Download IBHS-120109 - Insurance Information Institute

The Insurance Economics
of Going Green
Insurance at the Vanguard
Institute for Business and Home Safety
Annual Conference
Tampa, FL
December 1, 2009
Download at www.iii.org/Presentations/
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: (212) 346-5520  Fax: (212) 732-1916  [email protected]  www.iii.org
Presentation Outline
• Going Green: Insurance Industry Update
 A challenge that is being met
• Seeing Green: Summary of Insurer Initiatives
• Case Studies in the Demand for Green Insurance Products
1.
2.
Green Home: Home as Power Plants
Green Commercial Power Generation
• Energy Demand, Energy Policy & Climate Change
 Huge growth in energy demand will fuel demand for insurance
• What Motivates Insurers to “Go Green”?
 Role of Catastrophe Losses
 Role of Demographics & Economics
Q&A
2
“Going Green”:
Insurance Industry
Update
Going and Staying Green is a
Challenge not Unlike Countless
Others Insurers Have Met for
Centuries
What “Going Green” Really
Means for P/C Insurers
• The Fundamental Role of Insurers is to Assess & Quantify Risk
• Quantification Permits the Risk to be Accurately Priced
• Determination of Price (Premium) Allows Risk to Be
Transferred from Bearers of Risk (Policyholder) to Insurer in
Exchange for Risk Appropriate (Actuarially Sound) Premium
• The Role Played Insurers and the Process of Pricing “Green” or
or “Climate” or “Environmental” Risks is No Different than
Any Other Risk Assumed Over the Centuries
• Insurers Can Play a Key Role in the Area of Climate Risk Only
if Two Conditions Are Met:
• Insurers are allowed to charge risk appropriate premiums on new
products that are designed to mitigate climate risks
• Insurers are allowed to adjust premiums, underwriting criteria, risk
assessment and risk management practices to reflect actual and expected
changes arising from climate threats
• Where These 2 Conditions Are Met, Insurance Markets
Functions Well; Shortages, Govt. Plans if Not Met.
• Biggest Threat is Regulatory Interference (Rate, U/W)
4
Economics of Green Insurance
Follows a Time-Tested Process
RISK
IDENTIFICATION
RISK
QUANTIFICATION
Property Damage
Loss Trending
Liability Risks
Catastrophe Modeling
Management Liability
Scientific Research
Political Risk
Climate Models
Economic Risk
Tort Threat Assessment
Regulatory Risk
Regulatory
Environment
Investment Risk
RISK
MITIGATION
(SOLUTIONS)
Risk Transfer (New or
Adapted Insurance
Products)
Capital Market
Solutions
Risk Retention
Loss Avoidance &
Reduction
Building Codes &
Land Use
Uninsurability Issues
Source: Insurance Information Institute
Prevalence of Insurer
Climate-Related Activities: 2008
Understanding CC Problem
Carbon Risk Disclosure** 6%
14%
Creating innovative
insurance solutions
is #1 activity, among
643 activities.
Promoting Loss Prevention
9%
Aligning Terms & Conditions
w/ Risk-reducing Behavior
6%
Crafting Innovative Insurance
Products
22%
Leading by Example
17%
Offering Carbon
RM & Offsets
5%
Building Awareness &
Participating in Public Policy*
14%
Financing Customer
Improvements
Investment in CC Solutions 2%
5%
*A maximum of 1 is tallied, as there is too much subjectivity in assigning weights to each individual activity
**Multi-year responses to a given disclosure initiative are counted once.
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Insurer Climate-Related Activities
2008 vs. 2007
Meeting the demand for
insurance products is the most
important role of insurers—and is
experiencing the fastest growth
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Key Insurer Climate-Related
Innovations and Trends
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Insurer Climate Risk Practices for
Underwriting, Investment and
Asset Management
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Green Insurance Market Map
by Insurance Line
Homeowners
Industrial,
energy,
property
Real
Estate
Business
Interruption
Flood
Rebuild more resilient or green
after loss
■
■
■
●
●
Bundled carbon offsets
■
●
●
--
--
Incentives for low-emissions or
loss-resilient profile
■
■
■
●
●
Performance: Energy savings &
carbon reduction risk
●
■
■
●
--
Performance: Energy production
& carbon reduction risk
■
■
●
■
--
Finance for carbon-reducing or
loss-resilient improvements
■
●
●
--
●
Advisory, inspections, or riskmanagement services
■
■
■
●
●
Climate-risk modeling services
--
■
■
●
●
■ At least one current example of implementation by an insurer, reinsurer, or intermediary
● Applicable but no current insurer implementation
-- Not applicable
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Insurers Are
Seeing Green
Summary of Green Initiatives
in Global Insurance &
Reinsurance Markets
Summary of Insurer Climate
Activities in 2008
•
•
•
•
•
Some 643 specific activities from 246 insurance entities
from 29 countries
These include activities on the part of:





189 insurers
8 reinsurers
20 intermediaries
27 insurance organizations
34 non-insurance entities
Property insurers (Home, Comml., Auto) are driving
majority of activity while life-health insurers lag behind
Significant increase in activity by liability insurers in past
year – insurers to willingly bear climate-related litigation
costs borne by policyholders?
