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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 !
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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]