Insurer Climate Risk Disclosure Survey: 2012 FInDIngS & ReCommenDatIonS March 2013 Authored by Sharlene Leurig, Ceres Dr. Andrew Dlugolecki About ceres Ceres isanonprofitorganizationadvocatingforsustainabilityleadership.Itmobilizes apowerfulnetworkofinvestors,companiesandpublicinterestgroupstoaccelerate andexpandtheadoptionofsustainablebusinesspracticesandsolutionstobuild ahealthyglobaleconomy.CeresalsodirectstheInvestorNetworkonClimateRisk (INCR),anetworkof100institutionalinvestorswithcollectiveassetstotalingmore than$11trillion. AcknowledgeMents TheauthorswishtothankthemembersoftheCeresteamwhoprovidedvaluable insightandcontributedtothewritingofthisreportincludingRebeccaDavidson, PeytonFleming,AndrewLogan,CynthiaMcHaleandRowanSpivey.Wewouldalso liketothankTheBlueMoonFund,TheKresgeFoundation,TheSkollFoundation, TheBullittFoundation,andTheWilliamB.WienerJr.Foundationfortheirongoing supportofthiswork. GraphicdesignbyPatriciaRobinsonDesign. (C)Copyright2013byCeres. For More inForMAtion, contAct: Sharlene Leurig SeniorManager InsuranceProgram Ceres 99ChauncyStreet Boston,MA02111 leurig@ceres.org www.ceres.org Contents Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 executive suMMAry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 chApter 1: context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.1 AChangingBusinessEnvironment 1.2 InvestmentPerformance 1.3 RegulatoryUncertaintyandMountingLiabilityPotential 1.4 HistoryofInsuranceClimateDisclosure chApter 2: overview oF the AssessMent . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.1 ReportMethodology 2.2 InsurerProfiles 2.3 OverallInsurerPerformance chApter 3: cliMAte chAnge risk MAnAgeMent . . . . . . . . . . . . . . . . . . . . . 21 chApter 4: Action drivers on cliMAte chAnge . . . . . . . . . . . . . . . . . . . . 24 4.1 Overview 4.2 ReviewofInternalDrivers 4.3 ReviewofExternalDrivers chApter 5: core Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.1 Property&CasualtyInsurerCoreFunctions 5.2 LifeandAnnuityInsurerCoreFunctions 5.3 HealthInsurerCoreFunctions chApter 6: engAgeMent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 6.1 Stakeholders 6.2 PublicPolicy chApter 7: reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 chApter 8: recoMMendAtions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.1 ForInsurers 8.2 ForInsuranceRegulators Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 A1 ClimateRiskDisclosureSurvey A2 ScoringMethodology A3 InsurerRespondents contents 3 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Is the Insurance Industry Prepared? By Mindy Lubber President of Ceres and director of the Investor Network on Climate Risk 2012 was the warmest year on record in the Lower 48 states and the second most extreme weather year in U.S. history. This is not a coincidence. Extreme weather-- stronger, more damaging storms, unprecedented drought and heat in some regions and unprecedented rainfall and flooding in others--are the predictable consequences of rising global temperatures. Elevenextremeweathereventseachcausedatleastabilliondollarsinlosseslastyearinthe UnitedStates.A single event,HurricaneSandy,causedmore than $50 billion ineconomic losses.Insurancecompaniesareonthehookfortensofbillionsofdollarsinclaimsasa resultofSandyandothersevereweatherevents.AndAmericantaxpayersareonthehook fortensofbillionsofdollarsthemselves,thankstolossessustainedbytheNationalFlood InsuranceProgramaswellasdisasterreliefspending. Sandy'simpactwasespeciallyseverebecauseofarecord-breakingstormsurge.Withrisingsea levelsandincreasinglypowerfulstorms,therearemoreSandysinourfuture.IntheUnitedStates alone,morethan2.6millionhomesarelessthanfourfeetabovemeanhightide.Hundreds ofbillions,perhapstrillions,intaxablerealestatelieslessthanthreefeetaboveaveragehigh tide.Onthecoasts,powerplants,masstransitsystems,wastewatertreatmentplants,and airportssitatornearsealevel.Inshort,thepotentialliabilityforinsurersisastronomical. Atfirstblushitmightappearthatonlypropertyandcasualtyinsurershavereasontobe concernedaboutclaimsrelatedtoclimatechange.Infact,everysegmentoftheinsurance industryhasclimaterisks.Lifeinsurers,forexample,ownhundredsofbillionsofdollarsworth ofrealestateincoastalareas. Thisraisesafundamentalquestion:Istheinsuranceindustryprepared?Haveinsurers analyzedandmeasuredtheirclimate-relatedrisk?Aretheyplanningforlifeinawarmer world?Theseshouldbeessentialquestionsforinsuranceregulatorsinall50statestobe asking,andsomeare. In2012insuranceregulatorsinCalifornia,NewYorkandWashingtonStaterequiredinsurers thatwriteinexcessof$300millionindirectwrittenpremiumsdoingbusinessintheirstates todisclosetheirclimate-relatedrisks.BecausevirtuallyeverylargeAmericaninsureroperates Foreword 4 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations inatleastoneofthosestates,thesurveyresponsesgiveusagoodpictureofhowwell preparedtheindustryis,asawhole,forthenewrisksassociatedwithclimatechange. Theanswer,unfortunately,hasnotchangedsinceourfirstreportanalyzingtheinsurance industry'sreadinessinSeptember2011concluded:"notvery."Theimplicationsareprofound, fortheinsuranceindustryisakeydriverofthenationalandglobaleconomies.Ifclimate changeunderminesthefinancialviabilityoftheinsuranceindustry,itwillhaveadevastating impactontheeconomy,aswell. If climate change undermines the financial viability of the insurance industry, it will have a devastating impact on the economy, as well. InmyforewordtotheSeptember2011reportIwrotethat2011wasshapinguptobeoneofthe costliestyearsinhistoryfornaturaldisasters.Then2012made2011looktamebycomparison. Thishastobeawake-upcalltoanindustrywithsomuchtolosefromclimatechange. It'saclich?,butit'strue:informationispower.That'swhymandatory,annual,publicly availableclimatedisclosureinformation--informationlikethatcontainedinthesurveys analyzedinthisreport--issocriticalto,regulators,shareholders,consumersandpolicy makers.Byrequiringinsurerstodiscloseinformationaboutwhetherandhowtheyare integratingclimateriskintotheiroperations,theymustreckonwithimportantnewforces buffetingtheindustryandbecomestrongerandmoreresilientintheprocess. Foreword 5 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Executive Summary the objeCtIve Thisreportsummarizesresponsesfrominsurancecompaniestoasurveyonclimaterisk developedbytheNationalAssociationofInsuranceCommissioners(NAIC).In2012 insuranceregulatorsinCalifornia,NewYorkandWashingtonrequiredinsurersthatwritein excessof$300millionindirectwrittenpremiums,andarelicensedtooperateinanyofthe threestates,todisclosetheirclimate-relatedrisksusingthissurvey.Theaimofthesurvey andCeres'analysisoftheresponsesistoprovideregulatorswithsubstantiveinformation abouttheriskstoinsurersposedbyclimatechange,aswellasstepsinsurersaretaking inresponsetotheirunderstandingofclimatechangerisks.Becausevirtuallyeverylarge Americaninsureroperatesinatleastoneofthosestates,thiseffectivelyopensawindow intotheentireindustry.Whiletheresponsestothesurveyarepublicandcanbeviewedby anyinterestedparty*,Ceresfeltthatallstakeholderswouldbenefitfromananalysisthat distilledkeyfindingsandtrendsfromthelargevolumeofdata,andrecommendedsteps insurersandregulatorscouldtaketomanageclimaterisks. the analySIS Thesurveygenerated184distinctresponses(seefulllistofrespondentsinAppendix3)after duplicateswereremoved.Ceresdevelopedaframeworktoassesstheresponses,analyzing fourdomains:1)howthecompaniesmanageclimatechangeissues;2)whatdriversshape theirstrategies;3)whatactionstheytakeintheircorefunctionsoroperationsand;4)how theyinteractwithexternalstakeholders.Thesefourbroaddomainsweresubdividedinto atotalof37indicators,outlinedinAppendix2.Toaidinourassessment,Ceresdeveloped ascoringmethodology(describedinAppendix2)thatenabledcomparisonbetweensegments oftheindustry,companysizeandothercharacteristics.Companyscoreswillnotbemade public,butwillbeprovidedtoregulatorsandcompaniesuponrequest. Key FInDIngS Ingeneral,almostallcompaniesrespondingtothesurveyshowsignificantweaknessintheir preparednesstoaddresstheeffectsclimatechangemayhaveontheirbusiness.However, asmallsubsetofindustryleadersareevolvingtheirbusinessstrategiestoremaincompetitiveas theimpactsofclimatechangeunfold.Giventhestrongscientificconsensusonclimatechange, therestoftheindustrywouldbewelladvisedtofollowtheleadoftheseinnovativecompanies. * Surveyresponsesareavailableathttp://www.insurance.ca.gov/0250-insurers/0300-insurers/0100-applications/financial-filing-noticesforms/annualnotices/ClimateSurvey.cfm 6 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Whilethereissignificantvariabilitybetweencompaniesintheirapproachtoidentifyingand managingclimaterisks,cleartrendsemergedfromthesurveyresults: ? Smallercompaniestendtobefarlesspreparedthanlargercompanies. ? PropertyandCasualty(P&C)insurers(includingmultiline)demonstratefarmoreadvanced understandingofthetheoreticalrisksthatclimatechangeposestotheirbusiness.P&C insurersalsotendtobeatafurtherstageofdevelopmentinimplementingthetoolsneeded tomanageclimatechangerisks,whencomparedtotheLifeandAnnuityandHealth segmentsoftheindustry,irrespectiveofthesizeofthecompany. ? Only23companies,mainlylargeandforeign-owned,haveaspecific,comprehensive strategytocopewithclimatechange.Atbest,mostinsurersviewclimatechangeasarisk thatwillinherentlybecapturedintheirEnterpriseRiskManagementstrategies,andatworst asanenvironmentalissueimmaterialtotheirbusiness. Key FInDIngS by ChapteR Climate Change Risk management ? Only23ofthe184companieshavecomprehensiveclimatechangestrategies1:ofthose 13areforeign-owned,and8areP&Ccompanies.Yetevenamongthosecompanieswith comprehensiveclimatestrategies,theviewofclimatescienceisremarkablydiverse.For example,companiessuchasACEarefundingprimaryclimatechangeresearch,SwissRe andotherslendtheirbrandactivelytoeffortsattheIntergovernmentalPanelonClimate Change(IPPC,aglobalcooperativetosynthesizethestateofclimatechangescience), whilecompaniesincludingAllstateandTravelersexpressstrongambivalenceaboutthe stateofthescience--specifically,theexistenceofclimatechangeandwhatiscausingit. ? WhilemostinsurersintheP&Csegmenthavepoliciesinplacetomanageclimate variability,theannualanddecadalvarianceinherenttotheglobalclimatesystem,fewhave explicitpoliciestoidentifyormanagethetrendsofglobalclimatechange.Someinsurers donotseemtounderstandthedifferencebetweenclimatevariabilityandclimatechange. ? EspeciallywithintheHealthandL&Asegments,butevenamongsomeP&Cinsurers, manycompaniesviewclimatechangeasanenvironmentalissueimmaterialtotheir business.Mostoftheremainingcompaniesregardclimatechangeasariskthatwill inherentlybecapturedintheirEnterpriseRiskManagementstrategies. action Drivers on Climate Change Thesurveyrevealsfivemainmotivatorsofactiononclimatechange,including: ? Cost efficiencies,primarilyenergysavings.Themostcommonactiondriver(116of 184companies)wasreducingcompanyenergyusetocutcosts.Farfewercompanies (39outof184)citedcarbonreductiontargetsasamotivator. ? Security,theexposureofthecompany'soperations,revenueandprofitability,isa motivatorfor110outof184companies,althoughthisisprimarilyduetoconcernfor currentextremeweatherevents,ratherthanclimatechangeperse.Businesscontinuity andclaimsprocessingfromextremeeventsthataffectinsurers'ownoperationsarethe most-citedexposurenodes(72outof184).Companiescitereinsurance,lossmodeling andbusinesscontinuityplanningasapproachestomanagingtheirownperformance, whilecarryingsurpluscapitalisrarelymentioned.However,riskmanagementapproaches 1 Othershavestrategiestodealwithclimatevariability,butnotthetrendinclimate,northeassociatedsocialissues(e.g.regulation,liability,reputation, clientbehavior). executive suMMAry 7 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations arefrequentlydescribedgenerallyintermsofcatastropheriskmanagementratherthan asapproachesspecificallytoaddressclimatechange.Thereislittlediscussionofthe potentialforcorrelationbetweenclientriskandassetrisk. ? Emergent risks fromfutureclimatetrends--88outof184companiesviewedclimate changeasapotentialfuturelossdriver,eventhoughscientificassessmentssuchasthe recentIPCCExtremeEventsreportanddraftNationalClimateAssessmentemphasizethat climatechangeisalreadyamplifyingextremeeventsthatleadtoinsuredlosses.Asafaroffriskfactor,climatechangewasseenasapotentialrisktocompanies'underwritingand investmentreturns,evenforinsurersinsegmentssuchasdentalinsurance. ? Sustainability andrelatedreputationalbenefits.Thisdriverisrelevantforallsegments, butespeciallysoforhealthinsurers.Whileonly9companiesincludethereputational benefitsofactingonclimatechange,afarhighernumberhighlightcorrelationsbetween sustainabilityprogramsandreputationalbenefits(77firms,orover40%ofthesurvey). ? Client exposure toclimatechangewascitedby72outof184companies,withconcerns includingclients'exposuretocarbonregulation,extremeweatherdamagetoclients' physicaloperationsorassetsanddamagetoclients'investments. Themotivatorsforclimateactiondifferdependingonindustrysegment.P&Cinsurers'top concernsaresecurity,closelyfollowedbycostefficiency.Theyviewclimatechangeas afuturebutuncertain,emergentrisk,ratherthanonethatalreadyaffectsclientsthrough hazardssuchasmoredamaginghurricanesandextremeheatevents.Life&Annuityinsurers areespeciallymotivatedbycostefficiency,followedcloselybysecurity.Thereislessconcern overpotentialorcurrentchangesintheclimateandminimalconcernoverhurricanesor otherweatherextremes.Healthinsurers'maindriverissustainability,whichtheylinkto concernforthewellbeingoftheirclients. Core Functions Byfar,theindustrysegmentwiththemostclimateriskmanagementactivitiesunderwayis propertyandcasualty--unsurprisingasweathereventsareamajordriveroflossestothese companies.Ingeneral,thecurrentviewofLife&Annuitycompaniesisanabsenceofcurrent riskexposuretoclimatechangeontheirunderwritingbusiness,butnearlyaquarterdescribe someactivemanagementofinvestedassetstomanageclimatechangerisks.Despite predictionsofmorepronouncedheatwaves,expansionofinsect-bornediseaseandpoorer airandwaterquality,fewhealthcompaniesdescribeclimatechangeasafactorrelevantto theirriskassessment. Asmaybeexpected,manyinsurersdiscussclimatechangeintermsofspecificperilsor typesofextremeweatherevents.Themostcommonofthoseperils,asreflectedinthe findingsofCeres'2010reviewofinsurerdisclosure,ishurricanes(32of184companies,all P&C).Asforthescientificcommunity,thereisnoconsensusyetonhowhurricaneriskwill evolveinawarmerclimate--whileleadingexpertsdisagreeonwhetherincreasingatmospheric andoceanictemperatureswillleadtomoreorfewerhurricanesdeveloping,thereis widespread agreementthatthosehurricanesthatdoformwillbemoreintenseand destructive,inpartduetohighersealevelsandresultinghigherstormsurges. executive suMMAry 8 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Otherperils,includingwildfires(15outof184)andconvectivestormsthatproduce tornadoes,thunderstormsandhailstormswerealsohighlightedbyinsurers.Thestateof sciencefortheseweathereventsisveryuneven:moredamagingwildfiresaredemonstrably trendingupwardaspredictedbyclimatologicalassessments,yetinsurersdescribeloss experienceasdepartingdramaticallyfromtheirownhistoricalunderwritingexperience. Commonstrategiesforriskmanagementincludecatastrophemodeling,reinsurance, higherdeductiblesorbroaderexclusionsinrisk-proneareas(particularlycoastalzones), andacarefulcontrolofaggregateexposure,includingrebalancingpropertywithotherlines ofbusiness.Themostfrequentchallengetoriskmanagementcitedbyinsurersisregulatory pricingcontrolsinwhichpricesarenotpermittedtoriseasquicklytohigherrisklevelsin regulatedmarkets. Thisfinding,namelythatinsurersviewtheirinvestmentsasminimallysusceptibletoclimate risks,wasalsoreportedinCeres'2010reviewofinsurerdisclosures.However,nearlya quarteroflifeinsurersandanumberofP&Ccompaniesdescribestrategiesforreducingtheir investmentexposuretobusinessesorregionsthatareviewedasmostvulnerabletoclimate changeimpacts.Ofgreatinterestisthetendencyofinsurersacrossbusinesssegments-- lifeandpropertyalike--toprioritizephysicalriskmanagementovercarbonregulationrisk managementintheirinvestments.Whilecompaniesrecognizethepotentialforinvestment lossesincarbon-intensiveindustriesunderfuturecarbonregulatoryregimes,noinsurers describescreeningoutcarbon-intensivebusinesses.Yetseveralinsurersdescribescreening outsecuritiesorrealassetsfromcoastalregions(particularlyFlorida)andaridregionswith perceivedwaterscarcitysuchastheSouthwest.Particularlyfollowingthespateofdestructive stormanddroughtactivityin2012,theseinvestmentscreeningpracticesshouldbenotedby realassetownersandbondissuers. engagement Fewinsurersdescribeeffortstoengagestakeholderssuchasregulators,policymakers, customers,employees,assetmanagersorvendorsonclimatechange.Thedearthofexternal engagementslimitsthepotentialinfluenceofinsurersinshapingapublicviewofclimate changerisksandpolicyactionsthatareneededtoenhanceclimateresiliencyandclimate mitigation.Becauseinsurershaveunevenresourcestoassesstheirownclimaterisk,the inward-facingapproachofmuchoftheindustryalsosuggeststhatsmallercompaniesmaybe