Minor activity in travel, warranty, industrial, BI, inland
marine, WC, crop, prof. liability, and comm. auto
insurance
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Availability of Insurance for
Renewable Energy Products
Source: Ceres
Wind power generation risks are readily
insurable; Biofuels, waste not far behind.
Insurer Climate Activities in 2008
•
•
•
•
•
•
European insurers have deepest history with climate
initiatives
Some 37% of all activities logged in the United States, the
most of any country.
More activity in Europe as a whole (47%) vs. North
America (40%)
Growth since 2007 in all areas, but particularly: climate
science and analysis, crafting innovative products,
carbon RM and offsets, and leading by example
Areas with lowest year-over-year increase in activity are:
loss prevention and direct investment in climate-friendly
industries.
In past 10 years, the number of climate-related activities
has increased eight-fold
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Key Innovations and Trends
•
•
•
•
•
•
Many more insurers offering “green-buildings” products
and services
Almost all climate-related innovations in D&O, political
risk, prof. liability and enviro. liability have appeared in
past year
Auto and Transport: two dozen insurers now offer payas-you-drive (PAYD) insurance with discounts up to 60%
for policyholders who drive less than avg. driver
2008 First: insurance products to manage risks from
carbon capture and storage (CCS) projects
More attn. on renewable energy as a market for
insurance
Climate-related microinsurance – coverage for lowincome populations w/out access to traditional insurance
– about 7 million policyholders
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Key Innovations and Trends
•
•
•
•
•
Insurer investment in and financing of low- and nocarbon technologies more common but still small
proportion of total investments
Increasing participation in carbon markets, including
carbon trading, ins. for credit risks, political risks, plus
advisory services, and carbon-neutral products
At least 25 insurers now prepare annual Corporate Social
Responsibility reports
More insurers recognizing correlation between
sustainable practices and reduced risk, e.g. discounts on
WC and Enviro. for customers with sustainable practices
Insurers increasingly recognize importance of addressing
carbon footprints, e.g. 17 insurers and reinsurers & 6
brokers have achieved carbon neutrality.
Source: Ceres: From Risk to Opportunity: 2008 – Insurer Responses to Climate Change
Green Buildings
Encouraging GHG reductions while reducing risk: green
buildings
• High impact: ~40% of GHG emissions are associated with
building use
– green building practices can reduce emissions by 50%+
• Loss prevention benefits of green buildings
– improved indoor air quality
– disaster resilience
• Large potential market: $140B in green building in US by
2013
• 39 products from 22 companies
• New idea: “retro-commissioning”
Source: Ceres
ClimateWise Initiative
•
40+ insurers under the ClimateWise umbrella recently
called for a 40% cut in global GHG emissions by 2020
The climate crisis poses a systemic risk to the global
economy…Climate change must be tackled now if insurers
are to continue to play their fullest role in managing
climate risk. … If governments fail to act today,
substantial markets may become uninsurable tomorrow.”
-ClimateWise statement, 22 October 2009
•
ClimateWise is result of work initiated by HRH The
Prince of Wales in the UK with the insurance industry
Source: ClimateWise: http://www.climatewise.org.uk/
Climate Risk Disclosure
The SEC is moving toward mandating disclosure in 2010:
• Oct. 2 speech by Commissioner Walter – “I believe that it is time for us to consider
issuing interpretive guidance regarding [climate risk] disclosure.”
• Oct. 19 interview with Walter – SEC staff are preparing recommendations. Two
options on the table: guidance and rulemaking.
