Download The Strategy of Chinese Insurance Industry to Address Global Climate Change

The Strategy of Chinese Insurance Industry to Address Global
Climate Change
WANG Qing1, LI Liang2
1. Law School, Shandong University of Technology, P.R.China, 255049
2. School of Economics, Shandong University of Technology, China, 255049
[email protected]
Abstract: Climate change increases the frequency of extreme weather and severity, affecting the normal
operation of the economy, the economic and social sustainable development posed a serious challenge.
The insurance industry in the real economy has a wide range of stakeholders, and thus climate change
will have significant impact on the insurance industry. Insurance industry in addressing climate change
is playing a double role: it is necessary to reduce climate change on insurance business and assets of the
negative business impact, but also in adapting to climate change and grasp the opportunity to provide
management of climate risk insurance products and services, new energy, energy saving, new energy
vehicles, and other strategic funding to support emerging industries, to contribute to the mitigation of
climate change.
Keywords: climate warming, Insurance, Strategy
1.
Introduction
Global warming has become a reality. U.S. National Oceanic and Atmospheric Administration (NOAA)
issued a "weather conditions in 2009," the report noted that over the past 30 years, average global
surface and lower troposphere temperatures significantly higher than in previous decades, from 2000 to
2009 is the warmest since instrumental records 10 years. Warming in the Northern Hemisphere,
especially the high latitudes. Global warming and human activities, especially fossil fuel greenhouse gas
emissions are closely related. According to NOAA "2009 Climate Status" report, in 2009, rising
atmospheric concentrations of greenhouse gases, carbon dioxide faster than the average of 1978 to 2008.
Although the global low carbon economy can slow down global warming, but the future climate
warming is inevitable. The United Nations Intergovernmental Panel on Climate Change (IPCC) forecast,
regardless of what is now to reduce current and future greenhouse gas emissions means that in 2040
global temperature was 2 degrees Celsius could rise quite.
Climate warming increases the uncertainty of weather, so an increase of meteorological disasters. IPCC
reports that climate warming will lead to more intense or more frequent extreme weather and climate
events, including floods, storms, thunderstorms, hail, blizzards, forest fires, droughts, heat waves,
lightning attack, coastal erosion. As the forests and shrubs are the main terrestrial carbon sink, forest
fires will be greatly increased atmospheric carbon. Globally, the most expensive weather-related insured
losses from tropical cyclones (also known as hurricanes, typhoons and other parts of the world) or the
result of winter storms (Munich Re, 2000).
From the meteorological point of view, extreme weather events, the severity of tropical storms might not
be far above the annual rainfall occurs on a regular basis. However, they can break through the critical
threshold to achieve a substantial increase in the loss. That is, the severity of the incident even small
increases may also lead to a substantial increase in the loss. Once the gust to reach a certain level, the
entire roof will be blown away, trees were toppled or cause, but below this level may damage minimal.
Similarly, less than a certain amount of hail damage to car panels do not, but beyond a certain size, a
sudden increase in damage. Insurance Australia Group (IAG) experience shows that the gust strength
increase of 25%, can result in the construction claims will increase 6.5 times.
United Nations Environment Programme (UNEP) in its release of "climate change adaptation and
vulnerability: the role of the financial industry," the report noted that climate change caused by extreme
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weather conditions caused economic losses will increase every 12 years doubled. The next 30-40 years,
drought, storms, floods and other damage will reach one trillion U.S. dollars a year. China is the most
vulnerable to climate change one of the countries. In the background of global climate change, China all
kinds of extreme weather events become more frequent, the damage is growing. The Chinese
government issued the "National Assessment Report on Climate Change," that the future of China
extreme weather events increase. With the increase in total economic output, population density and
urbanization increase the speed, weather disaster losses will also be expanded.
2.
The Negative Impact on the Insurance Industry
The insurance industry is a direct risk management industry to climate change than any other sector of
the economy are facing more risks. Climate change and extreme weather disasters, many insurance
companies increase will affect business.
Global warming and frequent extreme weather events caused by meteorological disasters insurance
underwriting business face enormous potential losses. Including property insurance, health insurance,
life insurance, liability insurance, etc. Most insurance business of climate change and extreme weather
events are sensitive. In the commercial property insurance, the damage caused by climate change
includes not only the direct property losses, but also the policy owner to repair and re-relocation process,
loss of income and extra expenses. Agriculture is very sensitive to climate and weather departments.