disproportionately unpreparedforclimatechange. ? Smallerinsurersrelyuponexternalpartiesforcriticalservicessuchascatastrophe modeling,reinsurancestrategiesandassetmanagement,yetthesurveyfindingssuggest thattheseinsurersoftendonotunderstandwhethertheiradvisorsandsuppliersare factoringclimatechangeintotheirdecisions. ? Manyinsurershaveadoptedproductsdesignedtosupportlow-carbonactivities.About halfoflargeandmedium-sizedpropertyinsurersofferinsuranceproductsdesigned forlow-carbonactivitiessuchasgreenbuildingsorrenewableenergyprojects.Someof thelargeLife&Annuitycompaniesofferinvestmentproductsallocatedtolow-carbon technologies.However,sincemostproductdevelopmenthasbeenundertakenby multinationalcompaniesheadquarteredoverseas,mostproductstendtobedeveloped foraninternationalmarketandareoflimitedrelevanceintheUnitedStatesmarket. executive suMMAry 9 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Key ReCommenDatIonS FoR InSuReRS ? Treat climate change as a corporate-wide strategic issue, affecting all functions, at all levels, and formalize this in a public corporate policy statement. Climatechange hasthepotentialtoimpairvalueacrosstheinsuranceenterprise--managingitdemands acomparablescopeofcoordination. ? Evaluate the potential for changes in future risk exposure due to climate change. Insurersneedtoassesshowachangingclimatecouldalterextremeweatherevents, diseasevectors,politicalriskandinfrastructureresilience,andadaptaccordingly. o Support research on the influence of a warming climate on human systems, including forecasting future catastrophe trends, disease pathways, population migration, infrastructure failure and adaptive responses. Whilethereisstrongscientificconsensus onclimatechange,thereisaparticularneedtoadvanceourunderstandingofthelikely impactsofwarmingtemperaturesonphenomena,includingthefrequencyandseverity ofhurricanesandconvectivestorms;thehumanhealtheffectsofmoreintenseheat wavesandexpansionofinsect-bornediseases;andtheeconomicandpolitical repercussionsoffailedinfrastructureandinundationofdevelopedlands. o Develop catastrophe models that anticipate the probable effects of climate change on extreme weather events. Insurerswithdeepscientificresourcesshouldpartnerdirectly withclimatescientiststodevelopnew,moregranularmodelingcapabilities.Formany carriers,withlessscientificexpertise,itisequallyimportantthattheimpactofclimate changeonextremeinlandandcoastalweathereventsbearoutinepartofthe conversationwithcatastrophemodelvendorsandreinsurancebrokers. o Engage with regulators about how to ensure that rates and loss reserves adequately reflect changes in loss trends due to climate change. Insurersshouldalsoincrease theireffortstoofferpreferentialpricingthatreflectsclimate-resilientbehavior. o Ensure that investment advisors and asset managers have established expertise on climate change risk assessment and management. Climatechangeisalreadyaltering extremeeventtrends,withimplicationsforequity,bond,infrastructure,realestateand commoditiesinvestors.Insurersinvestingintheseassetclassesarenolesssubjectto climate-relatedlossesthanotherinstitutionalinvestors,andconsequentlyitisimperative thatinsurersconsiderclimatechangeexpertisewhenselectinginvestmentprofessionals. ? Provide transparent, useful public disclosure. Disclosureshouldreflectthecompany's besteffortstoassessandmanageclimatechange--itshouldthereforeprovideenough detailtoassistregulatorsandinvestorsinunderstandingwhythecompanytakesacertain viewonclimatechange,includingtheassessmentsundertakentoarriveatthatviewpoint. Forglobalenterprises,disclosureshouldclearlydifferentiateactivitiesbeingundertakenin theUnitedStatesmarketfromthosebeingundertakeninEuropeorothersignificantmarkets. ? Inform Public Policy: Promotetheneedforactiontopreventclimatechangeandwork withpolicymakersatthefederal,stateandlocallevelstohelpthembuildandmaintainan economythatisresilienttoclimaterisk. executive suMMAry 10 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Key ReCommenDatIonS FoR InSuRanCe RegulatoRS ? Continue to mandate annual, public disclosure to foster more active engagement by insurers on the issue of climate change. Giventhepotentiallysignificantimpactsof climatechangeoninsuranceavailabilityandaffordability,aswellasoninsurerfinancial health,theimportanceofmandatorydisclosureforregulatorsseekingtounderstand climateactivitiesinthemarketcannotbeunderstated.Informationprovidedinmandatory, publicdisclosurecanhelpothermarketactorsidentifymarket-widefailuresinrisk managementandpushformarketcorrections.Inthisrespect,disclosureresultsshould beusednotonlybyregulatorsbutalsobyreinsurers,primariesandbrokerstounderstand thedirectionthemarketismovingwithrespecttoariskfactorthatwillprofoundlyshape industryperformanceinthecomingyears. ? Clarify disclosure expectations. Regulatorscandotheirparttoimproveinsurerdisclosure byputtingforthguidancedefiningtheimportantconceptsanddescribingtheexpected substanceofinsurerresponsestotheclimateriskdisclosuresurvey.Inaddition,regulators shouldredesignthesurveyformtoelicitmoreusefulresponses.Particulareffortshouldbe madetolimittheopportunityformultiplequestionstoelicitthesameresponses,andtofocus questionsonriskstothecoreoperationsofinsurers--underwriting,claimsandinvestment. ? Encourage active examination of climate risk during the financial oversight process. In2012,theNAICaddedanumberofclimatechange-relatedquestionstotheFinancial ConditionExaminersHandbook,akeydocumentusedeverythreetofiveyearstoevaluate aninsurer'sfinancialstanding.Regulatorsshouldeducatetheirexaminersonthepotential financialrisksposedbyclimatechange,andencourageexaminerstoutilizetheclimaterelatedquestionsduringtheexamprocess. ? Create more shared resources to help insurers analyze and respond to climate-related risks and opportunities, includinginvestmentrisksandopportunities,correlatedrisksand lossmodeling.Relativelyfewinsurershavetheabilitytoproducefundamentalresearchon thewaysthatclimatechangemayaffecttheirbusiness.Regulatorsshouldhelptoimprove market-wideunderstandingofthewaysclimatecanaffectdifferentareasoftheinsurance enterprise,andincorporatethesetrendsintocompanyexaminationstoprotectmarket capacity.Insurersandregulatorsalikewouldbenefitfrommorefundamentalresearchin thefollowingareas,whichemergedasareasofweaknessinthe2012disclosureresponses: o Investment Risks and Opportunities. Insurerportfolioexposureandclimate-sensitive assetallocationstrategiesareaparticularneed. o Correlated Risks. Anassessmentofthepotentialforemergentcorrelatedrisksbetween investmentsandunderwritingportfolioscouldinformfutureexaminationprocedures. o Loss Modeling. Regulatorsandcarrierswouldmutuallybenefitfromclarificationonhow today'slossmodelsincorporateclimateparameters. o Health and Life Loss Potential. Fundamentalresearchonthetemperaturesensitivityof morbidity/mortalitystatisticswouldlikelybebeneficialtoinsurers,regulatorsandpublic healthprofessionals. o Customer Resilience. Regulatorsandinsurershaveamutualinterestinstrengthening customers'resiliencetoextremeevents,andidentifyingthemostsuccessfulmethods ofdrivingresilience. ? Engage with insurers, consumers and other policymakers to better understand the nature of climate change risks, includinghowratesshouldadjusttoreflectchanging risks,andthestepsinsurersandregulatorsneedtotaketobetterincentivizeconsumers toreducetheirvulnerabilitytotheserisks. executive suMMAry 11 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Context 1.1 a ChangIng buSIneSS envIRonment Theinsuranceindustryisapowerfuldriveroftheglobaleconomy.Withoutinsurance, businessactivitywouldvirtuallycease:cargowouldsitinports,planeswouldn'tfly,assembly lineswouldbeidledandconstructionactivitywouldgrindtoahalt.Everysectorofthe economydependsoninsuranceand,correspondingly,insurersareexposedtoriskinevery sectoroftheeconomy. Insurancecompaniesalsoexerciseconsiderableinfluenceoverbothpublicpolicyandprivate behavior.Throughunderwritingstandardsandpremiums,insurerswieldgreatpowerover everythingfromwhereandhowbuildingsarebuilt,toworkplacehealthandsafetystandards, tohowwedriveourcars. Yettheabilityofinsurerstoaccuratelypriceriskandtoservetheneedsoftheircustomers ischallengedbyclimatechange.2 If nothing else, the last two years of more frequent and intense extreme weather events have demonstrated the profound challenges that insurer business models already face from climate change. Inrecentdecades,insuredlossesintheUnitedStateshaverisenatseveraltimestherate ofeconomicgrowth,driveninpartbytheever-increasingmigrationofpopulationsand economicassetstoriskyareas.3 Incoastalandnon-coastalareasalike,U.S.insuredlosses triggeredbyvolatileweatherevents,manyoftheminfluencedbyclimatechange,aresteadily rising.4 OntheheelsofextremeweathereventsthatcostU.S.Property&Casualtyinsurers morethan$32billioninlossesin20115 camethehistoricdroughtof2012,whichdrove losseshighenoughtopenetratetheprivatereinsurancemarket6,andHurricaneSandy,which wreakedanestimated$100billionintotaleconomicdamages7 and$20-25billionininsured losses.8 Ifnothingelse,thelasttwoyearsofmorefrequentandintenseextremeweather eventshavedemonstratedtheprofoundchallengesthatinsurerbusinessmodelsalreadyface fromclimatechange.Leftunmanaged,deepeningclimate-relatedtrendswillcompound thesepressuresoninsurerbusinessmodelsandoverallinsurability. 2 ContributionofWorkingGroupItotheFourthAssessmentReportoftheIntergovernmentalPanelonClimateChange,Solomon,S.,D.Qin,M. Manning,Z.Chen,M.Marquis,K.B.Averyt,M.TignorandH.L.Miller(eds.).2007."ClimateChange2007:ThePhysicalScienceBasis."Cambridge UniversityPress,Cambridge,UnitedKingdomandNewYork,NY,USA. 3 Mills,Evan.2005."AvailabilityandAffordabilityofInsuranceUnderClimateChange:AGrowingChallengefortheU.S."December, http://216.235.201.250/netcommunity/Document.Doc?id=94 4 MunichRe,"2011NaturalCatastropheYearinReview,"January4,2012.Retrievedonlinefromhttp://www.ctnow.com/media/acrobat/201201/67158951.pdf. 5 ISOProperty,"2011:AYeartoRemember."Retrievedonlinefromhttp://www.isopropertyresources.com/Feature-Story/Articles/2011-A-Year-toRemember.html. 6 Artemis,"U.S.droughtcropinsurancelossestoreachintobillions,hitreinsurers."August10,2012.http://www.artemis.bm/blog/2012/08/10/u-sdrought-crop-insurance-losses-to-reach-into-billions-hit-reinsurers/ 7 AndrewFreedman,"NOAA:2012torankassecondcostliestUSyearsince1980"TheGuardian,December21,2012. http://www.guardian.co.uk/environment/2012/dec/21/climate-change-natural-disasters 8 UlrikeDauer,"Sandy'sInsuranceBillEstimatedat$25BillionforIndustry,"The Wall Street Journal,January3,2013. http://online.wsj.com/article/SB10001424127887323374504578219293555274084.html chApter 1 12 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Theworldwideimpactsofclimatechangeareclearlydiscernible.Globaltemperature averageshaveincreased,ashaveoceantemperatures.9 Worldwide,thehottestdaysarenow hotter,10 andextremelyhotsummersarenow40timesmorefrequent.11 Therehavealsobeen regionalincreasesinmorepronouncedheatwavesandheavyprecipitationevents,allof whichexceedthelevelsexpectedfromstandardclimatevariability.12 Some of the world's largest insurers have concluded that climate change is already driving extreme events to diverge significantly from historic trends. WithintheUnitedStates,averagetemperatureshaverisenoverthepasthalf-century,while extremeweatherevents,includingheatwaves,droughtsandfloods,havebecomemore frequentandintense.2012wasthehottestyearonrecordinthecontinentalU.S.,withmore than30,000newrecordhightemperaturesbeingrecordedacrossthecountry.13 These changesarealreadycausingdeepeningeconomicdamagesintheformofcroplosses,wildfire losses,supplychaindisruptionsandcriticalinfrastructureoutages. Thischangingclimatewillprofoundlyalterinsurers'businesslandscape,affectingthe industry'sabilitytopricephysicalperils,creatingpotentiallyvastnewliabilitiesandthreatening theperformanceofinsurers'far-reachinginvestmentportfolios. Someoftheworld'slargestinsurershaveconcludedthatclimatechangeisalreadydriving extremeeventstodivergesignificantlyfromhistorictrends.AmongthemisMunichRe,which includesclimatechangeamongthesetoffactorsamplifyingdecadalweather-relatedlosses inNorthAmerica,particularlyforheatwaves,droughtsandthunderstorms.14 Theincreasing unpredictabilityofextremeevents,andthepotentialforclimatechangetounderminethe industry'sdiversificationmodels,threatenstheindustry'slong-termfinancialviabilityalong withtheveryconceptofinsurabilityitselfinsomepartsoftheworld.15 Moreextremeweatherwilllikelyposepricingchallengestothelifeandhealthinsurance segmentsaswell.Risingatmosphericcarbonconcentrationshavebeenshowntoincrease pollinationandallergenproduction,whichcontributetoallergicresponsesandasthma.16 Highertemperaturesenableterritoryexpansionfordiseasevectorssuchasticksand mosquitoes,andalsocontributetolongerandmorefrequentheatwaveswiththepotentialto triggermoreheatstressdisorders.17 Thismaybeanespeciallyperniciousprobleminurban areas.Chicago,forexample,couldseeaverageannualmorbidityfromheatwavesdouble beforetheendofthecentury.18 9 NOAASatelliteandInformationServices,May2012.Retrievedonlinefromhttp://www.ncdc.noaa.gov/sotc/global/. 10 America'sClimateChoices:PanelonAdvancingtheScienceofClimateChange;NationalResearchCouncil,"AdvancingtheScienceofClimate Change,"2010.Retrievedonlinefromhttp://www.nap.edu/catalog.php?record_id=12782. 11 J.Hansen,M.Sato,andR.Ruedy,"Publicperceptionofclimatechangeandthenewclimatedice,"AcceptedforpublicationJuly2012.Proceedings of the National Academies of Science. 12 IPCC,"2012:SummaryforPolicymakers,"Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation.ASpecialReport ofWorkingGroupsIandIIoftheIntergovernmentalPanelonClimateChange.CambridgeUniversityPress,Cambridge,UK,andNewYork,NY,USA 13 NOAANationalClimaticDataCenter.Retrievedonlinefromhttp://www.ncdc.noaa.gov/extremes/records. 14 MunichRe,"SevereweatherinNorthAmerica,"2012. 15 TrevorMaynard.2008."ClimateChange:ImpactsonInsurersandHowTheyCanHelpwithAdaptationandMitigation."TheInternationalAssociation fortheStudyofInsuranceEconomics1018-5895. 16 UnitedStatesEnvironmentalProtectionAgency.2008."ReviewoftheImpactsofClimateVariabilityandChangeonAeroallergensandTheir AssociatedEffects." 17 PaulEpsteinandDanFerber.2011."ChangingPlanet,ChangingHealth:HowtheClimateCrisisThreatensOurHealthandWhatWeCanDoaboutIt." UniversityofCaliforniaPress 18 KatharineHayhoe,ScottSheridan,LaurenceKalksteinandScottGreene.2010."Climatechange,heatwaves,andmortalityprojectionsforChicago." Journal of Great Lakes Research 36,pp.65-73. chApter 1 13 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 1.2 InveStment peRFoRmanCe Americaninsurerscontrolnearly$5trillionininvestedcapital,makingitoneoftheworld's largestinvestors.19 Asubstantialproportionoftherevenuegeneratedbyinsurersisderivedfrom investmentreturns.Justasclimatechangemaysubstantiallyincreaseinsuredlosses,itmay alsoadverselyaffecttheinvestmentperformancethatinsurersrelyontomeettheirliabilities. InvestmentadvisorMercercallsclimatechangeasystemicrisk,estimatingthatitcould introduceasmuchas10percentportfolioriskforinstitutionalinvestors,includingthosewith diversifiedholdingsinsovereignfixedincome,equity,creditandagriculturalassets.20 Mercer suggeststhattraditionalassetallocationstrategieswillnotbeenoughforinvestorstomanage climaterisk,andrecommendsthatinvestorsdevelopadedicatedassetallocationapproachthat reflectsthesensitivityofdifferentassetsalongwiththeadoptionofan"earlywarningsystem"in theirriskmanagementprocess.Mercer's2011analysisexcludespotentialriskcontributionsof climatechange'sphysicaleffects,citingdisagreementamongclimatemodels'near-term projections.Yetitalsonotesthatrecentexperiencewithextremeeventsshouldcautioninvestors nottodiscountthepotentialforsignificantriskfromphysicalclimatechanges. As a growing number of institutional investors build climate change into their investment strategies, insurers with significant asset management businesses will also have to develop this expertise to remain competitive. Warmingtemperaturesarealreadyplayingasignificantroleintherisingnumberofextreme weathereventsthatcontributesignificantlytoglobaleconomicandmarketvolatility.From 2010-2012,droughtsandfloodsravagedagriculturallandsacrossAsia,Europe,Australia andNorthAmerica,dislocatingagriculturalcommoditypricesandtouchingoffcivilunrest thathelpedsparktheArabSpring.MassivefloodsinThailand,acriticalhubforsemiconductor andautomanufacturing,alsodrovemassivelossesinthosesectors. Theextremefloodsanddroughtsresponsiblefordestroyingbasicfoodcropscanbeexpected tooccurmoreregularlyastemperaturesrise.Theincreasedvolatilityofachangingclimateis expectedtoexacerbatefundamentaltensionsbetweenrapidlygrowingdemandforcommodities fromdevelopingcountriesandslackgainsinproductivityacrossessentialcommodities.21 Agrowingnumberofinstitutionalinvestorsoutsidetheinsuranceindustryarealreadytaking affirmativestepstomanageclimate-relatedrisksintheirportfolios.Forexample,the CaliforniaPublicEmployees'RetirementSystem(CalPERS),thelargestpublicpensionfund intheUnitedStates,nowrequirestheseriskstobebuiltintoportfolioconstructiondecisions acrossallassetclasses.Others,suchastheCaliforniaStateTeachers'RetirementSystem (CalSTRS),aretakingsimilarstepstoengagetheirexternalassetmanagersonthesetrends.22 Asagrowingnumberofinstitutionalinvestorsbuildclimatechangeintotheirinvestment strategies,insurerswithsignificantassetmanagementbusinesseswillalsohavetodevelop thisexpertisetoremaincompetitive. Theroleofinsurersindrivingtheglobaleconomymakesitespeciallycriticalthattheyintegrate climaterisksintotheirinvestmentdecisions.Failuretodosocouldhavefar-reaching consequencesshouldclimatechangehaveamajoradverseimpactontheirfinancialstability.The industryisalsoanimportantdeterminantoftheabilityoftheglobalmarketstohedgeclimaterisks. Iftheindustryfailstoappropriatelypriceriskoradjustitsowncapitaldecisionstoreflectclimate riskinitsunderwriting,thephysicalrisksofclimatechangecouldhaveamoreprecipitouseffect ontheglobaleconomytowhichinstitutionalinvestors,includinginsurers,areexposed. 