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How insurers help people deal with
climate change – the role of insurance in
managing climate change risks
Michael Kerner
Global Chief Underwriting Officer, Head of Group Strategy
Swiss Private Insurers’ Luncheon
Brussels, November 5, 2008
The Insurance Mechanism and its Role
in Managing Risks
Key Function
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Underwriting/
Risk Engineering
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Claims
Management
Investment
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Assess and price risks, offering customers protection against
financial losses – send price signals for risky behavior  Risk
Pricing
Agree on conditions/measures to reduce physical risks,
reducing losses to society Loss Prevention
Pool risks together to spread the costs and minimize
individual capital commitments  Risk Transfer
Effectively manage loss events to provide customers with
timely compensation and relief
Carefully invest policyholder and shareholder funds,
ensuring adequate funds to cover future claims, while
providing a fair return to shareholders
Objective: Offer customers appropriately priced risk management solutions, while
remaining profitable and providing a fair return to shareholders
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The Need for Private/Public
Partnership to Combat Climate Change
Risks
Provide Solutions
Private Sector –
Insurance
Provide
Solutions
Public Sector –
Governments
Enable Solutions
Combat climate change risks through:
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Adaptation  Reduce vulnerability - minimize impact
•
Mitigation  Slow/eliminate climate change - migrate to low
carbon economy
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Insurance Solutions and Government
Enabling Actions - Adaptation
Solutions
Enabling Actions
Objectives
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Risk
Transfer
Carefully design public disaster relief
systems to avoid perverse incentives
Restrict government role to a “re-insurer” of
last resort
Where needed, develop enabling regulation
for microinsurance
Effectively spread risks to
reduce capital requirements
Ensure viability of private
insurance market – minimize
politically motivated
subsidies
2
Loss
Prevention
Develop sound land development policies
and flood protection schemes (e.g., EU
Floods Directive, UK Government - ABI
agreed principles)
Establish construction codes that focus on
sustainability
Minimize losses
Maintain insurability of
risks
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Risk-based
pricing
Promote responsible and appropriate rate
regulation – allow for actuarially sound
premiums
Encourage customers to
actively participate in
managing own risks
Send risk-based price signals
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Insurance Solutions and Government
Enabling Actions - Mitigation
Solutions
Underwriting
New
Technologies
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2
Sustainable
Investing
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Enabling Actions
Direct research funding to low carbon
technologies
Objectives
Reduce GHG
emissions
Provide tax credits or subsidies to
“internalize” the carbon externality and
foster deployment of new technologies
Establish regimes clarifying
insurability of new technologies (e.g.,
long-term storage liability for CCS)
Establish consistent, long-term regulatory
framework on carbon, allowing for the
development of efficient carbon markets
and prices
Direct capital to lowcarbon technologies
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