Ceres on Katrina, insurance, and weather-related risk

Ceres, the "national network of investment funds, environmental organizations and other public interest groups working to advance environmental stewardship on the part of businesses," has just released a report on the enormous challenge to the insurance industry represented by escalating weather-related losses. You can read the executive summary here and the full report here (PDF).

An excerpt:

Yet, despite these rising insurance risks, climate change has received little attention to date from U.S. insurers, regulators and governments. Among the problem areas highlighted in the report:

• Only a small fraction of U.S. insurance companies have seriously examined the business implications of climate change and fewer still work closely with climate scientists or present their analyses publicly.
• Insurers and regulators currently do not have a comprehensive capacity to assess the cumulative weather-related risks from both catastrophic events and the growing number of small-scale events.
• The U.S. government’s full financial exposure from insurance programs (flood, multi-crop insurance etc), disaster relief and other forms of weather-related assistance has never been assessed.

The report recommends the following actions, among others:

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Insurers need to: collect more complete data on weather-related losses; incorporate climate modeling into their risk analyses; analyze the implications of climate change on their business and investments and share the results with shareholders; and encourage policy action to reduce greenhouse gas emissions.

Regulators need to: include climate risks in company solvency and consumer-impact analysis; review the “standards of insurability” to identify new challenges, including climate-related hazards in the US and abroad; encourage insurers to collect more comprehensive data on losses; elevate standards for catastrophe modeling; and assess exposure of insurer investments and adequacy of capital and surplus to extreme weather events.

Government needs to: foster and participate in public-private partnership for insurance risk spreading; comprehensively assess the government’s overall financial exposure to weather disasters; reduce vulnerability to disaster losses through improved early warning systems, land use planning and other measures; and take policy action to reduce greenhouse gas emissions.