19 InsuranceInformationInstitute.http://www.iii.org/facts_statistics/investments.html 20 Mercer.2011."ClimateChangeScenarios--ImplicationsforStrategicAssetAllocation" 21 JeremyGrantham.2011."TimetoWakeUp:DaysofAbundantResourcesandFallingPricesAreOverForever."GMO Quarterly Letter, April 22 RobertKropp.2011."CalSTRStoIncludeESGinDiscussionswithAssetManagers."Social Funds,May21. http://www.socialfunds.com/news/article.cgi?sfArticleId=3223 chApter 1 14 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Yetclimatechangealsopresentsvastinvestmentopportunities,withestimatesoflow-carbon technologyinvestmentprojectedupwardsof$5trillionby2030.23 1.3 RegulatoRy unCeRtaInty anD mountIng lIabIlIty potentIal Thepastfewyearshaveseenunprecedentedinvestmentinlow-carbontechnologiesacross theUnitedStates,inpartdrivenbytheAmericanRecoveryandReinvestmentAct.24 But climateregulatoryuncertaintyplaguestherenewableenergymarket.Asaresult,states continuetobesettingthepaceforclimateregulatoryaction,withCalifornia'scarboncap andtrademarketlaunchedonJanuary1,2013.25 Againsttheworrisomebackdropoffailed internationalclimatetreatynegotiationsinQatar,theabsenceofcoherentUSfederalpolicy andtheparadeofextremeweatherlossesfromcoasttocoast,theAmericaninsurance industryremainslargelysilentontheneedforfederalactiononclimatechange. Theabsenceofacoherentpolicyframeworkandrisinglossestocriticalinfrastructureand valuableassetsmaybecreatingaperfectstormforcorporateliabilitycontracts.Anumberof tortcasesareslowlymarchingthroughthecourts.26 Thesecasesrangefromrecoveringcosts ofrelocatingcommunitiesawayfromlandinundatedbyrisingseas27 torestitutionfordamages fromextremeeventsintensifiedbygreenhousegas(GHG)emissions.28 Theabsenceofacoherentpolicyframeworkandrisinglossestocriticalinfrastructureand valuableassetscreatesthepotentialforcorporateliabilityclaimstoexceedlosslevelson whichpricingofthesecontractswerebased,asituationnotunlikeasbestosortobaccoclaims inrecentdecades.Thedefensecostsforsuchcasesaresosignificant(alongwiththe potentialliability)thatSteadfastInsurance,asubsidiaryofglobalgiantZurich,filedsuit againstoneofitsclients,electricpowerproducerAES,seekingreliefofcoverageobligations fromalawsuitagainstmajorenergyproducers.29 ThatreliefwasgrantedbytheVirginia SupremeCourtinSteadfast Insurance v. AES Corporation,althoughuncertaintyremainsfor insurers'dutytoindemnifyclientsagainstclimatechange-relatedclaims.30 1.4 hIStoRy oF InSuRanCe ClImate DISCloSuRe Despiterisingconcernsoverthefinancialrisksfacingtheinsuranceindustryfromclimate change,climateriskdisclosureeffortsattheNationalAssociationofInsurance Commissioners(NAIC)havebeenalmostasvolatileasrecentweather. Formanyyears,voluntaryreportingmechanismswerethesolesourceofinformationfor regulatorsandinvestorstoviewandevaluateinsurers'climateriskmanagementpractices. OnesignificantsourceofvoluntarydisclosureistheCarbonDisclosureProject(CDP),ayearly surveyoftheworld'slargestglobalcompaniesrequestedonbehalfof655institutional investors,holding$78trillioninassetsundermanagement.31 23 Mercer.2011."ClimateChangeScenarios--ImplicationsforStrategicAssetAllocation" 24 JosephE.Aldy.2012.ResourcesfortheFuture."APreliminaryReviewoftheAmericanRecoveryandReinvestmentAct'sCleanEnergyPackage." http://www.rff.org/RFF/Documents/RFF-DP-12-03.pdf 25 CaliforniaDepartmentofEnvironmentalProtectionAirResourcesBoard.January15.http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm 26 MichaelB.GerrardandJ.CullenHowe.December2012."ClimateChangeLitigationintheUS."http://www.climatecasechart.com/ 27 SeeVillageofKivalinav.ExxonMobilCorp.,08CV1138(N.D.Cal.Feb.2008). 28 SeeComerv.MurphyOilUSA,Inc.,No.1:05CV436(S.D.Miss.2006),dismissedandvacated,607F.3d1049(5thCir.2010). 29 LawrenceHurley.2011."Va.SupremeCourttoruleoninsurancecoverageofwarmingclaims."May19. http://www.nytimes.com/cwire/2011/05/19/19climatewire-va-supreme-courtto-rule-on-insurance-covera-90214.html 30 McGuireWoods."IsNegligenceStillInsurableinVirginia?AESCorp.v.SteadfastInsuranceCo."April30,2012http://www.mcguirewoods.com/ClientResources/Alerts/2012/4/IsNegligenceStillInsurableinVirginia.aspx 31 https://www.cdproject.net/en-US/WhatWeDo/Pages/overview.aspx chApter 1 15 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations WhileCDPprovidesanimportantpictureofhowthelargestglobalinsurersviewandmanage climaterisk,themajorityoftheAmericanmarketisnotincludedinthesurvey.Additionally,someof thelargestAmericaninsurerssurveyedbytheCDPchoosenottorespond.Forexample,Berkshire Hathaway,whichownsthethirdlargestreinsurerintheworldandwhichsignificantlyshapes pricingandcapacityintheAmericanmarket,hasconsistentlydeclinedtorespondtotheCDP. Recognizing the gap between risk potential and disclosure, state insurance regulators at the NAIC issued a white paper in 2008 identifying mandatory disclosure as a primary mechanism for driving improved climate risk management within the American insurance industry. Recognizingthegapbetweenriskpotentialanddisclosure,stateinsuranceregulatorsatthe NAICissuedawhitepaperin2008identifyingmandatorydisclosureasaprimarymechanism fordrivingimprovedclimateriskmanagementwithintheAmericaninsuranceindustry.The NAICwasseenasanoptimalforumforimplementingclimateriskdisclosure,andindeed preferabletotheSecuritiesandExchangeCommission(SEC),whichwasseenas"atbest abluntinstrumentforclimateriskdisclosure,"astheongoingregulator-insurerrelationship couldmoreeffectivelytranslatedisclosureintoimprovedpractice.32 Asarticulatedinitswhitepaper,theNAICviewedaneffectivedisclosuretoolasonethat wouldaddressthefollowingquestions: ? Areinsurersadequatelyincludingclimateriskandclimateriskchangesintheirinternal riskassessmentprocess?Thissetofquestionsshouldincludeinformationaboutissuesof datacollection,useofcomputermodelsasadvancementsoccurrelatedtoclimatechange modeling,andpolicyformationbytheinsurer. ? Areinsurersadequatelyinformingandincentivizingpolicyholdersastotheirrisks?Thisset ofquestionsshouldincludeissuesrelatedtopolicycoverage(includingflood,wind/water etc.),methodsofmitigation(intermsofdisasterresilienceandGHGreductions),and pricing.Aninformedpolicyholdercanbeagreatassettotheinsurer. ? Aretheinsurers'governancestructuressufficienttokeeptheirboardmembersinformedabout climaterisks?Thissetofquestionsshouldincludeissuesrelatedtoboardmembereducation, internaltransparencyandultimatelycoverageforliabilityofdirectorsandofficers(D&O). ? Areinsurerstakingadequatestepstomitigatetheirownrisksandtofosterpolicyholder mitigation?Thissetofquestionsshouldincludeissuesregardingpolicyholderrelations, marketconduct,andpolicyholdereducation.33 InMarch2009,afterextensivenegotiations,theNAICunanimouslyapprovedamandatory disclosurestandard.TheNAIC'sInsurerClimateRiskDisclosureSurveywastobeannually implementedbyallstateinsurancecommissionersforcompaniesdomiciledintheirstates writingmorethan$500millioninpremiums,withagradualexpansiontoincludeall companieswritingmorethan$300millioninpremiums.Thesurveyresultsweretobemade publiclyavailableforusebyconsumersandotherstakeholders. Yetdespiteitsunanimousadoption,theNAIC'smandatorydisclosurestandardwasputtoan unprecedentedre-vote,whichsignificantlyweakenedthelandmarkdisclosurerequirement bymakingthesurveyvoluntaryandtheresultsconfidential. Thisreversal,andacontinuedlackofprogresswithintheNAICitself,ledtheregulatorsofthree states--California,WashingtonandNewYork--toannouncethatinreportingyear2011,all insurerswritingmorethan$300millioninpremiumsintheirstateswouldberequiredtosubmit responsestotheClimateRiskDisclosureSurvey.Thisexpandeddisclosurerequirementhas effectivelycapturedthemajorityoftheAmericaninsurancemarket,providingimportant insight intoclimateriskmanagementpracticesinthelargestinsurancemarketintheworld. 32 TheSECreleaseditsowninterpretiveguidanceonthedutyofpubliclytradedcompaniestodisclosematerialclimaterisksin2010.Forareviewof climateriskininsurer10-Kfilings,seeJimCoburnetal.2011."DisclosingClimateRisks:AGuideforCorporateExecutives,Attorneys&Directors." Ceres,February.http://www.ceres.org/resources/reports/disclosingclimate-risks-2011/at_download/file 33 NationalAssociationofInsuranceCommissioners,2008,"ThePotentialImpactofClimateChangeonInsuranceRegulation,"WhitePaper chApter 1 16 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Overview of the Assessment 2.1 RepoRt methoDology Theanalysisinthisreportisbasedon184filingssubmittedbyinsurancecompaniesin California,NewYorkandWashington,whichmandatedresponsestotheClimateRisk DisclosureSurvey(Appendix1)inMay2012forallcompaniesoperatingintheirstatesthat wrotemorethan$300millioninpremiumsforreportingyear2011.34 Toassessthese responses,Ceresdevelopedaframeworkforanalyzingthesubmissionsacrossfourareas: ? howthecompaniesmanageclimatechangeissues; ? whatdriversshapetheirstrategies; ? whatactionstheytakeintheircorefunctionsoroperations;and ? howtheyinteractwithstakeholders,includingtheirinvolvementinpublicpolicy. Inturn,thesefourareasweresplitintocriteria,andbelowthat,indicators35 togivethe necessarygranularityforthisreview. Inordertoassistregulators,companiesandotherstakeholderswishingtoassessthequality ofdisclosureacrosstheindustryandthewaysthatmarketsegmentandsizemayinfluence insurers'climateriskperceptionandmanagement,Ceresdecidedtoscoreinsurerresponses. Atotalof50pointswasallocatedovertheindicators,andeachinsurer'sresponsetothe climaterisksurveywasscoredoutofapossibletotalof50points.Fulldetailsofthescoring methodologyareoutlinedinAppendix2. Althoughwehaveelectedtokeepindividualcompanyscoresprivate,Cereswillmakethe completescoresavailabletoregulators,andindividualinsurersmayrequesttheirown company-specificscores.Thedecisiontokeepscoresprivatewasmotivatedbythe awarenessthatitistheoveralltrendsthatareimportantforregulatorsandotherindustry stakeholderstoaddress,nottheperformanceofanyparticularcompany. 34 Manyduplicateresponseswerefiledfromsubsidiarieswithinagroup.Thetotalnumberoffilingswasover400. 35 Thereare37indicatorsinmostcases;theexactnumberdependsonthelinesofbusinesstransacted. chApter 2 17 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 2.2 pRoFIle oF the InSuReRS market Segment Ofthe184uniquefilings,nearlyhalf(47%)oftheinsurerswereProperty&Casualty(P&C), athirdwereLife&Annuities(L&A)(31%),oneineightwereHealthonly(12%),and10% werelargeMultilinegroups,includingreinsurers(seeFigure1). FIguRe 1: type oF InSuReR by lIne oF buSIneSS In InSuReR SuRvey property & casualty 47% life & Annuity 31% health 12% Multiline 10% 0% 10% 20% 30% 40% 50% percent of insurers by type Company Size Forthepurposeofthisreport,companieswerecategorizedbysize:small--between$300million and$1billionannualpremiums36;medium--between$1and$5billionannualpremiums; andlarge--over$5billion.Thisproducedthreesubstantialsub-samples:45%small, 34%mediumand21%large. Company ownership Themajorityofinsurers(closeto75%)reportingwerepubliclytradedcompanies,withthe secondlargestcategory(26%)non-profitcompaniessuchasmutualinsurersandhealth providers.Averyfewrespondentswereprivatelyheld. 36 Notethatverysmallcompanies(under300millionUSDannualpremium)areexemptfromtheNAICsurvey. chApter 2 18 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 2.3 oveRall InSuReR peRFoRmanCe Ingeneral,thestandardofdisclosureperformanceexhibitedbyinsurersinthesurveyislowas judgedbyscoredistribution:theaveragescoreis7.3outof50.Figure2showsthespreadof scores,whichrangesfromalowofzeroforseventeencompaniestoahighof33foronecompany. FIguRe 2: patteRn oF Company SCoReS In InSuReR SuRvey 25 20 number of insurers Average score = 7.3 15 10 5 0 0 5 10 15 20 score -- Maximum of 50 25 30 35 Note: very small companies (under 300 million U.S. Dollar annual premium) are exempt from the insurer survey. Thequalityofinsurerdisclosureisstronglyinfluencedbysizeandmarketsegment,asFigure 3shows.Formarketsegment,thestatisticsaresplitintoProperty&Casualty,Lifeand Annuities,Health,MultilinewritingP&C,andOtherMultiline. FIguRe 3: Company SIze & lIne oF buSIneSS RelatIve to InSuReR SuRvey SCoRe u.s. Annual premium large (over $5b) Medium ($1-5b) small ($300M-1b) All sizes 0 2 4 6 8 10 12 Average score -- Maximum of 50 14 16 18 VI property & casualty VI life & Annuity VI health VI Multiline (p&c) VI Multiline (other) chApter 2 19 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations the Influence of Size Thereisaclearpositivecorrelationbetweencompanysizeandthequalityofinsurerdisclosure. Largecompanies'superiorscoresmaybeattributabletothegreaterresourcesavailableto thosecompaniestoundertakeriskanalysis,stakeholderoutreachandreporting.Diversification oftheportfolioofbusinessthataccompaniessizemayalsobeanexplanatoryfactorforthe higherqualityofdisclosureoflargercompanies,asexposuretoabroadergeographyofrisks itselfmaydrivegreaterattentiontochangingtrendsthatcouldbelessvisibleinmore concentratedgeographiesorlinesofbusiness. Once size is controlled for, it is clear that firms that underwrite P&C business (whether they are pure P&C or multiline) score higher than other companies Sizedoesnotappeartobeadrivingfactorinqualityofdisclosureinhealth,thoughthe of the same size. reasonswhyareunclear. the Influence of market Segment Onaverage,multilineinsurerswritingP&Cbusinessscoredhigherthananyothersegment, butthisisbecausetherearenosmallfirmsofthattypeinthesurvey.Oncesizeiscontrolled for,itisclearthatfirmsthatunderwriteP&Cbusiness(whethertheyarepureP&Cor multiline)scorehigherthanothercompaniesofthesamesize.Thisoutcomeisnotterribly surprising,asmuchoftheresearchandindustrydialogueonclimatechangehasfocusedon thepotentialimpactsofextremeweathereventsonpropertylosses. Large companies' superior scores may be attributable to the greater resources available to those companies to undertake risk analysis, DespitethehistoricalfocusoftheP&Csegmentonextremeweatherevents,lifeandhealth stakeholder outreach insurersarebynomeansimmunetootherimpactsofclimatechange.Changesinclimatecan and reporting. affectmorbidityandmortalitytrends,throughfactorssuchasagreaterlikelihoodofheatwaves orinsect-bornediseases,andcanalsoalterreturnsoninvestments,throughimpacts,suchas creditratingdowngradesonsovereign,stateormunicipalbondsorrealestatevaluation impairmentinregionsaffectedbyclimatechange. chApter 2 20 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Climate Change Risk Management Key Findings: Only 23 of the 184 companies have comprehensive climate change strategies. ? Only 23 of the 184 companies have comprehensive climate change strategies37: of those 13 are foreign-owned, and 8 are P&C companies. Yet even among those companies with comprehensive climate strategies, the view of climate science is remarkably diverse: companies like ACE are funding primary climate change research, Swiss Re and others participate actively in efforts at the Intergovernmental Panel on Climate Change (a global cooperative to synthesize the state of climate change science), while companies including Allstate and Travelers express strong ambivalence about the state of the science. ? While most insurers in the P&C segment have policies in place to manage climate variability, defined as the annual and decadal variance inherent to the global climate system, few have explicit policies to identify or manage the trends of global climate change. Some insurers do not seem to understand (or refuse to acknowledge) the difference between climate variability and climate change. ? Especially within Health and L&A, but even among some P&C insurers, many companies view climate change as an environmental issue immaterial to their business. Only one health insurer, Kaiser Permanente, has a strong climate position. With the exception of Prudential Financial, virtually all L&A firms have little or no focus on climate change. ? Most insurers, regardless of segment, regard climate change as a risk that will inherently be captured in their Enterprise Risk Management (ERM) strategies, and many responses seem to imply that simply having an ERM framework is sufficient to identify and manage climate change risks. While integrating climate change into an ERM framework has many benefits, it must be explicitly built into such a framework. TheNAIC'sInsurerClimateRiskSurveyaskscompaniestodescribehowtheyaccountfor climatechangeintheirriskmanagement--inparticular,whethertheyhaveaclimatechange policytoguidehowclimatechangeisintegratedintoinsuranceriskmanagementand investmentmanagement.Thepresenceofaclimatechangepolicyisanindicationofhow wellacompany'sbusinessunits,managementandboardarealignedonclimatechange. Itisagoodindicatorofacompany'sabilitytoidentifyandmanageemergingclimatetrends. 