncertain future on how to deal with the pressing issue of climate change? one in which insurers have an important role to play.

Climate change is causing disruption to weather patterns, bringing more rains to some regions and severe drought to others, he noted.

Nations will have to deal with this new reality, according to Mr. Way, adding that insurance can play a critical role that will aid investment in climate adaptation for individuals around the world.

?It is clear that the most effective way to deal with this issue is with a portfolio of measures, and insurance is key,? observed Mr. Way.

The measures can range from beach re-nourishment or roof strengthening in Florida, to weather insurance to protect against drought and irrigation in Africa, he said. The insurance answers, yet to be fully developed, can range from the macro, dealing with regional issues, to micro policies aimed at rural farmers in developing nations such as Africa or the Caribbean, he added.

J. Wylie Donald, an attorney and partner in the Wilmington, Del., office of McCarter & English, LLP?and co-chair of the firm?s climate change and renewable energy practice?said the problem for the insurance industry is that without any broad, binding agreement out of Copenhagen, carriers are left in a quandary over what exposures they might be called upon to cover and where they should be investing their capacity.

Without a clear definition on how governments are going to treat carbon dioxide production, investors are left without direction. That means insurers, as well as other financial players, cannot make long-term investment choices without that guidance, Mr. Donald said.

The failure to make these choices also leaves underwriters guessing what risks they should write and how they should measure those exposures. Some are getting ahead of the curve, he noted?questioning a manufacturer, for instance, about where it may plan to build a facility. If it is located at a greater distance from a shoreline, then that could mitigate the potential for storm surge, affecting both cost and exposure.

The treatment of carbon exposure could also loom large, he said. If it becomes a risk, then the question arises?how will policies be written in the future? Also, does current language in a general liability policy already indemnify a client?

?I don?t think you need an international convention for individual businesses to do what is in their best interest as they understand the climate change risk,? said Mr. Donald.

He added that if an insurer is trying to make an underwriting profit in a location that is affected by climate change, the carrier will react to environmental changes ?regardless of whether the government does anything at Copenhagen or not.?

Mr. Way acknowledged that on this issue the major insurers such as Allianz, Zurich and others are paying attention, while U.S. domestic insurers are not as involved with the issue.

?There is a huge amount of interest [today] compared with where we were,? he noted. ?In a couple of years? time, maybe there will be more progress. Insurers and governments understand the risk that is at hand and understand that insurance is a possible solution.?

?Insurance is not the silver bullet, but it deals with a holistic approach,? he continued. ?It is an important component to dealing with climate change.?

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