Insurers seize climate change opportunity with over 600 new products

The insurance sector is responding rapidly to the opportunities presented by climate change and the emergence of low carbon technologies with a glut of new products and services that should help accelerate the adoption of greener business models.

That is the conclusion of a major new report from sustainable investor group Ceres, which found that there are 643 climate change related products and services being offered by almost 250 insurers worldwide, including a doubling in new product offerings launched in 2008 alone.

"A vanguard of insurers is taking bold steps to adapt their business model to the realities of climate change," observed Dr. Evan Mills, the report's author and a scientist at the US Department of Energy's Lawrence Berkeley National Laboratory who also worked on the UN's Intergovernmental Panel on Climate Change.

However, he added that further product development was required if the industry is to catch up with customers, "who are rapidly changing the way they construct buildings, design products, and produce energy, in response to climate change".

Mindy S. Lubber, president of Ceres, agreed more climate change-related insurance was required, arguing that "the scope and breadth of the insurer response fails to match the scale and urgency of the risks - or the opportunities - facing the industry".

The report highlighted a large variety of climate change related insurance products, including new weather and drought-related policies, cover for renewable energy projects, insurance for carbon market trades, and products that offer reduced premiums to companies and individuals that have green homes and vehicles.

The report also found that growing numbers of insurers are including climate change data, such as warmer ocean temperatures and increased flood risks, into their risk assessments and that $11bn in direct low carbon investments have now been made by insurance firms.

Mills argued that insurance has a critical role to play in the development of a low carbon economy, not just by providing insurance against climate change, but also by enabling other sectors to invest in green technologies.

For example, AXA, Munich Re, Navigators, Sompo Japan and Tokio Marine Holdings have all introduced coverage for renewable energy developers faced with lower than expected solar, wind, or geothermal energy outputs from their projects – a move that makes it much easier for those developers to raise financing for renewable energy projects.

Similarly, 22 firms now offer green-building products and services specifically designed for green buildings that frequently provide firms that invest in energy efficient buildings with discounts on their premiums.

The report comes as pressure from investors and regulators continues to mount on insurers to further expand their climate change initiatives.

Last year saw $200bn in global catastrophe losses for the industry, the third highest losses ever reported, and experts are fearful losses will increase as climate change accelerates, leading to more freak weather events.

Moreover, US regulators passed rules last month requiring insurers to disclose both the financial risks they face from climate change and the measures they are taking to address those risks.

Jack Ehnes, chief executive of the California State Teachers’ Retirement System (CalSTRS), the second largest public pension fund in the US and a member of Ceres, said that insurers were also facing growing pressure from shareholders to step up climate change efforts.

"Shareholders are eager to see insurers provide products and services that respond to the "greening" of the global economy, improve loss prevention and be otherwise proactive about global warming," he said. "Acting on climate change is paramount to the very survival and prosperity of the industry."