37 Othershavestrategiestodealwithclimatevariability,butnotthetrendinclimate,northeassociatedsocialissues(e.g.regulation,liability,reputation, clientbehavior). chApter 3 21 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Anothermeasureofacompany'sresiliencetoemergingclimaterisksisthepresenceofa definedclimateriskmanagementstructure.Havinganenterprise-widestructurededicated toclimateriskcanpositionthecompanytoincorporatethebestavailablescienceandindustry opinionsintopricing,exposuremanagement,productdevelopmentandinvestmentsin aconsistentandeffectiveway. Ofthe184companiesthatrespondedtothesurvey,only23demonstratedacomprehensive corporatestrategyorientedtowardscopingwithclimatechange.38 Theirprofilewasunusual. Nearlyhalfofthemwereforeign-owned(13outof23),whichisconsistentwiththecorporate stanceonclimatechangeinotherdevelopedeconomies,especiallyEurope.Morethanhalf werelarge(15outof23),comparedto5medium-sizedandonly3smallcompanies. Only8outof23P&Ccompanieshadadistinctclimatepolicy,whichislowerthanmightbe expected,sincenearlyhalftheinsurersintheNAICsurveyareP&C.Thismayreflectthefact thatmanyP&Cinsurersapproachclimatechangeasifitwereasimpleprogressionfrom customaryclimaticvariability,ratherthanaphenomenonwiththepotentialfornonlinear, rapidchangesfromhistoricalexperienceandwhichisdependentonpublicpolicyforremedy. Anexampleofawell-coordinatedapproachcomesfromQBE:"Everysixmonths,eachdivision conductsareviewofclimatechangeinitiativesundertakenwithintheareaandanominated seniormanagerprovidesareporttotheGroupChiefActuarialOfficerasinputtoapaper presentedtotheQBEGroupboard.Thedivisionalreportsaddressarangeofinitiatives undertakenduringtheyearspecifictothecountriesinthatareaincluding: ? Operationalcostinitiativesundertakentoreducecarbonemissions. ? Underwritingriskmanagementprojectstomitigatefutureinsurancerisksfromclimate changeaswellasopportunitiesforproductinnovation. ? Responsetosurveysonclimatechangeandengagementwithindustrybodies. ? Participationinriskreductionforumsandresearchintheareaofnaturalhazardmodeling andmanagement." Onlyonehealthcompany,KaiserPermanente,hadaverystrongposition.In2008itdeclared that"Ifgreenhousegasemissionscontinuetoincrease,climatechangewillcausehealth effectsthatwilldirectlyimpactKaiserPermanente'sabilitytofulfillourpromiseofquality affordablecare.Globalclimateinstabilitywillincreasethedemandforhealthcare.Thecosts ofenergyandwaterarelikelytoincreasewhilesuppliesarediminished.Threatstobiodiversity couldalsothreatentheavailabilityofpotentialcuresfordiseases."Inresponse,Kaiseradopted aclimatechangestrategywithfiveprinciples:tounderstandclimatechange;assessandavoid climate-relatedimpacts;committocontinuousimprovement;supportindustrystandards;and informpublicpolicies. Aninsurancecompany'sboardofdirectors,whichhasresponsibilityforoverseeingthelongtermstrategicdirectionofthecompany,hasaclearroletoplayonthisissue.Agoodexample ofthisisofferedbyL&AinsurerPrudentialFinancial:"Prudential'sEnvironmentalCommitment, adoptedin2009,recognizestheemergingrisksofglobalclimatechange,andtheimpactit couldhaveonourindustryandourcustomersaroundtheworld...In2012,acommitteeof Prudential'sBoardofDirectors--theGovernanceandBusinessEthicsCommittee--added environmentandsustainabilitytotheircharter.Boardmembersarenowassessedfortheir experienceintheseareasaspartoftheoverallskills,experience,andqualificationsthatare evaluatedinthenominationprocess." 38 Othershavestrategiestodealwithclimatevariability,butnotthetrendinclimate,northeassociatedsocietalissues(e.gregulation,liability,reputation, clientbehaviour). chApter 3 22 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Whileanumberofinsurersdisclosedstrongplansformanagingclimaterisk,amorecommon attitudewasthatclimatechangewasnotmaterial,orthatitwasanenvironmentalissue, butnotaninsuranceconcern.Forexample,AtheneLifestated,"Atthistime,wedonot believeclimatechangeposesasignificantenoughrisktowarrantspecialriskmanagement considerations."ThispositionwasnotuncommonforL&Acompanies;infact,12ofthe 17insurersthatscoredzerointhesurveywerefromthisindustrysegment. Afurtherreasongivenforinactionwasinsufficientevidence.Forinstance,Kemper IndependenceInsuranceCompanysaid:"Weareawaitingmoreresearchontheimpactsof climatechangebeforeestablishingformalpoliciesonthistopic.TheCompanydoesnothave aformalplantoassess,reduceormitigateitsemissions."EvenlargeP&Ccompanieswith relativelystrongstrategieswereambivalentaboutacknowledgingthescientificrealityof climatechange.Forexample,Travelersqualifieditsreplybysaying:"Thissurvey,andits responsescontainedherein,donotendorse,rejectorotherwiseexpressanopiniononthe existenceorabsenceof,orcausesof,climatechange."Allstatetookasimilarposition, stating:"Allstateisnotendorsing,rejectingorexpressinganyopinionwithrespecttoany particularscientificpronouncementaboutclimatechange/globalwarming." Underlying this lack of a comprehensive strategy is the reality that most insurers still treat climate change as catastrophe risk, which is erratic, but familiar. Ofteninsurersarguethattheyissueannualpolicies,andasaresultareprotectedfromclimate risksbecausetheyviewclimatechangeasatrendthatwillevolvegradually,allowingthem timetoadapt.Thisisaproblematicargument,forseveralreasons.First,itistheextreme weathereventsthatmattermosttotheindustry,andwhiledatasuggestthattheirprobability ischangingduetoclimatechange,theinfrequencyoftheseeventsmeansthatthisphenomenon islargelyunseenbyinsurerswhoonlylookoutoneyearatatime.Secondly,theremaynot befreedomofunderwritingaction,duetoregulatoryrestrictions.Thirdly,socialfactorsthat createinsuranceriskmaymovefasterthantheclimateitself,soforexampleclimate-related litigationmayimposesignificantcostsoninsurersindemnifyinghistoriccarbonemitters. Manyinsurersdescribeclimatechangeasoneofmanyrisksthatwouldbeconsidered throughtheprocessofenterpriseriskmanagement.NationwideMutualdescribessuchan approach:"WhileNationwidedoesnothaveanofficialclimatechangepolicywithrespectto riskmanagementandinvestmentmanagement,wedoaccountforclimatechangeinourrisk managementandinvestmentmanagementprocesses."Incorporatingclimatechangeintoan enterpriseriskmanagementstrategyhasthebenefitsofsharinginsightsbetweenfunctions, andidentifyingcorrelationsbetweenclimaterisks,forexample,regulatoryriskandweather risktoclientsintheenergysector,orthepossibilitythataneventmightaffectinvestedassets likerealestateaswellasclients,orthatacorporateclientmightbeinvolvedinaclimaterelatedliabilityclaim,andatthesametimetheinsurermightholdbondsorstockinthat company.Itshouldbenoted,however,thatmanyresponsesseemtoimplythatsimply havinganERMframeworkissufficienttoidentifyandmanageclimatechangerisks.While integratingclimatechangeintoanERMframeworkhasmanybenefits,itmustbeexplicitly builtintosuchaframework. chApter 3 23 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Action Drivers on Climate Change Key Findings: The survey reveals five main motivators of action on climate change, including: ? Cost efficiencies, primarily energy savings. The most common action driver (116 of 184 companies) was reducing company energy use to cut costs. Far fewer companies (39 out of 184) cited carbon reduction targets as a motivator. ? Security, the exposure of the company's operations, revenue and profitability, is a motivator for 110 out of 184 companies, although this is primarily due to concern for current extreme events, rather than climate change per se. Business continuity and claims processing from extreme events that affect insurers' own operations are the most-cited exposure nodes (72 out of 184). Companies cite reinsurance, loss modeling and business continuity planning as approaches to managing their own performance, while carrying surplus capital is rarely mentioned. However, risk management approaches are frequently described generally in terms of catastrophe risk management rather than as approaches specifically to address climate change. There is little discussion of the potential for correlation between client risk and asset risk. ? Emergent risks from future climate trends--88 out of 184 companies viewed climate change as a potential future loss driver, even though scientific assessments such as the IPCC Extreme Events report and federal draft National Climate Assessment emphasize that climate change is already amplifying extreme events that lead to insured losses. As a far-off risk factor, climate change was seen as a potential risk to companies' underwriting and investment returns, even for insurers in segments such as dental insurance. ? Sustainability and related reputational benefits. This driver is relevant for all segments, especially so for health insurers. While only 9 companies include the reputational benefits of acting on climate change, a far higher number highlight correlations between sustainability programs and reputational benefits (77 firms, or over 40% of the survey). ? Client exposure to climate change was cited by 72 out of 184 companies, with concerns including clients' exposure to carbon regulation, extreme weather damage to clients' physical operations or assets and damage to clients' investments. chApter 4 24 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations ? The motivators for climate action differ depending on industry segment. P&C insurers' top concerns are security, closely followed by cost efficiency. They view climate change as a future but uncertain, emergent risk, rather than one that already affects clients through hazards such as hurricanes. Life & Annuity insurers are especially motivated by cost efficiency, followed closely by security. There is less concern over potential or current changes in the climate and minimal concern over hurricanes or other weather extremes. Health insurers' main driver is sustainability, which they link to concern for the well being of their clients. Thischapteranalyzeskeydriversbehindpositiveinsureractionsonclimatechange. Weidentified12factors,orindicators,inthisregard.Thesefellnaturallyintosixinternal, enterprise-focusedconcerns,andsixexternal,client-focusedconcerns,asTable1shows. table 1: DRIveRS oF poSItIve aCtIon by InSuReRS on ClImate Change emergent risk Climate change poses a potential future issue reputation A positive stance on climate change is important sustainability internal (direct effect) security Eco-efficiency entails dealing with climate issues Ensuring business continuity cost efficiency carbon Footprint Attention to in-house emissions hurricane Client exposure to this peril in particular other extremes Client exposure to specific perils other impacts Climate change seen as a general risk to clients liability Possibility of liability claims against clients ghg regulations GHG-related regulations may affect clients/assets behavior change external (indirect effect via clients or clients' assets) Reducing energy use to save money Carbon intensity of activities may mitigate or elevate risks Internal Drivers ? Emergent Risk. Thecompanybelievesthereisapotentialmaterialthreatatsomefuture date,buthasnotyetbeenabletoquantifytheeffectonitselforitsclients,e.g.current productsmightresultinhigherclaimsthananticipated,ashappenedwithasbestos. ? Reputation. Theinsurerconsidersthatpubliclyacceptingtheexistenceofclimatechange andhavingaproactivestrategyforitisimportantforitsmarketposition. ? Sustainability. Thefirmhasadoptedtheprincipleofconservingnaturalresources,such aswaterandenergy,whichisalignedwithaproactivestrategyonclimatechange. ? Security. Thecompanyhasbusinesscontinuitystrategiestocopewithclimaticevents,e.g. disasterrecoveryplans,riskdiversification,and(re)insuranceofitsownrisksandassets. ? Cost Efficiency. Therespondenthastakenactiononmajorenergyuses--ownpremises, transportandofficeworkprocesses--tosavemoney. ? Carbon Footprint. Theinsurerismanagingitsgreenhousegasemissions,notsimply seekingtobeenergy-efficient. chApter 4 25 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations external Drivers ? Hurricane Risk. Theimpactofthishazardonclientsisreviewedknowledgeably. ? Other Weather Extremes. Atleastonenon-hurricanehazardisreviewedknowledgeably. ? Other Impacts. Theinsurerisawarethatthenewclimatemayaffectclientssomehow. ? Liability. Theinsurerconsiderstheissueofresponsibilityforcausingclimatechange. ? GHG Regulations. KnowledgeablereviewofhowGHGemissions-relatedregulationsmay affectclientsandassets. ? Behavior Change. Thecompanythinksthattherewillbeimportantbehavioraland economicchangesinvolvingclients,regulatorsetc,arisingfromclimatechange. 4.1 oveRvIew Weexploredgeneraltrendsinthemotivatorsdrivinginsurers'viewsandactionsonclimate change,andhowthesemotivatorsdifferamongindustrysegments.Figure4presentsan overviewofinsurers'motivation.Figures5to7thenanalyzethisbybroadlineofbusiness. drivers of Action internal external FIguRe 4: DRIveRS oF aCtIon--all CompanIeS other impacts other extremes hurricane risk liability ghg regulation behavior change cost efficiency security emergent risk sustainability carbon Footprint reputation 0 10 20 30 40 50 60 70 number of Firms 80 90 100 110 120 the Influence of Company Size Responsestendtovaryproportionatelywithcompanysize.Therearetwelvedriversintotal. Smallinsurerstypicallycitedasingledriverforattendingtoclimatechangerisk(many mentionednone);mediumcompaniessomewherebetween1-2drivers,andlargefirms typicallymention3ormoredrivers.Largeinsurersweremostlikelytosetemissionstargets andtobemotivatedbyconcernforsustainability.Nearlyhalfthelargeinsurershaveemission targetsandovertwo-thirdsareconcernedaboutsustainability.Bycontrast,lessthanonein10 smallinsurershavetargetsforemissions,andonly22%(18outof82)mentionsustainability. Maintainingreputationwascitedbynearly40%oflargeinsurers(15outof39),buthardly everbysmallormediuminsurers.Finallytheindirecteffectsofclimatechange(liability, emissionsregulations,andbehaviorchange)wasmentioned25timesbythe39large insurers,butonlybyoneinnineofthesmallinsurers(9outof82). chApter 4 26 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations the Influence of ownership Ownershipstatuswasnotamajorinfluenceonmotivation.Themostpronounceddifferences arethatoverhalfofthenon-profitinsurersareconcernedaboutsustainability,ascompared tojustoverone-thirdofstockholdercompanies. the Influence of market Segment Therearemarkeddifferencesinthemotivationbetweendifferentsectorsoftheinsurance industry,asFigures5-7show. drivers of Action internal external FIguRe 5: DRIveRS oF aCtIon--pRopeRty & CaSualty CompanIeS other impacts other extremes hurricane risk liability behavior change ghg regulation security cost efficiency emergent risk sustainability carbon Footprint reputation 0 10 20 30 40 number of Firms 50 60 70 Figure5showsthatP&Cinsurers'concernforinternalfactorsisrelativelyhigh,especiallyfor costefficiencyandsecurity(i.e.businesscontinuity).Theyviewclimatechangeasan emergentrisk,whichwillmaterializeinafutureuncertainmanner,ratherthanafactorthat alreadyaffectsclientsthroughhazardssuchashurricanesandotherextremeweatherrisks. [P&C companies] view climate change as an emergent risk, which will materialize in a future uncertain manner, rather than a factor that already affects clients through hazards such as hurricanes and other extreme weather risks. FrankenmuthMutualgaveacomprehensivereplyonsecurity:"FrankenmuthInsurance purchasesreinsurancetominimizetheimpactofcatastrophiclossesthatcouldpotentiallybe attributedtoclimatechange.Computermodellingisemployedbyourcompanythroughwork doneinconjunctionwithourcatastrophereinsurancepartners,inadditiontounderwriting guidelinesthathavebeenrefinedtoensuretherisksposedbypotentialcatastropheexposures areadequatelyassessedandmitigated.FrankenmuthInsurancecontinuestomitigaterisk throughgeographicdiversification,riskselectionandwell-definedunderwritingguidelines. Forthecompanyitself,intheeventofanaturalcatastropheattributabletoclimatechange, apotentialbusinessinterruptionriskexists.Tomitigatethisrisk,wehavedeveloped abusinessresumptionplantoexpediteareturntonormalbusinessoperations." Anumberofotherinsurersprovidedusefulinformationonthematterofsecurity.Forexample, "Byusing...exposuresimulationmodels,aswellashistoricallosstrenddata,LibertyMutualisable