Agricultural Insurance in climate-related risks, including drought, storms, floods, hail, heat waves,
storms, wildfires, pests and plant diseases such as, drought is one of the most common disasters. Car
insurance is also more sensitive to weather, storms, hail and floods and other forms of vehicle accidents
caused by bad weather increase the number of losses are staggering. For life insurance, climate change
impact of mortality and morbidity is also an important factor. Heat wave death toll will increase. Rising
temperatures and humidity increase, more wildfires and more dust and particulates may significantly
increase the respiratory disease (allergic rhinitis, conjunctivitis, sinusitis), and cardiovascular diseases,
especially the elderly and the threat of outdoor operations personnel more. As the climate warms,
tropical diseases may enter the high-latitude areas. Enterprise mission in vulnerable regions of extreme
weather may close, Ruoyin loss of climate disasters, may have to pay expensive replacement cost. If the
business interruption insurance, business insurance, business interruption claims, including lightning,
floods, wildfires.
People tend to gather high-risk areas, climate change will further exacerbate the loss. Climate change is
also often affected more than one insurance. For example, extreme high temperature events lead to
increased mortality, increased risk of forest fires.
Traditionally, insurance companies rely on historical claims data to determine the future of the insurance
product pricing and underwriting requirements. In view of extreme weather events may become more
intense and frequent, catastrophic losses caused by increased frequency and severity in the past, the
insurance pricing model is no longer a reliable guide to future pricing, and may produce misleading
results. Such risks certain extent the system being underestimated, insurance claims higher than
expected to significantly affect the profitability and capital adequacy. A single year of large claims may
solvency and financial stability of insurance companies pose a serious threat, even to bankruptcy.
Climate change also affects the ability of the insurance industry and provide affordable capacity while
slowing its rate of development. The climate science into the traditional model of insurance pricing is a
complex and time-consuming task, especially in the current climate science can not approach to extreme
climate events and the time to make accurate forecasts. For China's insurance industry, insurance density
and insurance penetration with the improvement of China's insurance industry will be amplified by
climate change.
Climate change on the insurance industry is another direct effect of its investment business. Climate
change and natural disasters caused by the insurance industry may suffer loss or impairment of assets,
especially insurance companies invest in real estate directly or indirectly, greater risk. Insurance industry
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in some of the global warming effect of the larger long-term investment in economic sectors face the
same risk. Life insurance assets held by long-term assets based on liquidity requirements than lower
property insurance industry, the hardest hit.
3.
Business Opportunities
Risk of development, the development of the insurance is the risk of development of the development of
the insurance space. Climate change to bring the insurance industry is not entirely a challenge. Changing
climate, and the Chinese efforts to reduce greenhouse gas emissions for the adjustment of economic
structure, gave the insurance industry to provide new business opportunities.
In the insurance business, increased risk of climate disasters will increase the urgency of the insured risk
transfer, and clean energy and low carbon economy also produced a large number of new risks subject,
insurance companies can seize opportunities, to provide a range of climate change-related insurance
products.
In the investment business, a series of strategies to mitigate climate change initiatives also bring
investment opportunities to the insurance industry. The current global economy is a big push to to low
power consumption, low pollution, low-emission low-carbon economic model based on changes
associated with technological innovation, new energy development, industrial restructuring will result in
huge capital requirements and infrastructure investment, which for the use of insurance funds provided a
rare opportunity.
Coping strategies
The insurance industry is a direct risk management industry, is in the forefront of the threat of climate
change, it should take positive action to develop comprehensive climate change strategies to adapt to
and mitigate climate change. Actively respond to climate change not only the development of the
insurance industry itself is also responsible to shareholders and consumers reflected. With colleagues,
customers and governments, insurance companies can help the community to prevent the worst of
climate change impact on society. They can also reduce greenhouse gas emissions, technology and
behavioral change incentives play an important role.
Play insurance risk protection and social management functions. Meteorological disaster insurance is to
reduce an effective means of insurance losses, insurance companies, existing insurance products can be
improved, so has the functionality to address climate risks. Due to climate change will lead to extreme
weather events to new geographical areas, insurance companies, these changes can be found in time to
cover these new risks and market price of the appropriate insurance products. Climate change will
impact in different ways major economic sector, the insurance industry to understand their customer's
changing risk profile, meet their insurance needs. Insurance, social insurance can play a management
function, to reduce greenhouse gas emissions. Climate change may be the subject of the claim and the
insurance impact on the repair process. Great weather disasters may put pressure on the claims process,
because the insurance company may not be able to cope with large-scale claims. In addition, the
post-disaster reconstruction of the insured face resource constraints, maintenance costs are rising rapidly.
Claims and repair process to a more sustainable way there the opportunity to rebuild. Use of
environmentally friendly construction materials and construction techniques leading the redevelopment,
both to prevent future loss of the insurer, but also reduce greenhouse gas emissions.
To curb greenhouse gas emissions that cause climate change, primarily by improving energy efficiency
and carbon-free energy. Insurance company can develop new climate change-related insurance products.
