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Climate Change and the role of insurance Elayne Grace Sustainability Research Manager Insurance Australia Group 1 1. Climate Change 2. Why climate change is important to insurers ? 3. IAG’s response 4. Creating change together Global temperatures have increased Global temperatures – difference from 1961-90 average 1990’s the warmest Decade Warmest years 1998 and 2001 - 2003 Rainfall in most populated areas decreased Heating up... Estimates range between 1- 6 degree global temperature increases by 2080 Global warming caused by increased greenhouse gas emissions • Warming trend in Australia cannot be explained by natural climate variability alone • Science is well established and widely accepted • Greenhouse gas increases are due mainly to burning of fossil fuels for electricity and transportation How do we reduce the threat ? We need to reduce carbon dioxide emissions by encouraging a less carbon intensive economy Australian GHG emissions by sector • GHG emissions are a (2002) fundamental by-product of economic activity Waste Land use & f orestry Agriculture Stationary energy • How do we reduce GHG emissions with the minimum impact on economic activity? Industrial processes Fugitive Transport So why is an insurance company interested? • Insurance spreads cost of risk across community • If frequency or severity of claims increases insurers have to increase premiums and/or mitigate risk to stay viable Climate change is expected to increase claims frequency and/or severity of extreme weather events ! Ne wc as S tl Cy e E yd clo art Ha ne hqu il Tr ak Cy ac e y, clo ne S NT W yd H an As da ail B r h W isba , Ql e d Ca dne ne H nb sd ai er ay l ra , V Bu ic Sy shfi re d St or C Cy yc Syd m clo lon H ne e M ail A l ad th ea ge Fl oo , Ql d d NS Ha W il N Sy S W Bu d S sh tor fir m e Sy , Ta s d Fl o Sy od d Ha Ha il N il M SW el b. Ha il Insured property loss in 2004 equiv $M Weather and climate are core business Top 20 Insurance Disasters at January 2004 2,500 '99 2,000 '98 1,500 50% of events are hailstorms '74 '85 '83 '03 '86 '73 All weather related except Newcastle earthquake '74 1,000 '90 500 '91 '71 '84 '76 '92 '67 '74 '74 '96 '03 - 21/1/1991 Understand hail risk 14/4/1999 18/3/1990 28/10/1995 3/10/1986 Sydney, Australia Top 10 Insured losses worldwide (In US$ m at 2001 prices) Source: Swiss Re Why are Economic & Insured Losses still rising? (adjusted to present day $) Climate change-driven natural disasters are forecasted to cost the world's financial centers as much as $150 billion per year within the next 10 years, according the UN Environment Program's (UNEP) finance initiative report. Source: Munich Re What reinsurer’s are saying? “A survey of the years 1950/2003 reveals a massive increase in major weather-related natural catastrophes during that time. Between 1994 and 2003 there were almost 3 times as many weather-related natural catastrophes as in the 1960s. Economic losses increased by a factor of 5.3 in the same period, insured losses by a factor of no less than 9.6. The main causes in both cases were floods & windstorms.” Munich Re. “There is a danger that human intervention will accelerate and intensify natural climate changes to such a point that it will become impossible to adapt our socio-economic systems in time.” Swiss Re. Why act now ? Small changes in mean climate can increase hazards dramatically Hazard Change in climate Resulting change in hazard Cyclone 2.2 C mean temperature increase Increase of 5-10% in Cyclone wind speeds Bushfire 1 C mean summer temperature increase 17-28% increase bushfires Drought 1.3 C maximum temperature increase Floods 25% increase in 30 minute 1 in 100 yr Flood becomes precipitation 1 in 17 yr Flood Source: Mills et al(2001) 25% increase in evaporation leading to increased bushfire risk Small changes in hazard intensity can lead to multiple increases in damages 700 600 % Increase in Damages 500 400 25% increase in peak gust causes 650% increase in building damages 300 200 100 0 Under 20 knots 20-40 knots 40-50 knots 50-60 knots NSW, NRMA Building Insurance only Source: Sydney Morning Herald 25th August 2003 Australia: Highest emissions per capita & 3% of industrialised countries Total GHG Emission comparison (MT CO2 –e) 1400 1200 1000 800 600 400 200 0 Highest per capita emissions Peaks at 6098 Mt Per capita emissions comparison ( T CO2 per person) 30 25 20 Source: Australia Institute USA Japan Ger many Canada UK Australia 0 Italy USA Japan Ger many 10 5 France 3% of Annex 1 emissions. Higher than France & Italy (1/3rd population) Canada UK Australia Italy France 15 IAG’s