toestimatelossesfornaturalcatastropheeventsofvariousmagnitudesandprobabilities. Thisinformationisincorporatedintostrategicplanning,pricing,andreinsurancepurchasing decisions."AnothergoodexampleisProgressiveInsurance,whichexplicitlyconsidersclimaterisk initsplanningforbusinesscontinuity,reinsuranceandfinancialcapital.Attheotherendofthe spectrumisGMACInsurance,whichrepliedsimply"Notapplicable"or"No"toeveryquestion. chApter 4 27 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations drivers of Action internal external FIguRe 6: DRIveRS oF aCtIon--lIFe & annuIty CompanIeS other impacts other extremes ghg regulation hurricane risk liability behavior change cost efficiency security sustainability emergent risk carbon Footprint reputation 0 10 20 30 number of Firms 40 50 60 Figure6showsthatLife&Annuityinsurersareespeciallymotivatedbycostefficiency, followedcloselybysecurityandsustainability.Thereislessconcernoverpotentialorcurrent changesintheclimateandminimalconcernoverhurricanesorotherweatherextremes. ThoughL&Acompaniesseelittleornorisktotheirpolicyholders,manybelievethatreducing energyuseisanobviousstrategyforcostefficiencyandsecurityreasons.Forexample,The GuardianLifeInsuranceCompanystates:"Thenumberofdaysayearwithhigherthan normaltemperatureshaveincreasedandisexpectedtocontinue.Thiscouldmeangreater demandforenergytocoolbuildingsandtherefore,increasingcosts."Thecompanyalsosees watersupplyasasecurityrisk:"Withoutactiontoimprovewaterresources,therecouldbe majorsupplyshortagesinsomepartsofthecountry.Guardianhasimprovedourfacilitiesto bemoreresilienttosuchchallenges(e.g.,themannerinwhichwecoolourdatacentersand workspacestoreducerelianceonwater)." JohnHancock(partofManulifeGroup)typifiestheconventionalapproachthatmostL&A insurersbelieveisappropriate:"TheCompanylooksforwaystomitigaterisksbymaintaining itsgeographicdiversificationanddispersion.Thefinancialrisksofenvironmentalimpactsare furtherminimizedthroughinsuranceandreinsurance." However,asignificantminoritywereratherdismissiveofclimatechange,andgavelittle attentiontotheNAICsurveye.g.AtheneAnnuity&LifeAssurancestates:"Wedonotbelieve climatechangeposesarisktoourcompany,"seeminglyignoringmanyissuesrelatedtoasset managementwhichotherL&Afirmshaveidentified(seeChapter5). chApter 4 28 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations drivers of Action internal external FIguRe 7: DRIveRS oF aCtIon--health CompanIeS other impacts other extremes ghg regulation behavior change liability hurricane risk sustainability cost efficiency security emergent risk carbon Footprint reputation 0 5 10 15 number of Firms 20 25 Healthinsurersaresomewhatdifferenttootherinsurers,asFigure7indicates.Theirmain driverissustainability,whichtheylinktoconcernforthewellbeingoftheirclients.Business continuityandthefuturepotentialriskofclimatearealsoimportant,butconcernaboutcost efficiencyratessecondplaceforHealthinsurers. TwoexamplesshowthecentralmotivationofHealthinsurers.FirstfromAetna:"Aetnais dedicatedtohelpingpeopleachievehealthandfinancialsecurity,andwebelievefosteringa healthyenvironmentisanimportantpartofthismission."Secondly,CambiaGroup:"Cambia doeshaveaformalsustainabilityprogramthatseekstoincorporatethetriplebottomline framework(economicgrowth,environmentalstewardshipandsocialequity)intoitsplanning, decision-makingandoperations.Thesustainabilityprogramincludeseffortstoincorporate greaterenvironmentalstewardshipintocompanyoperations." AnthemBlueCross'sresponsegivesatypicalwindowontoenergysaving:"Wehaveidentified opportunitiestoimproveourbusinessperformancewhilereducingourcarbonfootprint.For example,weareimplementingacomputerpowerpolicythatwillsave$1millionannuallyand reduceourcarbonfootprintassociatedwiththeenergyutilizedbyourcomputersby47percent." Theonlyexampleinthewholesurveyofconcernforemployees'health(apartfromextreme events)isprovidedbyaUnumHealthGroup:"Changeinmean(average)temperature.This riskcouldcauseanincreasedexpenseforutilityconsumptionrequiredforemployeecomfort inanyofUnum'sofficebuildings.Forexample,intheSoutheast,increasesintemperatures causedbyemissionswillrequireadditionalcoolingresultinginhigherenergyconsumptionto provideemployeecomfortwhileworking." chApter 4 29 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 4.2 RevIew oF InteRnal DRIveRS Key Findings: The most common action driver--cited by 116 of 184 companies-- was reducing company energy use to cut costs (energy efficiency). Far fewer (39 out of 184) progress beyond that to set targets for reducing their carbon footprint. ? The most common action driver--cited by 116 of 184 companies--was reducing company energy use to cut costs (energy efficiency). Far fewer (39 out of 184) progress beyond that to set targets for reducing their carbon footprint. ? One hundred ten companies highlight business security as a factor, although this is primarily due to concern for current extreme events, rather than climate change per se. The main techniques used were business continuity planning, reinsurance, and risk modeling. There was little explicit mention of risk diversification, or risk selection in this context, nor of the possibility of correlation between client risk and asset risk. Carrying surplus capital is rarely mentioned. ? Eighty-eight of the 184 companies (48%) identify climate change as an emergent risk. ? While only 9 companies include the reputational benefits of acting on climate change, a far higher number highlight correlations between sustainability programs and reputational benefits (77 firms, or over 40% of the survey). Thissectioncoversthesixfactorswithinternalfocus--issuesrelatingtotheinsurerasawhole, nottoclients'ownrisks:emergentrisks;reputation;sustainability;security;costefficiency andcarbonfootprint. emergent Risks Emergentrisksarerisksthathavenotyetbeenvalidated,butarerecognizedaslong-term potentialrisks.Eighty-eightofthe184insurers(48%)viewedclimatechangeinthisway. Somefirms(mainlylargeonesandreinsurers)describeeffortstofundorundertakeactive research,forexampleXLGroup:"Globalwarming/climatechangeemergingriskreports havebeenproducedfollowingsignificantinteractionwithmanagementacrossoperations (underwriting,claims,legal,riskengineering,riskmanagementandproductmanagement) toidentifyandassessclimatechangerelatedrisksonaglobalbasis.Theseriskswerealso evaluatedbasedonthepotentialexposuretoXLbasedontheinsuranceproductsweprovide toourcustomers,andalsowhethertheseriskspresentedoperationalexposurestoXLitself." ThemotivationforundertakingactionrelatedtoemergentriskissuccinctlydescribedbyAxis Reinsurance:"Wecannotaffordtowaituntiltheimpactsarecertainbeforeweact." EvencompaniesoutsideoftheP&Csegmentexpressedconcernsaboutemergentriskimpacts onrevenuesandinvestments,forexampleDeltaDentalInsuranceCompany:"Ifactualclimate changehasasignificantadverseimpactonthegeneraleconomy,onspecificregionswherewe havelargenumbersofgroups/enrollees,oronbusinessesinwhichweholdinvestments,then itcouldultimatelyresultinlossesindentalplanrevenuesandinvestmentyields." MutualofOmahaInsuranceCompanyexpressesasimilaroutlookonemergentrisks:"Potential climatechangerisksthatcouldpotentiallyimpactourbusinessareincreaseddeathsand morbiditycostsfromtheemergenceofinsect-borndiseasesinnewgeographicareas,impact chApter 4 30 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations ofhigherheatlevelsonpolicyholders,andotherrisksofactsofextremeweather.Fromanasset perspective,potentialrisksincludetheimpactofrisingwaterlevelsoncoastalrealestate,and theimpactonfinancialstrengthofcompaniesthataremoreexposedtorealestateliabilities." However,mostinsurersareadoptinga"waitandsee"approachtomanagingemergentrisks, believingtheywillhavetimetorespondlater,andthereforedevotetheirresourcestomore urgentissues.OnesuchcompanyisAutoOwnersInsurance:"Therearetoomanyunknowns tojustifyactiononaperceivedbutunprovenrisk." Most insurers are adopting a "wait and see" approach to managing emergent risks, believing they will have time to respond later, and therefore devote their resources to more urgent issues. Someinsurersbelieveclimatechangecouldpotentiallyaffecttheavailabilityandcostofrisk transferoptions(forexample,reinsurance,catastrophebonds,andcatastropheswaps).For instance,ProgressiveInsuranceGroupsays:"Extremeglobalweathervolatilitycouldincrease riskfinancingcosts.Riskfinancingistheprocessbywhichacompanysecurestheappropriate fundstocoverunexpectedfinanciallossesarisingfromariskthatthecompanyhasdeliberately retained.Bothcapacityinthereinsurancemarketandavailabilityofcapitalfromthe catastrophebondmarketcould,theoretically,becomeconstrainedaftertheoccurrenceof extremeweatherevents." However,someinsurersbelievetheirrisktransfermarketswouldnotbeaffectedbyclimate change,amongthemChicagoTitleInsuranceCompany:"Climatechangewouldhaveno significantaffect(sic)onthelimits,costandtermsofcatastrophereinsurance,including reinstatementprovisions." Reputation Justtwenty-oneofthe184insurersstatethatacceptanceof,andtakingaction,onclimate changeisimportantforthebrand.39 Theillustrationsbelowindicatethatsomeleading insurersseetheirpolicyonclimatechangeasvitaltotheirpositioninthemarket,whether forrecruitment,retailsales,business-to-businessactivity,orraisingcapital. OnesuchcompanyisTheHartfordInsuranceGroup:"Webelievethatcompaniesthat themselvesdemonstrateastrong,comprehensiveandsustainedapproachtoenvironmental stewardshipandofferappropriateproductsattheappropriatepricecanbuildagreen insurancebrand.Also,inthewarfortalent,companiesthatcandemonstratetotheir employeesthattheyhaveaseriouscommitmenttoenvironmentalstewardshipwillbebetter positionedtoattractandengagetalentedemployees." AnothersuchcompanyisSunLifeAssuranceCompanies:"TheCompany'sreputationand abilitytobuildourbusinessandbrandmaybeadverselyaffectedifmajormultinational clients,shareholdergroups,orotherkeystakeholdersdeemthattheCompany'sclimate changeriskmanagementisinadequate...Wemaybedisqualifiedfrombiddingonbusiness opportunitiesasaresultoffailuretocomplywithapotentialclient'ssupplychainclimate changeorGHGemissionmanagementrequirements.Wemayalsoexperiencepossible reducedaccesstocapitalmarketsshouldvarioussustainabilityindicesfindthatourpractices fallshortoftheircriteriaandde-listusasanindexconstituent." Sustainability Seventy-sixofthe184companieshighlightedsustainability--ageneralconcernforresource efficiencyandenvironmentalquality--asamotivatorforrespondingtoclimatechange,because ofthecommonfactorofcarefortheenvironment.Manyinsurershighlightedthisfactorin describingtheiractionsonenergyefficiencyandpollutionreduction.Thefollowingexamples 39 However,thereisastrongerresponsetosustainabilityactionsandlinkagesto"reputation." chApter 4 31 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations aretypicalofthefrequentreferencestoprogramssuchasGreenTeams,GoGreenprograms, Earth-Dayevents,subsidizedtravel,paperlessoffice,ridesharing,virtualmeetingsandrecycling. Allstatedescribesits"cross-functionalEnvironmentalLeadershipTeam,composedofofficers andseniorstafffromallareasoftheenterprise.Thisteamhelpsguideenvironmentalefforts fromanenterprisewideperspective,buildalignmentandcreatemomentumforAllstate's heightenedsustainabilityeffortsandidentifyopportunitiesassociatedwithenvironmental responsibilityandclimate." Aflacoffersamoreattenuatedexample:"Fromthematerialsweuseinourdailyoperationsto theconstructionandrenovationoffacilities,wecarefullyconsidertheenvironmentalimpact ouractionswillhave." FidelityInvestmentsLifeInsuranceCompanyisanothercompanythatassociateseco-efficiency programswithenergy(andbyimplication,climateefforts):"Comparedto2007,paperuse acrossouroperationshasdecreasedby38%.Comparedto2010,paperusedecreasedby7%. Customer-electede-deliveryrosefrom25%in2008to40%in2011.Ourgoalistoincrease thissuppressionrateto50%by2015.Electronicdeliverysavesthedocumentpaperitself, theenergyandinkinvolvedinprinting,andtheenergyusedtoshipthematerialtocustomers." Security Thisdriverlooksatwhatmeasuresthecompanyusestoprotectitselfagainstclimaticrisk. Ofthe184respondents,110insurersmentionthisfactor.Theneedforitiswellexpressedby Travelers:"Catastrophelossescouldmateriallyandadverselyaffectourresultsofoperations, ourfinancialpositionand/orliquidity,andcouldadverselyimpactourratings,ourabilityto raisecapitalandtheavailabilityandcostofreinsurance." LifeandsomeHealthinsurersalsonotethethreatofextremeweathertorealestateassets, andofheatwavestopowersupplyforofficework. Thesurveyresponsesforthisdriverwerewide-rangingbutoftenreferredtocatastropherisk management,ratherthanclimatechangedirectly.Asmightbeexpected,therearemanycore strategies,notspecifictoclimatechange,thataninsurercanuseformanagingcatastrophic riskandcapitaladequacy-itsbusinesscontinuityplan,itsreinsuranceprogram,and insuranceofitsassetsamongthem. Seventy-twoinsurersmentionedtheirbusinesscontinuityplans,todealwithphysicalriskto theirownfacilities,orcompromisingservicetoclients.Typicallyreferencesincludeback-up facilities,alternativeworkarrangements,andspecialclaims-handlingteams,especiallyin relationtoparticularhazards,suchashurricanes,flooding,tornadoesorheatwaves.Every typeofinsurermentionedthis.Forinstance,Aviva(alifeinsurerbasedinIowa)said:"Iowais locatedinTornadoAlley.In2011,thecompanyconductedaTornadowargamingscenario." UnumHealthGroupreportedthat"inColumbia,SC,whichisvulnerabletohurricane-related weather,ithashardeneditsdatacenterandprintanddistributionfacilities"towithstandthe impactsofsuchstorms. Reinsurancewasmentionedin43responses.Oftenreinsuranceprogramsarequitecomplex,but onlyafewinsurersgavesomeinsightintotheirdetail:severalmentionedtheuseofcatastrophe bondsandcapitalmarketinstrumentstocomplementtheconventionalreinsurance;oneensured thattherewasprovisionforreinstatementoftheprogramafteracatastrophe;onementioned complementingtheportfoliocoveragewith'facultative'orindividualizedreinsuranceforsingle largeexposures;andonementionedreviewingtheclaims-payingstrengthoftheirreinsurers.40 40 Ofteninsurersassumeitissufficienttolookatthereinsurers'creditratings,butcreditratingagencieshavehadsomefailuresforecastingriskinthe widerfinancialarena. chApter 4 32 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Onlyonereferredtothepracticeof'aggregateloss'cover,wherebytheinsurerprotectsitself againstanaccumulationofsmalllosses,notsimplycoveringagainstcatastrophes. Risk modeling was specified by 40 insurers as an important technique, in order to explore their capital adequacy, using realistic disaster scenarios and catastrophe models in the case of P&C insurers, or 'stress testing' for L&A insurers. Riskmodelingwasspecifiedby40insurersasanimportanttechnique,inordertoexplore theircapitaladequacy,usingrealisticdisasterscenariosandcatastrophemodelsinthecase ofP&Cinsurers,or'stresstesting'forL&Ainsurers.AtypicalresponsecomesfromMutualof OmahaInsuranceCompany:"Weevaluateawidevarietyofstressscenariosinthecontextof theseappetitestatements.Severemortality,morbidity,andcreditriskeventsarecapturedin thesestresstests,andalthoughnotspecificallyassociatedwithclimatechange,arebelieved torepresentanadequatelyseveretestcomparabletoormoreseverethantheclimatechange impacttoourlifeandhealthinsurancebusinesses."P&Cinsurerstendedtousemorethan onecatmodelforgreaterconfidence. Twenty(mainlyP&C)underwritersmentionedaccumulationcontrol,wherebytheinsurer limitstheamountofriskitwillacceptinhigh-hazardregions.Forexample,MercuryCasualty stated:"Becauseofthepredictedincreaseinhurricanefrequency,Mercuryistakingnumerous stepstomonitor,controlorevenreduceexposuretocatastrophiclossescausedbyhurricanes. MercuryisalsoexitingthehomeownersinsurancemarketinFlorida."Asecondinsurer, GreatAmerican,wentfurther:"Thecompanyinthepasthaschosentoreduceexposure tocatastrophicpropertyrisksincludingtheeffectsofclimatechange." Surprisingly,onlyeleveninsurersmentionedthevalueofriskdiversification(forexample, havingaspreadofriskacrosslinesofbusinessandgeographies)forreducingvulnerability toclimaticrisks.Manyinsurerssaidthattheyroutinelypracticediversificationintheirasset management,butonlythreespecificallysaidtheywerediversifiedasregardsclimaticrisks, theotherssimplyassumingthattheywere. Havingahealthysurplus,i.e.capital,wasmentionedbyonlyeleveninsurers.Thismayreflect thepressureonpubliccompaniesnottohave"idlecapital,"butinsteadtousereinsurance andrunwithlesscapital.Forexample,CambiaHealthstated:"Itisinfacttheunknown futurecosts,impacts,andneedswhichalongwiththeeffectofclimatechangerisk,whether relatedtounderwritingorotherfactors,representanotherreasontomaintainstrongsurplus levelstoensureabilitytocontinuemeetingtheneedsofourmembers." OnlysevenP&Cwritersexplicitlymentionedriskselection("prudentunderwriting")asa technique,althoughmanydovarytheirtermsandconditionsaccordingtotheindividualrisk (seeChapter5). Thepossibilityofriskcorrelationbetweenliabilities(productsissuedtoclients)andassets (investments)wasnotreallydiscussedbyanyinsurer--whilethattypeofcorrelatedrisk