NAIC unanimously passed a climate disclosure survey in March
2009 – Two areas of focus:
Climate Change Impact Assessment
• Geographic areas subject to rate increases or non-renewals
• Investment risk
• Covered perils subject to future exclusions or limitations
• Access to reinsurance
• Solvency risk and capital requirements
• Cat modeling
Climate Change Mitigation Activities
• Loss mitigation and prevention: – Policies and products – Risk classification
• Invested assets
Source: Ceres; NAIC
• Loss reserves
McGraw Hill Construction Green
Outlook 2009
•Green building has become a growing part of today’s
construction industry
•Despite the market downturn, 75% of commercial real estate
execs say they will continue to build green
•By 2013 McGraw-Hill Construction estimates today’s green
building market will more than double to $96-$140B vs. $36$49B today for residential and nonresidential buildings
• Green building has expanded rapidly due to no. of factors
such as growing public awareness of green practices, heavy
increase in govt. interventions, and recognition by owners of
bottom line advantages
• The amount of green office space constructed in 2008 was
about 25X the amount in 2000 and is growing at 50X that rate
Source: McGraw Hill 2009 Green Outlook
Green Buildings: Hype or Sound
Investment?
Study by University of San Diego and commercial real estate
broker CB Richard Ellis Group found that:
•Tenants in green buildings are more productive based on: av. # of
sick days and a productivity change
•Respondents reported an average of 2.88 fewer sick days in their
current green office vs. their previous non-green office
• Decrease in sick days translated into a net impact of nearly $5.00
per sq ft per year based on av. tenant salary, office space of 250 sq ft
per worker and 250 workdays a year. Increase in productivity
translates into net impact of $20 per sq ft
• Study also found green buildings have 3.5% lower vacancy rates
and 13% higher rental rates than the market
• Findings based on surveys of 154 buildings under CBRE’s
management totaling over 51.6m sq ft, housing 3,000 tenants in 10
markets across U.S.
Source: Business Week, Green Buildings: Fewer Sick Days, Higher Rents, by Chris Palmeri, November 19, 2009
Case Study #1
The Green Home
Green Home Insurance: Product Innovations
Will Continue, but There Are Risks,Costs
Turning
a home
“green”
is not
without
risk or
cost—a
mini
power
plant
“Green” Homes Have
Distinct Insurance
Coverage Needs
•Photovoltaic panels
•Electrolizer (splits
water into H2, O2
molecules for night
use)
•Fuel Cell
(recombines H2, O2
to generate
electricity)
•Water Tank
•Additional
plumbing, wiring
•Charging Systems
for Electric Car
Source: National Geographic, Sept. 2009; Insurance Information Institute
Solar Means Bring and Storing the Energy of
the Sun to Where it’s Needed, When Needed
Red areas
are sunny
and flat, but
energy
needs to be
stored,
transported
“Green” Energy Needs
Infrastructure &
Insurance Solutions
•Solar Involves
Investment in New,
Rapidly Changing
Technology
•Generation: Massive
Solar Arrays;
Photovoltaic; heated oil
•Transmission: Need to
Hook into Grid,
Transport Hundreds of
Miles
•Storage: When sun
doesn’t shine, need to
store power—molten
salt power tower
Source: National Geographic, Sept. 2009; Insurance Information Institute
Case Study #2
Green Commercial Power
Generation
Alternative Energy is More than Just
Pretty Windmills—It’s Big Business
“Green” Energy Also
Has Distinct Insurance
Needs
•Expensive Equipment
•CAT Exposure
•New Technology
•Liability Risks
(known and unknown)
•Massive Infrastucture
Investment
(generation,
transmission,
distribution)
•Marine Risks
•Employment Risks
Source: Insurance Information Institute
Climate
Change/Energy
Policy
Risks and Opportunities for
Insurers Abound
Climate Change/Energy Policy
Opportunities Abound…
 Massive increase in energy generation capacity and
infrastructure required over next 20 years will drive
demand for energy markets and related insurance products
 Large investments in traditional and alternative energy
 Heavy investment in technology required
 Some insurers want to participate in “cap and trade”
…As Do Risks
 Concern that EPA designation of CO2 as a pollutant could
lead to litigation
 State GHG emission standards may vary by state, causing
confusion and litigation
 Political risk is high globally on global for energy issues
 Some calls to regulate investments of insurers
30
Source: Insurance Information Inst.
World Net Effective Electric
Power Generation, 1990-2030 (est.)
