Tuesday, October 10, 2006
Insurance industry notices what W refuses to see
Global Warming Seen Pushing up Insurance Costs
US: October 11, 2006
WASHINGTON - Global warming will push up insurance premiums in high-risk areas like coastal Florida and other hurricane-prone parts of the United States, an insurance company official said on Tuesday.
"That it will cost more, there's no question; we can put that on the table right at the beginning," said Clem Booth, a board member of Allianz Group. "The pricing of an insurance portfolio in a coastal region is a matter of the number of incidents to be expected within a given time and the size of incidents at certain levels."
Other likely consequences of global warming, including an increase in wildfires in the American West, will also need to be taken into account by US insurers, according to a report released by Allianz and conservation group World Wildlife Fund.
"To me as an insurance person, climate change is an absolute reality," Booth said in a telephone interview. "We could debate to what extent it's affected by human activity or not but it doesn't change the fact that we have to deal with the additional risks."
Currently, he said, insurers withdraw from these high-risk areas entirely.
"We're in the business of solving our customers' problems and providing risk solutions, so pulling out may be a short-term way of doing that ... but getting into the underlying causes is fundamental to our business," Booth said.
The report, "Climate Change and Insurance: An Agenda for Action in the United States," found that US insurance companies are good at modeling risk on historical models, but they lag behind their European counterparts in studying climate change to estimate future risk.
WAKING UP TO RISK
"This report and other reports are making it clear that there is a direct correlation between climate change, forest fires, storm surges and people's livelihoods," said Carter Roberts, president of World Wildlife Fund in the United States. "I think right now the US public is
waking up to just what an enormous risk this represents for them."
Booth said the disastrous 2005 US hurricane season, especially the costly destruction of Hurricane Katrina, was a wake-up call for US insurers. Beyond setting the correct premiums on areas expected to bear the brunt of global climate change, Booth said insurers need to work with government to make sure construction in those areas dealt with the risk and did not continue as "business as usual."
The report stressed that government-subsidized flood insurance may have encouraged people to live in high-risk zones, and suggested that these subsidies end.
The Bush administration has been skeptical of the link between global climate change and hurricanes and wildfires, and President George W. Bush has only recently acknowledged a relationship between human activities and global warming.
Booth said, however, that he was confident that the American people and their local and state governments would push for a reduction in the emission of greenhouse gases, which spur global warming.
"There's no question that business leaders like Allianz, GE and others are way ahead of the current administration," Roberts said.
Booth said the Allianz unit Fireman's Fund represents between 2 percent and 3 percent of the US market share.