approach 1 Internal Researching climate change, reducing IAG’s environmental footprint, driving cultural change 2 Supply chain Helping to make our suppliers/ supply chains cleaner and safer – over 11,000 suppliers (smash repair, building, white good procurement) 3 Customers & community Sharing knowledge with our customers & working with our community– over 4 million customers Researching climate change Cyclone Risk Qld TCs: Extreme Events TC “Dinah” Jan – Feb 1967 GHG Extreme 920 910 900 890 880 870 860 850 840 Decade 20412050 20312040 20212030 20112020 Intensity increases 20012010 Central Pressure hPa No GHG Extreme as pressure falls Reducing IAG’s environmental footprint Benefits Reducing our footprint reduces operational costs 2005 target reductions: • Electricity 10% • Paper 15% • Air Travel & Fuel 5% Approaches include: • Lighter weight paper in policy booklets • Video conferencing, ‘think before you print’ IAG Sustainability report • Purchase of Green energy ,”Hybrid” vehicles 2004 Suppliers: smash repair industry Encouraging safer and cleaner production and waste management • Recycling bumper bars • Waste strategy for suppliers • Insurance premium discount for ‘Preferred Smash Repairers’ Understanding building vulnerability Are current building codes adequate now and in the future? Storm Research Susceptibility of buildings/materials to storm damage Identify ways to encourage more sustainable material use Hail Gun: Roof material breaking point Roof material What size hailstone caused roof to crack? Corrugated steel sheets 10cm in diameter Concrete tiles (new) 7cm in diameter Terracotta tiles (new) 7cm in diameter Old slate (100 years old) 5cm in diameter Old terracotta (50 years old) 5cm in diameter Working with communities on flood mitigation Two 100 year events in 2 yrs Flood research Claims cost: NZ flood 2004 2002 NZ$ 112m NZ$ 22m Flood mitigation work •Planning / building controls •River and catchment management •Engineering works NZ Thames Coromandel Coast Flood regions Sharing knowledge with our customers Home help • Designing & building tips • Emergency disaster safety tips • White good profiler • Energy & water saving tips Greensafe car profiler • Rating cars by environmental & safety performance In collaboration with NSW EPA A way forward for Australia 1. Set a national target of 60% reduction in GHG emissions by 2050 • 2. Long term vision to encourage energy conservation and cleaner technologies Implement a national emissions trading scheme by 2007 • Trading schemes successful & encourages lowest cost responses A way forward for Australia 3. Encourage all Australians to take responsibility for emissions • 4. Adapt to a new climate now • 5. Increase water conservation and reuse, Improve building codes, More drought resilient farming practices Develop and encourage unprecedented new business opportunities • 6. Educate and inform the community about actions they can take Energy efficient and less carbon intensive products & processes Show international leadership – it can make a difference ! • Positioning for new markets, Provide example for others, export opportunities Climate Change - Solutions for Australia The Australian Climate Group • • Business case for dealing with climate change 1,300 experts in 95 countries looked at the state of the environment and found 2/3rds of the ecosystems were being degraded or used unsustainably – UN’s millennium ecological assessment We are currently treating the earth as a business in liquidation – it’s not on anyone’s balance sheet Business case Financial improvement through reduced costs Risk reduction Attraction of best talent Encourages creativity by rethinking the way things are done Interesting business examples • Carbon disclosure project, representing over $10 trillion asks the Fortune 500 CEO’s what their carbon liability is? • BP saved $650 million over 3 years from estimated outlay of $20 million. Absolute reductions in emissions of 18% between 1998 & 2001 • DuPont has had a 67% reduction in GHG emissions since 1990. $2 billion saved through energy efficiency • Panama Canal – use financial markets to pay for reforestation Conclusions 1. Climate change is here and now! Small changes in climate can increase damage dramatically 2. Greenhouse gas reductions needed urgently to mitigate threat Long term reduction target & Carbon Emission Trading Scheme needed 3. Reducing GHG emissions can bring financial and economic benefit 4. IAG playing active role in bringing others on the journey but only on start of very long journey WE ONLY HAVE 1 OF THESE... Thank you - For further information please contact: [email protected]