Trillions of Kilowatt Hours
35
33.3
30.4
30
27.5
24.4
25
21.0
20
17.3
14.6
15
11.3
12.6
The current economic
downturn will have little, if
any, long-term impact on
electric power generation
10
5
0
1990
1995
2000
2005
2010
2015
2020
2025
2030
Source: Energy Information Administration, 2008 International Energy Outlook, Insurance Information Institute.
55.01
US Electricity Capacity Additions
by Fuel Type, 2008-2030F
Gigawatts
1.18
0
Coal
2008-2015
Natural Gas
2016-2020
13.29
11.64
27.13
9.33
8.57
Renewable growth
will require new
insurance solutions
0
29.98
2.46
10
1.75
20
17.84
30
21.54
25.43
40
30.35
50
Energy insurance demand
will rise as capacity across all
fuel types grows, led by
natural gas and renewables
3.32
60
Nuclear
2021-2025
Sources: Energy Information Administration, Annual Energy Outlook, March 2009.
Renewables/Other
2026-2030
8
2.63
0.764
2
0.956
4
3.754
6
Renewables
Natural Gas
7.152
10
8.389
12
3.422
14
4.996
16
Trillions of Kilowatt Hours
The sharp increase in
generation and the
changing composition of
fuel source will influence
insurance demand and the
nature of products sold
3.16
18
15.361
World Electricity Generation by Fuel
2005-2030F
0
Liquids
Nuclear
2005
2025
2010
2030
2015
2020
Source: US Department of Energy Report #:DOE/EIA-0484 ( Sept. 2008); Insurance Information Institute
Coal
Non-Hydro Renewable Electricity Generation
by Energy Source (US): 2005-2030F
Billions of Kilowatt Hours
450
400
350
300
250
Electricity generation from
renewable sources is
expected to rise 315%
between 2007 and 2030
requiring new property and
liability insurance solutions
317.76
180.55
200
150
428.25
103.27
100
50
0
2007
MSW/LFG*
2010
Biomass
2020
Wind
2030
Solar Thermal
Sources: Energy Information Administration, Annual Energy Outlook, March 2009.
Geothermal
*Municipal Solid Waste/Landfill Gas.
Grid Connected Electricity Generation
from Renewables: 1990-2030F*
Billions of Kilowatt Hours
500
Generation from renewables such as wind,
biomass and solar could overtake hydro by 2019
450
400
350
300
250
200
Hydro
Other Renewables
150
The energy insurance
industry will evolve as
customer needs change
100
50
Sources: Energy Information Administration, Annual Energy Outlook, March 2009; Insurance Information Institute.
2030
2025
2020
2015
2010
2005
2000
1995
1990
0
Electricity Supply Infrastructure:
Despite Crisis, Huge Investments Needed
Along With Insurance: 2001-2030 (Est.)
North American investment
could total $1.876 trillion $ Billions
Investments in electricity
supply infrastructure
globally are expected to
total $9.841 trillion
between 2001 and 2030
$2,500
$1,913
$1,876
$2,000
$1,500 $1,351
$809
$1,000
$799
$783
$744
$377
$500
$609
$258
Africa
Middle
East
Latin
America
S. Asia
E. Asia
China
Russia
Pacific
North
America
Europe
$0
36
Source: International Atomic Energy Agency , World Outlook for Electricity Investment.
Share of Electricity Generating Capacity
Based on Nuclear by Country, 2008
80%
76%
70%
60%
50%
104 nuclear facilities currently
generate 20% of the US electricity
supply. 17 companies have applied
for $122 in federal loan guarantees to
build 21 new reactors. Construction
for the first 7 could begin by 2011 and
come online by 2015-16
40%
28%
30%
25%
20%
20%
15%
13%
10%
4%
0%
France
Germany
Japan
US
Canada
UK
Mexico
37
Source: International Atomic Energy Agency ; Insurance Information Institute.
Growth in Global Nuclear Electricity
Generation by Region, 2007—2020F
350%
300%
250%
200%
Despite new capacity in the US,
the developing world will see the
fastest growth in nuclear
electricity generation because the
current capacity base is small
325.4%
150%
100%
78.0%
83.7%
Far East
Latin
America
98.4%
49.6%
50%
9.3%
0%
-50%
-16.1%
Western
Europe
North
America
Eastern
Europe
Source: Blue Chip Economic Indicators, 3/10/09 edition.
Africa
Middle
East/South
Asia
World Energy Supply Infrastructure
Investment by Category: 2001-2030 (Est.)