On one hand, the insurance industry for the green building design, energy efficiency and renewable
energy, environmental protection projects such as the provision of new vehicles to avoid climate risk
insurance products, on the other hand to adapt to the CDM for carbon credit delivery guarantee
requirements, development of carbon trading Insurance. Rapid market growth of carbon emissions, but
carbon emissions trading, there are many risks, such as price fluctuations, can not be delivered on time
and not pass regulatory certification, can give a loss to investors or lenders, insurance, intervention can
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help to scatter Carbon trading risk.
To inspire and guide consumers to encourage them to reduce greenhouse gas emissions. For example,
the use of low-emission hybrid vehicles to families and individuals to provide insurance rate discounts.
United States and Europe are driving the popular pay-for car insurance (PAYD, Pay as you drive), to
encourage less driving the insured to reduce emissions, China's insurance companies can also launch
similar products.
Collection of weather-related losses of more comprehensive data, improve catastrophe modeling
standards. Strengthening regulatory agencies to consider climate change factors in the insurance pricing
coordination. In order to avoid the terrible disaster in the future, the bankrupt, the insurance company
must strictly control the risk assessment, claims and reinsurance programs.
Through the capital markets and reinsurance markets in the transfer of risk. For example, the insurance
risk through catastrophe bonds transferred to the capital market through catastrophe reinsurance
catastrophe losses will be greater in the context of further global dispersion.
Insurance company has become China's capital market one of the largest institutional investors,
insurance companies can be more clean energy technologies and help move towards a low carbon
economy offers a lot of money. It can also use their influence to encourage the investment companies to
change their behavior, more effective response to climate change.
Strengthen their own emissions. And industrial enterprises which, the insurance company is not a major
emitter of greenhouse gases warm, but with the rapid development of China's insurance industry,
insurance, contingent employees and assets of the rapid expansion of economic activities have become
increasingly frequent, the industry's own greenhouse gas emissions are also not small. Insurance
companies have the opportunity to impact the community through its wide range of emission reduction.
Insurance companies in office lighting, cooling, energy-saving vehicles and so on. Optimize business
processes, such as promoting the use of electronic insurance policy can effectively reduce carbon
emissions. In addition, insurance companies can actively participate in charitable activities related to
energy conservation. Can not be avoided for its own carbon emissions, insurance companies can
purchase carbon offset projects to achieve carbon neutrality.
Reveal the risks of climate (Climate Risk Disclosure). Reveal the contents, including the impact of
climate change on business and climate change risk management measures of progress, and so on.
Climate risk disclosure for consumers and investors decision making.
Academic institutions and think tanks with close cooperation, analysis and sharing of knowledge of
climate risks and solutions. Involved in climate change science and climate change, economic impact
survey. To the public information environment and climate change.
4.
Regulatory Bodies and Government Departments
Insurance supervision responsibilities to ensure the steady and healthy development of the insurance
industry and the protection of the interests of the insured, and thus the need for regulators to global
warming on the insurance industry conducted a comprehensive assessment.
Regulatory bodies and government departments should encourage those aimed at reducing climate risks
in product development and innovation, to speed up their approval to enable the insured to the insured.
Allowing insurance companies to charge for these products appropriate risk premium to reflect the
actual and anticipated threats caused by climate change. Individual company is unlikely to take the
initiative to raise premiums, which make them at a disadvantage in the competition, the regulator is
likely to play a leading role.
Encourage insurance companies to collect more comprehensive climate-related loss of data, improve
catastrophe modeling standards. Study of climate risks into the insurance industry regulatory framework
for which solvency. Explore the establishment of catastrophe reserve system to ensure that industry has
sufficient capital to address climate change losses.
Participate in the insurance industry to create a good environment for low-carbon society. European and
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American countries learn from the experience, support the development of "mileage" car insurance
products, to encourage the insured to reduce travel, energy saving.
In insurance, investment, insurance funds can consider adjusting the existing use of policies to guide the
insurance investment tilted to a low carbon economy.
Government departments should establish early warning systems, good land use planning, improve
building codes, strengthening of national and international relief coordination and cooperation.
5.
Conclusion
The insurance industry should understand and manage the impacts of climate change to play a more
leading role. Most insurance companies in China have recognized the importance of climate change, but
still waiting to see. Insurance companies over the first rule in the insurance industry should be to adapt
to climate change, this change before the change. Climate change, the insurance industry the process of
change will not be easy, but should the sooner, the insurance industry and society as a whole, the costs
will become.
References
[1]. When Xin Ma Xiaopeng positive international experience to address climate change should be
done in China pioneer in the insurance industry, China Insurance News
February 10, 2010(in Chinese)
[2]. Yu Zhihui Climate change: how to deal with the Chinese insurance industry, insurance, newspaper
2009-10-21(in Chinese)
[3]. Wang Xiaoping face of climate change awareness of the insurance industry should forward the
Financial Times April 17, 2008(in Chinese)
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