Insurers Warned Over Climate Losses
The Age
Monday May 28, 2007
CLIMATE change is the most serious environmental risk facing society and insurers need to be more strategic, with economic losses from extreme weather events scaling new heights, according to a global report.
In Insuring for Sustainability, the Insurance Working Group of the Geneva-based United Nations Environment Program Finance Initiative said one of the big concerns was that most of the economic losses from disasters were uninsured. This left the victims in a position where they had to refinance themselves or rely on donor aid."This is especially acute in developing countries where insurance penetration is very low," the report said. While more companies were now purchasing carbon credits generated by clean energy projects, the report warns that this poses a number of risks. "Will the technology work? Could 'ordinary' risks like fire or flood stop the work? Will the project run out of money? Will the host government seize the assets? In the event of non-delivery, can replacement credits be bought as cheaply?"The report also raises questions about whether public demand for "green" insurance products is high. It cites the "green" car and travel insurance policies launched by AXA UK, Norwich Union and other insurers via a public website in 2006. Despite 85 per cent of the British public believing climate change will affect their future and 55 per cent claiming to prefer "green" purchases, very few had used the facility. Climate change was not the only risk facing insurers. According to the report, other threats included insurance for the poor, protection of natural resources, emerging risks such as nanotechnology, health and lifelong income. It said that micro-insurance was one method of insuring the poor, who were traditionally excluded from financial services. The insured values were small, about $50 to $250, and were often to cover micro-loans. It said this solution was not only for environmental risk, such as weather derivatives for farmers, but also for social and economic vulnerability. Member companies behind the report include IAG, Allianz, HSBC Insurance Brokers, Lloyd's, Munich Re, Swiss Re and America International Group.
© 2007 The Age