$ Billions
Distribution, $3,755 ,
38%
Transmission, $1,568 ,
16%
Generation will account
for 46% or $4.5 trillion
of all investment
through 2030 to meet
rising demand. Current
downturn will have no
impact on long-term
global energy demand
and the need to develop
supply infrastructure
Generation-New, $4,080
, 42%
Generation-Refurbished,
$439 , 4%
Source: International Atomic Energy Agency , World Outlook for Electricity Investment.
World Electricity Generation by Fuel
Source Share: 2005 vs. 2030F
2005
2030
Liquids
2%
Liquids
6%
Nuclear
11%
Nuclear
15%
Renewable
15%
Coal
41%
Coal
47%
Renewables
18%
Natural Gas
20%
Surprisingly, coal as a source
of electricity generation is
expected rise through 2030.
CO2, pollution issues?
Natural Gas
25%
Source: Insurance Information Institute from data reported in US Department of Energy Report #:DOE/EIA-0484 ( Sept. 2008).
What Motivates
Insurers to Go
Green?
CATs, Demographics,
Demand
Concern Over Global Warming
Remains High, But Has Waned
The percentage of Americans who believe
global warming is happening fell from
85% in 2006 to 72% in late 2009
%
100
85%
84%
80
80%
72%
60
40
20
A majority of Americans say global
warming has been occurring and is a
serious problem, but skepticism has
grown since 2006. Possibly due to
concern being redirected to the economy.
0
Mar 06
Apr 07
Source: Washington Post – ABC News poll, 11/24/09
July 08
Now
Catastrophic Loss
Catastrophe Losses Trends
Are Trending Adversely,
Though How Much, if Any, Is
Due to Climate Change Is
Unknown
Global Natural Disasters: Economic
and Insured Losses:1980 – 2009:H1
US$bn
Overall and insured losses (Annual totals vs. first half-years)
Overall losses*:
Insured losses*:
Annual totals
Annual totals
First half-years
First half-years
Source: Geo Risks Research, NatCatSERVICE
© 2009 Münchener Rückversicherungs-Gesellschaft
*Losses in 2008 values
As of July 2009
44
Insured Property Catastrophe Losses
as % Net Premiums Earned, 1984–2008
16%
14%
12%
10%
US
US average: 1984-2008
US CAT losses were
a record 14.4% of
net premiums
earned in 2005 and
were 4 times the
1984-2008 average
of 3.6%
8%
6%
4%
2%
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
0%
Sources: ISO, A.M. Best, Swiss Re Economic Research & Consulting; Insurance Information Institute.
$40
$20
$7.5
$2.7
$4.7
$22.9
$5.5
$16.9
$8.3
$7.4
$2.6
$10.1
$8.3
$4.6
$26.5
$5.9
$12.9
$27.5
$60
$7.5
$80
2009 cat
losses were
down 29%
in H1 from
$10.6B in
H1 2008
$26.0
$100
2008 CAT losses exceeded
2006/07 combined. 2005 was by
far the worst year ever for
insured catastrophe losses in the
US, but the worst has yet to come.
$9.2
$6.7
$120
$100 Billion CAT
year is coming
eventually
$61.9
$ Billions
$100.0
U.S. Insured Catastrophe Losses
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09*
20??
$0
*Based on PCS data through June 30 = $7.5 billion.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and
personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B. 46
Source: Property Claims Service/ISO; Insurance Information Institute
Top 12 Most Costly Disasters in
US History, (Insured Losses, $2008)
$50
$45
8 of the 12 most expensive disasters in
US history have occurred since 2004;
$40
$45.3
8 of the top 12 disasters affected FL
$ Billions
$35
$30
$25
$20
In 2008, Ike became the 4th most
expensive insurance event and 3rd most
expensive hurricane in US history
arising from about 1.35 mill claims
$11.3 $11.3 $12.5
$15
$10
$5
$22.8 $23.8
$4.2
$5.2
$6.2
$7.3
$8.1
$8.5
Ivan
(2004)
Charley
(2004)
$0
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Hugo
(1989)
Wilma
(2005)
Northridge
(1994)
*PCS estimate as of August 1, 2009.
Sources: PCS; Insurance Information Institute inflation adjustments.
Ike
(2008)*
9/11
Attacks
(2001)
Andrew
(1992)
Katrina
(2005)
47
Total Value of Insured
Coastal Exposure (2007, $ Billions)
Florida
New York
Texas
Massachusetts
New Jersey
Connecticut
Louisiana
S. Carolina
Virginia
Maine
North Carolina
Alabama
Georgia
Delaware
New Hampshire
Mississippi
Rhode Island
Maryland
$2,458.6
$2,378.9
$895.1
$522B increase
$772.8
since 2004, up 27%
$635.5
$479.9
In 2007, Florida still ranked as the #1
$224.4
most exposed state to hurricane loss,
$191.9
with $2.459 trillion exposure, an
$158.8
increase of $522B or 27% from $1.937
$146.9
trillion in 2004.
$132.8
$92.5
The insured value of all coastal
$85.6
property was $8.9 trillion in 2007, up
$60.6
24% from $7.2 trillion in 2004.
$55.7
$51.8
$54.1
$14.9
$0
Source: AIR Worldwide
$500
$1,000
$1,500
$2,000
$2,500
$3,000
48
Demographics
Vulnerable Population and
Property Values Are Rising
Population of Florida,
1960—2030F
Millions
35
30
Increasing coastal population and
development are the principal reasons
driving higher insured catastrophe losses
today, but they increase vulnerability to
climate change. State subsidies to coastal
dwellers both increase vulnerability and
contribute to climate change problems
28.686
23.407
25
19.252
20
15.982
12.938
15
Florida’s population
will have doubled
between 1980 and
2010, according to the
US Census Bureau
9.746
10
4.952
6.789
5
0
1960
1970
1980
1990
Source: US Census Bureau; Insurance Information Institute.
2000
2010F
2020F
2030F
50
Average Square Footage of
New Homes in US,1973-2008
2,500
2,300
2,100
1,900
1,700
1,660
1,695
1,645
1,700
1,720
1,755
1,760
1,740
1,720
1,710
1,725
1,780
1,785
1,825
1,905
1,995
2,035
2,080
2,075
2,095
2,095
2,100
2,095
2,120
2,150
2,190
2,223
2,266
2,324
2,320
2,330
2,349
2,434
2,469
2,521
2,519
2,700
Insurers protect homes
and their owners,
irrespective of the size of
their carbon footprint
Size of average new
homes typically falls in
recessions, and periods
of high energy prices
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
1,500
Source: US Census Bureau: http://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf;
Insurance Information Institute.
51
U.S. Residual Market Exposure
to Loss (Billions of Dollars)
$900
$800
$700
$600
In the 19-year period
between 1990 and 2008,
total exposure to loss in the
residual market (FAIR &
Beach/Windstorm) Plans
has surged from $54.7bn in
1990 to $696.4bn in 2008.
$696.4
$656.7
4 Florida
Hurricanes
$500
$400
$771.9
Katrina, Rita
and Wilma
$430.5$419.5
$372.3
Hurricane
Andrew
$292.0
$281.8
$244.2
$221.3
$150.0
$300
$200
$100 $54.7
$0
1990
1995
1999
2000
2001
Source: PIPSO; Insurance Information Institute
2002
2003
2004
2005
2006
2007
2008
Subsidized Insurance Increases
Vulnerability to Climate Change
Key Impacts of Subsidized Insurance:
• Encourages/Enables Development in Vulnerable and
Ecologically Sensitive Areas
• Increases Vulnerability to:




Elevated frequency/severity of hurricanes and other severe storms
Storm surge
Beach erosion
Flooding due to sea level rise
• Leads Directly to Increased GHG Emissions Due to Increased
Development & Destruction of Carbon Sinks
• Loss of coastal woodlands, wetlands and mangrove forests
• Increased Risk to State’s Finances
• ALSO: Subsidized Insurance Distorts Real Estate Prices
• Florida’s coastal subsidies contributed to the state’s real estate bubble
and therefore are partially responsible for its collapse
53
U.S. Residual Market Property
Policies In-ForceExposure
3,000
2,500
In the 19-year period between
1990 and 2008, total residual
market policy count (FAIR &
Beach/Windstorm Plans) has
nearly tripled to more than 2.6
million policies
2,000
1,785.0
1,500
1,000
2,840.4
2,780.6
2,621.3
2,209.3
2,203.9
1,741.7
1,642.3
1,458.1
1,196.5
1,319.7
931.6
Katrina, Rita
and Wilma
4 Florida
Hurricanes
500
0
1990
1995
1999
2000
2001
Source: PIPSO; Insurance Information Institute
2002
2003
2004
2005
2006
2007
2008
Insurance Information
Institute On-Line
THANK YOU FOR YOUR TIME AND
YOUR ATTENTION!
Download at : www.iii.org/presentations
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