assessmentmayhappeninpracticeaspartoftheirEnterpriseRiskManagementprocess, wecannotassumethatitdoes. chApter 4 33 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Cost efficiency Thisdrivercoversactionsbyinsurersonmajorinternalenergyusesintheirownpremises, transportandofficework,andismentionedby118insurersoutof184.Thisisthehighest activityofanyindicator,andmayreflectthefactthatthefirstquestioninthesurveyrelates toenergyusage.Acommonthemehereisthatenergyefficiencymeansloweremissions, andalsobettercustomerservice.Thethreecasesbelowillustratebestpractice: California State Auto Group: "In recognition of our own corporate responsibilities, we have converted our entire insurance vehicle fleet to hybrids. According to Automotive Fleet, this is the highest percentage of hybrids in any major private U.S. commercial fleet." MVP Health Care: "MVP Health Care has an extensive list of 30 Go Green Initiatives designed to achieve energy conservation measures... climate change could result in energy or resource scarcity, which in turn could create higher energy costs." Munich Re provided a long list of actions under this driver, along with citation of several awards received for these actions, including a 2.5MW solar canopy system awarded Energy Project of the Year by World Energy Congress. Carbon Footprint Thirty-nineinsurersoutof184reportonacleargreenhousegasemissionsreductiontarget, frequentlyasaresultofpotentialregulationsorstakeholderengagement.Thereiswide varianceingreenhousegasemissionsreductionstargetssetbycompanies,andtheextent towhichreductionstargetsarepursuedviain-houseefforts,purchaseofoffsettingcredits orthroughinvestedassets,asthefollowingexamplesshow. ING: "Since 2007, ING has made significant improvement in our U.S. operations by reducing its U.S. energy consumption by 23 percent." United Health Group: "UHG has been reporting to the Carbon Disclosure Project (CDP) since 2007. Through 2011, UHG has reduced its carbon emissions by 19.2% from the 2008 baseline." FM Global set a much more modest goal. "FM Global has analyzed its carbon footprint and defined ways to reduce it by as much as seven percent over the next few years." Travelers Group: "Between the start of 2006 and the end of 2011 we achieved a 7.5% reduction in emissions, exceeding our original goal. Reductions were primarily achieved through reductions in our operations generated carbon levels and the purchase of a block of Renewable Energy Credits" Aetna: "Given the evolving regulatory environment, variability in energy costs, the evolution of our business and the countries in which we operate, our company has not articulated specific numerical emissions targets." chApter 4 34 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 4.3 RevIew oF exteRnal DRIveRS Key Findings: The gap between the state of the science and insurers' view of changing hurricane risk is already creating tension between insurers and rating agencies, who wish to take a cautious view in pricing for increased risk potential, and some regulators who are focused on maintaining affordability of windstorm coverage. ? Thirty-two insurers, all P&C writers, identified hurricane risk as an issue. However, there is considerable debate on the way this risk will evolve under climate change. As for the scientific community, there is no consensus yet on how hurricane risk will evolve in a warmer climate--while leading experts disagree on whether a warmer atmosphere and oceans will lead to more or less hurricanes developing, there is widespread agreement that those hurricanes that do form will be more intense and destructive. The gap between the state of the science and insurers' view of hurricane risk is creating tension between insurers and rating agencies, who wish to take a cautious view in pricing for increased risk potential, and some regulators who are focused on maintaining affordability of windstorm coverage. ? Common strategies for hurricane risk management include catastrophe modeling, reinsurance, higher deductibles in coastal areas, and careful control of aggregate exposure, including balancing property with other lines of business. ? Similar strategies are used for other weather extremes, which were mentioned by 40 insurers. There is concern about exposure to convective storms, for example tornadoes, but again there is no consensus on how this risk will evolve. Wildfire risk was highlighted by 15 insurers, and here the risk is seen as trending upwards. ? Thirty-nine percent of insurers (72 out of 184) voiced general concern about the effect of climate change on clients or invested assets. A great number of insurers referred regulators to their filings with the Securities and Exchange Commission for further detail, though these filings generally tend to describe natural disasters without any specific mention of climate change. Most insurers who cite climate change as possibly impacting their clients or invested assets tend to describe climate change as a gradual process that will allow for adaptation over time. ? Liability exposure to claims against clients or companies in insurers' asset portfolios alleging responsibility for climate change was mentioned by 18 out of 184 insurers. 17 out of 184 insurers discussed the effect of GHG regulations on their clients. Most companies felt that these regulations pose a risk, due to the additional costs that the corporate sector and real estate would incur, and due to the creation of regulatory uncertainty. Thissectionconsidersthesixexternaldriversofinsurers'actiononglobalwarmingunderthe risksofnewweatherpatternsandsocietalchangewhichcouldimpacttheirclientsandtheir investedassets. hurricane Risk Unsurprisingly,giventhehistoriclossrecord,hurricanehazardwasthemostdeeplyexplored physicalriskrelatedtoclimatechange.Thirty-twoinsurersoutof184discussedhurricanes, allofthemP&Cwriters.AmicaMutualrepresentsacommonview:"Themostimmediatethreat posedbyclimateimpactisanincreaseinweatherrelatedlosses.Amicahasconcentrations ofbusinessintheNortheast,AtlanticandGulfCoaststhatareexposedtoHurricanerisk." chApter 4 35 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Riskassessmentreliesoncatastrophemodels.Thesearehighlycomplex,andmanysmaller insurersrelyheavilyontheirbrokersorreinsurersforadvice.Theintricaciesareillustratedby thefollowingtwoexamples: Amica Mutual Group: "The foundation of our CAT management program is our attention to detail in the data we collect on each property risk we write. Extremely high quality data is then used in various programs to identify exposure location which in turn allows computer modeling to analyze average annual losses and Probable Maximum Losses." Alfa Mutual: "First, we measure and analyze historical data (worldwide, industry and companyspecific trends). We upgrade to the current catastrophe models as they are updated, typically this is annually. The result of these upgrades, in recent years, has been to model significantly higher probable maximum losses relative to the underlying changes in exposure. Additionally, we utilize internal modeling activities to adjust national models to be more reflective of regional experience within our property books. Lastly, we apply a DFA41 model to 200,000 separate simulations of potential risk scenarios the higher loss ratios created from storm related events is having a negative effect on operating performance entity-wide." Itisgenerallyregardedasprudenttoincludetheuseofwarmseasurfacetemperature scenarios,andlossamplification42 whenprojectinglosspotential,asreportedbyEmployers' MutualCasualtyCompany:"Forthehurricaneperil,EMChasmodeledincreasedfrequency withthenear-termfiveyearfrequencyoutlookwithfulllossamplificationandstormsurgefor reviewinEMC'sunderwritingandreinsuranceanalysis."Twoinsurers(Harleysvilleand TravelersGroup)commentedthattheyhadseengreaterinlandlossesfromhurricanesinrecent years.Yet,asseveralinsurersnoted(e.g.AllianzandContinentalWestern),thereisno consensusyetonfuturehurricaneclimatologyandtheseapproachesmaynotbepermittedby regulators,whichmeansthatinsurerscannotmakethecorrespondingproductadjustments. Forexample,Farmersreports:"RecentmodelupdatesbyRMSandAIRhaveincreasedthe severityandfrequencyoflossesfromHurricane.However,mostdepartmentsofinsuranceare reluctanttoallowustoincorporatetheseadditionalexpectedlossesintoourratemaking." HartfordInsuranceGrouppointedoutthetensionsthatthiscreatesbecauseofthedivergent interestsofratingagenciesversusinsuranceregulators:"Certainnewcatastrophemodels assumeanincreaseinfrequencyandseverityofcertainweatherevents,whetherasaresult ofpotentialglobalwarmingorotherwise,andfinancialstrengthratingagenciesareplacing increasedemphasisoncapitalandreinsuranceadequacyforinsurerswithcertaingeographic concentrationsofrisk.Thesefactorsmayresultininsurersseekingtodiversifytheirgeographic exposure,whichcouldresultinincreasedregulatoryrestrictionsinthosemarkets."The companyalsovoicedconcernaboutresidualriskfacilitiesinacross-referencetoits10Kfiling: "Recentsignificantincreasesandexpectedfurtherincreasesinthenumberofparticipants orinsuredsinstate-sponsoredreinsurancepools,FAIRPlansorotherresidualmarket mechanisms,particularlyinthestatesofLouisiana,MassachusettsandFlorida,combinedwith regulatoryrestrictionsontheabilitytoadequatelyprice,underwrite,ornon-renewbusiness,as wellasnewlegislation,orchangesinexistinglitigation,couldexposeustosignificantexposures andrisksofincreasedassessmentsfromtheseresidualmarketmechanisms.Therecouldalso besignificantadverseimpactasaresultoflossesincurredinthosestatesduetohurricane exposure,aswellasthedecliningnumberofcarriersprovidingcoverageinthoseregions." 41 DFA,orDynamicFinancialAnalysis,isstudyingtheeffectivenessofdecisionsoveraprolongedperiodbyusingcomputermodelstosimulatemany yearsofactivity. 42 Forexample,thefactthatmajorstormsresultindisproportionatedamageduetofactorssuchasincreasedconstructioncosts,criminaldamageand lootingofvacantproperties,andpollutionfromescapedchemicalsandsewage. chApter 4 36 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Commonstrategiesforriskmanagementincludereinsurance,higherhurricanewind deductiblesonhomeowners'insurancepoliciesincoastalareas,andcarefulcontrolof aggregateexposure,includingbalancingpropertywithotherlinesofbusiness.Forexample, AutomobileClubInsuranceAssociationreported:"PropertyandautobusinessinFlorida issoldwiththeintenttominimizeriskoflosstocoastalpropertybydiversifyingthebook ofbusinessintothecentralpartsofthestate.Inaddition,thepoliciesdirectlywrittenbythe AutoClubGroupInsuranceentitiesinFloridaareanautoonlypolicyorapackagedauto andhomepolicy.NohomeownersonlybusinessisdirectlywritteninFlorida." WhilethemaininterestcamefromP&Cinsurers,onecreditinsureralsonotedconcern. AssuredGuarantysaid"Aspartoftheirunderwritingprocess,AGCandAGMtakeinto considerationanobligor'spotentialexposuretovariousrisks,includingnaturalcatastrophes suchaswindstormorflooding,andhowthoserisksmightaffecttheobligor'sabilitytorepay theinsureddebt." other extremes Manyotherextremeweatherrisksarecitedwithininsurerdisclosures,thoughwithfarless specificityandtechnicaldetailthanhurricanerisk.Fortyinsurersoutof184mentionextreme weatherevents,39ofthemwithinP&Cormultilinebusiness.Commonthemesinmanaging thisissueincludemonitoringtrendsinriskdevelopment,useofcatastrophemodeloutputs andcontrolofriskaggregations. Twenty-oneoftheinsurersspecificallymentionedconvectivestorms(tornadoesorhailstorms). Opinionsseemdividedonwhethertheriskwillbeworse.Ontheonehand,Continental Westerncites:"TheNationalOceanicandAtmosphericAdministration(NOAA)hasdataon strongtoviolenttornadofrequencyfrom1950onward,andthisshowsnoevidenceofany trendintheincidenceofthesedamagingtornadoesoverthis60yearperiod."However, Travelersnotes:"Changingclimateconditionshavecreatedadditionaluncertaintyastofuture trendsandexposures.Boththefrequencyandseverityoftornadoesandhailstormshave increased,especiallyin2011."MunichReobservedthesteepincreaseinthunderstorm lossesintheUSA,andithassubsequentlyattributedthisincreasepartiallytoclimatechange. Othercommonhazardsmentionedwerewildfires(15insurers)andflooding(8insurers). other Impacts Thisdriverrepresentsmoregeneralstatementsbyinsurersontherelationshipbetween climatechangeandhazards.Thirty-ninepercentoftherespondents(72insurersoutof184) tookthisapproach,acrossthewholespectrumofsizeandlineofbusiness.Forexample, BerkshireHathawaystates:"GeneralReinsuranceCompanybelievesthatitscommercial, residential,andmarinepropertyclassesmaybeatriskbecauseofclimatechange. Unanticipatedandadversechangesinthefrequencyorseverityofnaturalcatastropheslikely meansthatactuallosseswillexceedpricingassumptions."Inmanyinstances,insurersbased theirreplyontheir10KfilingwiththeSecuritiesandExchangeCommission,wherethe tendencyistodescribenaturaldisastersandpandemicswithoutanyspecificmentionof climatechangeanditsrelationshiptothesescenarios.Insurerswiththis'generic'attitude tendtoseeclimatechangeasagradualprocess,whichwouldallowthemtoadapttothenew situation.However,aswediscusslaterunderthedriver'BehaviorChange,'otherinsurersdo notsharethisgradualistview. chApter 4 37 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Atypicalviewcomesfromamedium-sizedP&Cunderwriter,LibertyMutual:"Increasesin propertycatastropheriskassociatedwithclimatechangewillmanifestthemselvesgradually overaperiodofmanyyears(decades),whilepoliciesareofone-yearduration.Thisallows LibertyMutualtheopportunitytoadjustrates,coveragesandunderwritingguidelinesas requiredinresponsetotrendsthatdemonstrateanincreaseinthefrequencyand/orseverity ofnaturalcatastropheevents.TheCompanywillcontinuetocloselymonitortrendsin catastrophelossfrequencyandseverity,andtoemploythelatestgenerationofcomputer modelingtoolstoestimateexposurestonaturalcatastropheevents,adjustpricingand underwritingguidelinesasnecessary." Thisperspectiveisparalleledbyasmallhealthinsurer,DeltaDentalInsurance:"Tothe limitedextentthatclimatechangewereimpactingthegeneralmorbidityanddentalhealth oftheCompany'senrollees,thatimpactwouldlikelybelongterminnature,asoneofseveral factorsinfluencing inflationinhealthcarecosts.Assuch,anyimpactofclimatechangeon enrolleegeneralmorbidityanddentalhealthwouldimplicitlybeconsideredintheCompany's normalrating&underwritingprocess,withouttherebeinganyneedtoexplicitlyidentify climatechangeastherootcauseofanysuchchanges.Webelievethatclimatechangeis implicitlyaddressedwithinournormalriskmanagementprocess." Lifeandannuityprovidersweremoreconcernedabouttheeffectonassets.Thefollowing extractfromtheTIAAGroupresponsegivesarepresentativebroadperspective,sinceitlooks attheagriculturalsector,aswellasrealestate:"Extremeweathereventscandirectlyimpact timberlandportfolio(e.g.physicalstormdamage,orincreasingsusceptibilitytopathogens afteraperiodofdrought).Overtime,changesinweatherpatternscouldaffecttheability ofcertaintreespeciestobegrowninaparticularrangeandthusimpactrevenuepotential.43 Theimpactonrealestateportfolioswoulddependonthelocation.Forexample,coastal propertymaybeimpactedbyrisingsealevels;drought-proneareasmayseeareduction ineconomicgrowthorpopulation,andthusdemandforrealestaterentals.Extremeweather mayimpactthehealthoffarmlandandtimberland,reducingtheproductivityofthelandand thevalueoftheasset.Climatechangemayreduceglobalagriculturalproductivity.Timberland andFarmlandthatissustainablymanagedtoprovideoptimalyieldsoverthelongtermmay bemorevaluableasaresult.Ourlongtermapproachtomanagingfarmlandcanhelpusto ensurethatwearewellpositionedtomanagetheseopportunities." liability In addition to client exposure to climate liability, insurers also cited potential asset exposure to corporate liability claims against bond- and stock-issuers sued for alleged damage from historical greenhouse gas emissions. BerkshireHathawayexplainsthisrisk:"Casualtyclassesmaybeatriskdueto'parameter' risk,forexample,unanticipatedchangesinlitigationtrendsorexposures,suchasliability claimsfrompersonsorgroupsallegedlyharmedbyclimatechangeandthepotentially responsiblepartiesresponsibleforthatchange."Inadditiontoclientexposuretoclimate liability,insurersalsocitedpotentialassetexposuretocorporateliabilityclaimsagainstbondandstock-issuerssuedforallegeddamagefromhistoricalgreenhousegasemissions.Yet despiteinsurers'uniqueexposuretothatlitigationviatheirinsurancecontractsandinvested assets,liabilityexposurewasmentionedbyonly18outof184insurers,mainlyinvolvedinP&C. Therearesignsthatthefluidstateofthelegalclimateiscausingconsiderableuneaseamong thoseinsurerswhoarepayingattention.Forexample,AIGnoted:"Propertyandcasualty insurancepoliciestypicallyexcludeorsignificantlylimitcoverageforpollutionandrelated environmentaldamage.Whilethesepollutionexclusionshavesustainedjudicialscrutinyand havenotbeenoverturnedbyjudicialdecisions,therecanbenoassurancethatfuturecourt 43 TIAAestimatedtheprobabilityofextremeweatheraffectingforestryasverylikely. chApter 4 38 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations decisionswillupholdpriorcaselawprecedents."Thisconcernissharedbyotherinsurers, andreinsurerssuchasSwissReandXLGroupmonitordevelopmentscloselyinthisevolving areaofjurisprudence. greenhouse gas Regulations Therepercussionsofregulatoryinitiativestolimitclients'emissionsortheemissionsembedded ininvestmentportfoliosarementionedby17outof184insurers,primarilywithinL&Aor Health44.Generallytheperceptionisofriskdrivenbyadditionalcostsforthecorporatesector andrealestateandbyregulatoryuncertainty,whichcouldrestrictgrowthofparticularsectors. However,twoinsurers(TIAAGroupandTheHartford)alsomentiontheupside,withthe possibilityofinsurersgainingacompetitiveadvantageduetoinnovationorexpertknowledge. Onecompany,LincolnFinancial,notedthat:"limiteddisclosurehampersthescopeofanalysis" whichtheycanconductonclientandinvestmentimpacts. Thefirsttwocasesbelowshowthedownsideperspective,thenexttwofocusontheupside. Northwestern Mutual Group says: "the Company perceives the greatest climate change risks to the life insurance industry arising from the broad economic and financial shifts that are likely to occur in anticipation of or reaction to the regulation of greenhouse gas emissions." Assured Guaranty sees this a current risk: "In their credit and underwriting process, AGC and AGM take into account the potential impact of regulatory or other changes that could affect the debtor's ability to repay the insured obligation. For example, AGC and AGM take into consideration the potential impact of regulatory changes mandating that electric utilities reduce carbon emissions or increase their use of alternative energy sources when assessing the profitability and viability of investor-owned and municipal electric utilities." The TIAA Family of Companies speculates: "maybe climate policy offers us an opportunity-- because of our expertise in seeking cost-effective energy efficiency opportunities, and fuel taxes could increase demand for biofuels, raising the value of farmland and creating opportunities for our timberland portfolios." Similarly, The Hartford Group cites development of a range of green insurance products "to respond to our customers' interest in reducing their greenhouse gas emissions by offering products that meet that need" (see Chapter 5.1 for more detail). behavior Change Thefinaldriverrelatestothewaythatsocietymayreacttomeasuresintendedtodealwith climatechange.Forexample,regulatorsmayintervenewheninsurerstrytorespondtonew weatherpatterns,orclientsmayaltertheirconsumptionpatternsorreducetheirinsurance budgetsbecauseofenergycosts.Forexample,MunichResays:"Unlesspreventive measures aretaken,ClimateChangecouldrestrictourbusinessinthelongterm.Whilepremiums commensuratewiththeriskareessentialininsurance,demandforinsurancebeginsto declinewhenpricesexceedacertainthreshold."However,TheHartfordGroupobservesthat regulationcouldalsobeapositiveforce:"Regulationcouldontheotherhandencourage greeninsurancemarketsandimproveresiliencetoweatherdamage/reduceexposure,which wouldimproveinsurability."Thepotentialbehavioraleffectofclimateactionisadriverforjust afewinsurers,13outof184,primarilyoflargeormediumsize. 44 Insurersgenerallybelievetheirownin-houseemissionsarerelativelysmallcomparedtootherindustrialsectors,anddonotseesuchregulationsas amaterialconcernforthemselves. chApter 4 39 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations ACEGroupmakesthepointaboutregulatoryinterventionsuccinctly:"tocontinuetooffer coverageunderclimatechangeconditions,pricingmustalwaysbesetatsoundactuarial ratesthatcoverlosscosts,expensesandriskmarginsonexposedcapital.Thus,pricingmust beflexibleovertimeandbygeography.Unfortunately,manyregulatoryregimesimposethe functionalequivalentofpricecontrols,whicharenotbuilttorespondtodevelopmentsinrisk assessmentandsignalthewrongincentivestoconsumerswhoareencouragedtoincrease exposures."Thisisechoedbyothermajorgroups,suchasFarmers,Chubb,andLiberty Mutual.Travelersadds:"...followingcatastrophes,therearesometimeslegislativeand administrativeinitiativesandcourtdecisionsthatseektoexpandinsurancecoveragefor catastropheclaimsbeyondtheoriginalintentofthepoliciesorseektopreventtheapplication ofdeductibles." Theinsurersthatmentiontheeconomicripple-effectofincreasedcostsoncustomersranged fromWashingtonDentalService:"Employergroupsdroppingdentalbenefitstosavecostsas aresultofnegativeeffectsofclimatechangecouldbearisk,"toProgressiveGroup,which citesconcernaboutchangesindrivinghabits,toTravelersGroup,whichsays:"Insureds facedwithcarbonmanagementregulatoryrequirementsmayhavelessavailablecapitalfor investmentinlosspreventionandsafetyfeatureswhichmay,overtime,increaselossexposures. Also,increasedregulationmayresultinreducedeconomicactivity,whichwoulddecreasethe amountofinsurableassetsandbusinesses." chApter 4 40 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Core Functions InthisChapter,weconsiderwhatactionsinsurerstaketoaddressclimatechangeintheir corefunctionsoroperations: ? Products. Therearethreecrucialelements:riskassessmentforproductsthataccept climaterisk;lossreductionactivitiesassociatedwiththem;and,forP&Cinsurers, providing'green'productstoassistclientswithemissionsreduction. ? Claims Handling. Weidentifiedtwoindicatorshere:ensuringgoodserviceandreducing thecarbonintensityofthewholeclaimsprocess. ? Investment. Therearetwoaspectstoconsider,firstmanagingassetstocopewithclimate impacts,andsecond,takingaccountofemissionsregulations. ? Innovation. Wegivespecialrecognitiontoinsurerswhoareleadingthewaywithcreative ideaswithinthethreeareasabove. Allowingforthedifferencesbetweenlinesofbusiness,thereare8indicatorsforProperty &CasualtyOperations,5forLife&Annuity,and6forHealth. 5.1 pRopeRty & CaSualty InSuReR CoRe FunCtIonS Key Findings: ? To assess climate risk, P&C insurers make intensive use of catastrophe models, particularly for assessing hurricane risk. Many insurers now model using warm sea surface temperature assumptions, consistent with current decadal warming cycles and with higher mean atmospheric and ocean temperatures driven by carbon forcing. ? Insurers make extensive use of defensive underwriting, a practice that ranges from re-pricing contracts or applying higher deductibles, to expanding exclusions and even withdrawing from high-hazard areas (the most commonly cited being the state of Florida). Underwriters often mention the problem of regulatory risk, in that prices are not permitted to respond quickly to higher risk levels in regulated markets. ? About half of the insurers surveyed mention loss reduction, and support this strategy through research and advocacy such as information leaflets to customers, product features such as discounts for storm shutters, and services like wildfire suppression and onsite risk inspections. ? About half of the large and medium size insurers support GHG emissions reduction through innovative or modified insurance products, such as post-loss upgrades to eco-friendly construction and discounts for low-carbon vehicles, but small companies rarely do. It is unclear what uptake of introduced products has been. chApter 5 41 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations ? Insurers say very little on the subject of claims service, and no companies note the potential to reduce the carbon intensity of the claims process. ? P&C insurers do routinely consider exposure of invested assets to catastrophic risk (though not necessarily climate risk). While regulators may be able to influence the risk transfer markets in their states, they cannot compel insurers to place investment capital in their communities. Already, divestiture from coastal counties and municipalities is a reality, according to insurer disclosures. However, many P&C insurers appear to ignore the fact that global warming can affect investments through changes in emissions regulations. By far the industry segment with the most climate risk management activities underway is Property & Casualty--unsurprising, as weather events are a major driver of loss to these companies. Byfartheindustrysegmentwiththemostclimateriskmanagementactivitiesunderwayis propertyandcasualty--unsurprising,asweathereventsareamajordriveroflosstothese companies.Asmaybeexpected,manyinsurersdiscussclimatechangeintermsofspecific perilsortypesofextremeweatherevents(seeChapter4formoredetail). Inthespectrumofenterpriseriskandopportunitywhichclimatechangeposestoproperty andcasualtyinsurers,fewcompanieslookbeyondunderwritingexposure.Thisisclearly illustratedinFigure8,asnapshotofclimateactionsundertakenbythe101P&Cwriters surveyed.Thebarsinthechartshowthetotalnumberofpointsthatinsurersscoredinthe assessmentundereachaspectoftheircoreoperations.Thescoresaredividedintopoints scoredbysmallinsurers(premiumunder$1billionperyear)versusmediumandlarge. Forty-eightpercentoftheP&Cwritersaresmall.Manyofthemtakeactivestepstoassess climaterisk,butasshowninFigure8,smallinsurersdonotpayheedtocarbonriskin productsorinvestmentmatters,noraretheythesourceofinnovationonclimatechangerisk. insurer's operations FIguRe 8: pRopeRty & CaSualty InSuReRS aCtIonS on ClImate Change In CoRe opeRatIonS u/w climate risk loss reduction green products innovation investment climate risk investment carbon risk claims service claims carbon content 0 40 50 60 70 80 90 100 percent cumulative score VI large & Medium insurers ($1b - over 5b) VI small insurers ($300M - 1b) chApter 5 10 20 30 42 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations products Beforetheyacceptclimaterisk,P&Cinsurersmakeintensiveuseofcatastrophe models to assesstherisk,particularlyforhurricanes.Dependingonthesizeofthecompany,theymay contractexclusivelywithproprietaryvendorsoraccompanythoseoutputswithanalysisor modellingbyin-houseexperts.Manyinsurersnowmodelusingwarmseasurfacetemperature (WSST)assumptions,consistentwithglobalwarming,whichisseenasacautiousrisk assessmentapproachgiventhepotentialforwarmeroceantemperaturestofuelmore destructivewindstorms.FactoryMutualpointsoutthebenefitofacquiringrisk-specificdata fromon-siteriskinspections.HarleysvilleMutualreportsthatithasexpandedthesuiteof modelstogiveindividualunderwritersmoreanalyticalpower. Amica Mutual: "Computerized catastrophe models are included in our review of risk. We take great care to understand the models, especially when it comes to their limitations. Models are used as a tool to help understand aggregation of exposures and to give us range of outcomes based on potential scenarios. CAT models are used in pricing products to help ensure price to risk matching." Continental Western Insurance Company: "We rely on a number of sources of information including: our own loss history; industry loss data collated by PCS; catastrophe modeling based on two different vendor computer models. Catastrophe modeling is used for hurricane and for severe convective storm (including tornadoes and hail storms). However we do not use the cat models 'out of the box' without an extensive review process. In addition to our own review, we solicit expert opinion from the catastrophe modeling departments of two major reinsurance brokers." Factory Mutual Group (FM): "Natural hazard modeling is substantially improved because FM Global engineers obtain accurate geo-coding as well as peril specific information (for example: roof construction details in wind zones and floor elevation in flood zones) while visiting policyholder locations." Harleysville Mutual Insurance: "Two other recently-added desk top tools utilized at the underwriting level are one which grades each commercial lines risk at the time of underwriting for its relative potential exposure to weather related events and one which helps to gauge distance to coast and appropriate pricing relative to natural catastrophic events. These tools all reflect the very latest in weather based technology in terms of evolving climate change." Insurersmakeextensiveuseofdefensive underwriting,apracticethatrangesfromre-pricing contracts,toapplyinghighdeductibles,orexpandingexclusions,orwithdrawingfromhighhazardareassuchasthestateofFlorida,asillustratedbythisresponsefromTravelers: "We believe that insurance rates and policy terms that accurately reflect risk may serve to encourage implementation of risk mitigation practices by policyholders and may also influence decisions regarding development in locations vulnerable to severe weather events. To this end, where permitted by regulators, we have implemented the following underwriting, coverage and pricing strategies which may contribute to a reduction in climate related losses to policyholders. o Ongoing application of risk-based rates that contemplate climate trends, catastrophic losses and reinsurance costs. o Continued refinement of underwriting requirements to address the correlation of risks related to construction, occupancy and protection in geographical areas susceptible to significant climate related losses. chApter 5 43 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations o Appropriate structuring of policy terms and conditions to adequately reflect underlying risks associated with the impact of climate trends. o Encouraging efforts to improve building resiliency by providing pricing incentives for properties identified as having favorable risk characteristics relative to mitigation of climate related losses e.g., Institute for Business and Home Safety (IBHS) Fortified standards." Regulatory risk isfrequentlymentionedbyinsurers,relatedtocircumstancesinwhichprices inregulatedmarketsarenotpermittedtorisewhenrisklevelsincrease.Wheninsurersare unabletoadoptrisk-basedratesduetopricecontrolsorregulatorylags,andcannotmake anadequatereturnoncapital,theymaywithdrawfromthemarket. A typical approach is expressed by Alfa Mutual: "With respect to underwriting decisions, we have taken aggressive steps to limit our property exposure, including: expanding to other states and other product lines to improve diversification; reducing property exposure in coastal areas; shifting to percentage-based deductibles; and renewing coastal property without wind." Regulatory risk is frequently mentioned Abouthalfoftheinsurersmentionloss reduction,andsupportitthroughresearch,advocacy by insurers, related to suchasinformationleaflets,productfeaturessuchasdiscountsforstormshutters,and circumstances in which prices in regulated markets serviceslikewildfiresuppressionandonsiteriskinspections. are not permitted to rise For example, as described by California State Auto Group: "Through the AAA membership when risk levels increase. magazine, homeowner insureds regularly receive information and loss-prevention tips regarding: When insurers are unable o How to help reduce the risk of loss from wildfires, which many believe may be affected to adopt risk-based rates due to price controls or regulatory by climate change in terms of increased frequency and severity. lags, and cannot make an o The availability of flood coverage through the National Flood Insurance Program. This adequate return on capital, does not prevent loss, but it does help prevent uninsured losses. they may withdraw "Certain of our homeowner insurance policies provide coverage for building code upgrades, from the market. which means that, following a loss, a property may be repaired or rebuilt to more exacting and more loss-resistant standards. "Home inspections on new homeowner business can identify hazards of the property that could lead to or increase the magnitude of loss. In many cases, applicants can be made aware of property improvements that would make the property both insurable and less prone to future loss from weather-related events." Chubboffersseveralproductsandservices.Forexample,ChubbPersonalInsuranceoffers WildfireDefenseServicestocustomersin14western,wildfire-pronestates.Theseservices includeeducationonthedynamicsandrisksofwildfire,individualpropertyassessments wherespecificactionstoreducewildfireexposurearerecommended,andreferralstowildfire mitigationspecialistswhocancompletetherecommendedactions.Ifnecessary,whena wildfirethreatensaninsuredhome,theCorporationdeploysprofessionalwildlandfirefighters, operatingfederallycertifiedfirefightingequipment,toprovidepre-suppressionservicesto customerswhoenrollinthisoffering.Chubbalsoofferspremiumcreditsinanumberof catastrophe-pronejurisdictionstohomeownerswhoinstallmitigationdevicesorutilizestorm resistantconstructiontechniques,forexample,windowshuttersinFlorida. AbouthalfofthelargeandmediumsizeinsurerssupportGHGemissionsreductionthrough innovativeormodifiedgreen insurance products,suchaspost-lossupgradestoeco-friendly constructionanddiscountsforlow-carbonvehicles,butsmallonesrarelydo.Forexample, TheErieoffers'GreenUpgradeCoverage'which"defraysthecostsofreplacingdamaged equipmentwithmoreeco-friendlyalternatives,suchasmotion-activatedlights,automatic faucets,andnon-toxicorENERGYSTARcompliantbuildingmaterials."Forautoinsurance, chApter 5 44 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations CaliforniaStateAutosays:"Encouragingautomobiledriverstoreducetheiremissionsisone waytohelpreducetheaccumulationofgreenhousegasesthatmaycontributetoclimate change.Ourautomobileinsuredscanutilize: o Tipsandvideosonhowtomakeallvehiclesmorefuelefficient. o Automobileinsurancesavingsdesignedtoencouragethepurchaseanduseofhybridand alternative-fuelvehicles. o Newinsuranceprogramsthatareusage-based,whichencouragepeopletodriveless. o DiscountsoncarbonoffsetpurchasesthroughTerraPassandotherGreenShowYourCard andSavePartners." Claims Surprisingly,insurerssayverylittleonthesubjectofclaimsservice,andnocompaniesnote thepotentialtoreducecarbonemissionsintheclaimsprocess,asubjectofgreatinterestto insurersintwootherinsuranceindustryinitiatives,ClimateWiseandUnitedNations EnvironmentalProtectionFinanceInitiative(UNEPFI). Thefollowingthreeexamplesshowhowinsurersproactivelyassisttheircustomersbefore, duringandafterextremeevents. Cincinnati Insurance Co: "Models are used to identify areas that may have been impacted by severe weather so we can serve our policyholders faster and better." Progressive Insurance Group: "We may use any or all of the following to encourage our customers to protect themselves against losses: o Produce Public Service Announcements about how to file claims for local radio stations o Send e-mails to customers and agents with claims reporting information and safety tips o Use social media tools (i.e., Facebook, Twitter, etc.) to reach broader audiences with claims reporting information and safety tips o Provide payment leniency in some severe situations to customers who need it o Deploy catastrophe response teams to affected areas to assist with claims o Inform employees about how they can assist with relief efforts." Travelers Group: "On the Travelers website, our Claims Services group provides post-event mitigation tips for customers such as risk mitigation measures to secure their personal safety and mitigate property damage. In addition, there is ongoing communication with agents and customers during major climate-influenced events to remind them of claim reporting procedures, the presence of disaster relief and the location of claims offices or mobile service vehicles." Investment Itisanaturalstepforunderwriterstoconsiderwhetherextremeweathermightaffecttheir investments,aswellastheirpolicyholders.Infact,itiscommonpracticetoconsiderexposure tocatastrophicriskalready,asillustratedbyTravelers:"Sinceweassumecatastropherisks inourcapacityasaninsurer,wealsoseektomanageourportfolio'screditrisktosuchevents byassessingourinvestmentexposuresinimpactedgeographicareas." However,notmanytakethenextsteptoconsiderhowitmightevolveunderclimatechange. TheresponsefromAssuredGuarantyistypical:"[Our]investmentphilosophyistomaintaina highquality,liquidfixedincomeinvestmentportfolio.Theinvestmentportfoliosarediversified chApter 5 45 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations bysector,issuerandgeography.Theaveragedurationofeachportfolioislessthan6years. Wewillcontinuetofollowdevelopmentsrelatedtoclimatechangebutdonotbelievethatany changesinourinvestmentstrategyarerequiredatthistime." Already, divestiture from Whileregulatorsmaybeabletoinfluencerisktransfermarkets,theycannotcompelinsurers coastal counties and toplaceinvestmentcapitalintheircommunities.Already,divestiturefromcoastalcounties municipalities is a reality. andmunicipalitiesisareality.ThisrangesfromsimpleembargoslikethatadoptedbyHudson InsuranceCompany("WehavedeterminednottobuyStateofFloridabonds,")tomore generalpolicies. Travelers Group: "Changing climate conditions could also impact the creditworthiness of issuers of securities in which the Company invests. For example, water supply adequacy could impact the creditworthiness of bond issuers in the Southwestern United States, and more frequent and/or severe hurricanes could impact the creditworthiness of issuers in the Southeastern United States. In the evaluation of real estate investment opportunities, environmental risks posed by current or contemplated use of property are a major consideration." Nationwide Mutual Insurance Company: "For municipal bond investments, the ability of the bond issuer (i.e. municipality) to repay debt is largely influenced by the health of its local economy and stability of its population (tax) base. Climate-change issues ranging from water scarcity in the Southwest to coastal migration in Florida are considered when evaluating potential investments." One view is that the all-wise market will price the pluses and minuses of climate change into asset values-- yet since market corrections tend to disadvantage passive investors this would only seem to indicate a need for active management of climate risks in the insurance asset portfolio. Thesecondwayinwhichclimatechangecanaffectinvestmentsisthroughregulatoryrisk, primarilyrelatingtogreenhousegasemissions.Thisisaddressedbyasubstantialminority ofP&Cinsurers,butwithfewsmallcompaniesamongthem.Oneviewisthattheall-wise marketwillpricetheplusesandminusesofclimatechangeintoassetvalues--yetsince marketcorrectionstendtodisadvantagepassiveinvestorsthiswouldonlyseemtoindicate aneedforactivemanagementofclimaterisksintheinsuranceassetportfolio. SomeP&CinsurerssuchasAllianz,AIG,andEmployers'Mutualdoalreadytakesustainability issueslikeclimatechangeintoaccountintheirassetmanagement.Forthesecompanies,climate changeisdescribedasfittingwithinabroaderinvestmentapproachincorporatingEnvironmental, Social&Governance(ESG)factorsintoinvestmentdecisionmaking.Forexample,Employers' MutualCasualtyCompanydescribesitsview:"Companieswithunsustainablepractices,including thoseignoringclimatechangeimpacts,typicallymakepoorlong-terminvestments."European companiesinparticulartendtodescribetheirinvestmentdecisionsasbeinginsomewayguided byESGfactors,thoughhowthecompanymakesuseofESGanalysis--andhowclimatechange fitswithinthisanalysisframework--isbynomeansstandardized.Zurich'sfilingdemonstrates thelearningprocessofESGintegration:"Zurichhasrecentlyformulatedahigh-levelstrategy forresponsibleinvestingandiscurrentlyengagedinaprocesstodeterminehowbesttoaccount moreexplicitlyforenvironmental,socialandcorporategovernancefactorsininvestmentdecisions." The Hanover Group isanexampleofacompanythatcloselyscrutinizescarbonrisk: "Climate change and the resultant potential for regulatory pressure on the utility industry continue to be an important factor in our analysis of the utility sector for at least the last 18 months. As an investor in electric and gas utility bonds, we are concerned about the potential for higher costs from regulatory efforts to combat global warming (i.e. the carbon tax, clean air standards, etc.) and the effects these would have on utility industry profitability. Our response has been to increase our assessment of these potential affects on utility credits we own or consider for purchase, with particular attention paid to plant mix (i.e. coal/nuclear/hydro)."45 45 However,thecompanyislessspecificinitsSECfilings. chApter 5 46 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations ThefollowingquotebySelectiveInsuranceGroupprovidesanexampleofgoodpracticeby acompanythatoutsourcesitsassetmanagement:"Selectivemonitorsitsthreethirdparty investmentfirms'climatechangepolicies.Atonefirm,creditresearchanalystsfactorinissues suchasenvironmentallyunfriendlybusinesspractices,litigationrisk,orlossofcompetitiveposition overtime.Anotherfirmhasaverycontrolledriskframeworkthatpositionstheirportfolioswellfor anunstablecapitalmarketenvironmentthatwouldresultifclimatechangeweretoimpactthe planet.Forexample,theyavoidbondsissuedbycoastalcreditsastheycouldbeimpactedby unstableweatherpatternsduringclimatechange.Finally,ourotherexternalinvestmentfirmis attheforefrontoftheglobalreallocationofcapitaltowardsindustriesthatmitigateoradaptto climatechange.Theycreatedaclimatechangemutualfundandwerethefirstassetmanager todosointheUS.Theyincorporateenvironmentalandsocialgovernanceaspectsintotheir buysideresearchandinvestmentprocess." Innovation Giventheintensecompetitionamongstandardinsuranceproducts,climatechangeoffersan opportunityformarketgrowthinafieldthatislessconstrainedbypricingcompetition.There aremanyinterestingexamples,asthefollowingfivecompaniesshow,includingcatastrophe bondsand'green'insuranceproducts,coveringawiderangeofpropertyandcasualtycovers. However,thereisverylittleinformationofferedonmarketdemandforsuchproducts. Chubb Group: "Green betterment coverage for personal homes. A client can choose the option to rebuild their home after a covered loss with environmentally friendly materials and energy efficient systems, in compliance with environmental rating programs like LEED for Homes, up to an additional 100% of the insured value of the home. Infrared camera scans of clients' homes. The Corporation identifies areas for improved energy efficiency, such as missing insulation or leaky window units. Customers may be referred to specialists who can assist them in improving the energy efficiency of their home. Water Leakage Avoidance. In 20 states, the Corporation offers coverage that can reimburse customers for the reasonable cost of labor (up to $5,000) to install a water leak detection and water shut-off system during the repair from select types of covered losses." Progressive Insurance Group: "Our latest usage-based product, Snapshot(R), gives drivers a financial incentive to drive less and safer, as drivers can earn discounts based on their driving habits. Progressive's own data, based on an analysis of nearly 3 billion driving miles, suggests that not only do safe drivers save money with Snapshot, but they're 30 percent less likely to receive a ticket for a moving violation and 10 percent less likely to be in an accident." The Hartford: "The Hartford recognizes the growing opportunities for insurers to offer products and services that help our policyholders move to renewable energy and reduce their own greenhouse gas emissions, whether they are commercial enterprises or individuals. The launch in 2010 of The Hartford's Renewable Energy Practice to insure the wind, solar and biomass industries is recognition that this is a growing opportunity. The Hartford has since 2009 introduced 10 separate insurance products that help our customers reduce their environmental impact, including GHG reduction. Stiffer GHG regulations would encourage the market for green insurance products." Zurich US Insurance Pool: "(1) directors & officers liability insurance extended for climaterelated claims; (2) political and trade credit risk coverage for carbon credit projects; (3) green, efficient and resilient rebuild insurance, allowing for the rebuilding of damaged property with improvements to green, efficiency or weather-resilience standards; and (4) liability insurance and financial assurance products for Carbon Capture and Sequestration (CCS) facilities." chApter 5 47 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Allianz: "Allianz has been a leader in developing alternative models for our businesses and customers to transfer risk to the capital markets. Capital markets can play an important role in spreading risks from natural disasters among a large group of capital providers. Since 2007, Allianz has accessed the capital markets repeatedly sourcing protection against peak risks in the form of six Cat Bond transactions with a total volume of approximately $900M, including U.S. hurricane risk. Cat Bonds are now a regular part of our risk management approach." 5.2 lIFe anD annuIty InSuReR CoRe FunCtIonS Key Findings: ? In general, the current view of Life & Annuity companies is an absence of current risk exposure to climate change on their underwriting business, but nearly a quarter describe some active management of invested assets to manage climate change risks. ? Around half of L&A insurers believe that standard practices related to asset diversification are sufficient to deal with climate change investment risks. While this may spread climate change-related losses, such a passive approach accepts losses that might have been avoidable. Often, L&A insurers depend on external asset managers, and are unclear about how those managers deal with climate change. Few L&A insurers mention extreme weather hazards for invested assets, whether real estate or municipal bonds. As for carbon regulatory risk, just a few L&A insurers mention potential regulatory risk, or general economic risk. ? There is some innovation among L&A insurers in the arena of investment. In particular, insurers are realizing the advantages of sustainable real estate. Some are considering the 'carbon sink' aspects of agri-forestry assets. A few are investing in catastrophe bonds. Large L&A insurers (over $5 billion annual premium) are more likely to be concerned over the regulatory risk (indirect impacts), while small-to-medium L&A firms are more concerned about direct risks, for example, damage to real estate. Figure9summarizestheactionstakenbythe75L&Ainsurersinthesurvey.Thebarsdisplay theircumulativescore,splitaccordingtothesizeoffirm.Abouthalfofthemaretakingaction ontheirinvestedassetstocontendwithclimatechange.Thetypeofactionsdescribedfall intotwocategories:managingdirectimpactsofanalteredclimateoninvestedassets,and managingindirectriskposedbycarbonemissionscontrols. LargeL&Ainsurers(over$5billionannualpremium)aremorelikelytobeconcernedoverthe regulatoryrisk(indirectimpacts),whilesmall-to-mediumL&Afirmsaremoreconcerned aboutdirectrisks,forexample,damagetorealestate.However,veryfewL&Ainsurersbelieve thatlifeandannuitiesriskisaffectedbyclimatechange,sothereisverylittlereferenceto insuranceproductsinthissectoroftheinsurancemarket. insurer's operations FIguRe 9: lIFe InSuReR aCtIonS on ClImate Change In CoRe opeRatIonS investment - carbon investment - weather products 0 chApter 5 10 20 30 40 percent cumulative score VI large insurers (over $5b) VI other insurers (under $5b) 48 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 50 products TheexcerptsbelowshowthatthegeneralviewamongL&Ainsurersisthatthereisnocurrent insurancerisk,andwhatrisksemergewillbeidentifiedovertimeinalteredmortalitystatistics. Companiesdonotseemtothinkthattheyshouldpriceforincreasedclimate-drivenriskuntil ithasbecomewell-establishedstatistically,abovethe'noise'ofotherfactorsaffectingmorbidity andmortality.Itisalsointerestingthat,basedontheNAICsurveyresults,theimplicitconsensus amonginsurersintheUnitedStatesisthatmortalitywillbereducedbyclimatechange, whereasinNorthernEuropescientistsbelievethatmortalitymayimproveatleastforthenext twodecades,46 whichwouldbeariskforannuitiesprovidersiftheyfailtoappropriatelyadjust pricingorinvestmentstomatchtheliability. Lifeandannuityinsurersofferarangeofdetailonhowclimatechangemayaffecttheir operatingenvironmentandcorefunctions. Massachusetts Mutual Life (in response to the question: Summarize the current or anticipated risks that climate change poses to your company): "Not applicable." National Integrity Life: "Any attempt to measure the influence of climate change on mortality would be highly speculative and unlikely to be credible at this point. In light of this dynamic, the Company has not taken steps to 'encourage policyholders to reduce the losses caused by climate change-influenced events. " Homesteaders Life: "We do not see a significant impact on our operations due to climate change until such time that increases in mortality due to climate change have escalated globally or regionally to the extent that they impact normal life underwriting and product pricing practices." Client Investment AroundhalfofL&Ainsurersreportthatstandardpracticesofassetdiversificationaresufficient tomanageclimatechangeinvestmentrisk.Whilethismayspreadclimatechangerelated losses,suchapassiveapproachinherentlyacceptslossesthatcouldhavebeenavoided through anactivemanagementapproach. OftenL&Ainsurersdependonexternalassetmanagers,andareunclearabouthowthose suppliersdealwithclimatechange.FewL&Ainsurersmentionextremeweatherhazardsfor investedassets,whetherrealestateormunicipalbonds.Asforcarbonregulatoryrisk,afew L&Ainsurersmentionpotentialregulatoryrisk,orgeneraleconomicrisk.Amongthefew insurerswhodotrytoanalyzeclimatechangerisk,lackofdisclosureisabarrier. Weprovidebelowsomeexamplesofgoodpractice. Torchmark Group: "In response to the potential for major catastrophe losses, the companies have not purchased investments such as Florida Windstorm bonds, Oil Casualty bonds, etc. We continuously monitor conditions in all sectors that are, or could be, affected by future climate developments." CNO Group: "Government policies to slow climate change (e.g., setting limits on carbon emissions) may have an impact on sectors such as utilities, transportation and manufacturing. The analysis of investments held in these sectors includes the possibility of additional regulation." 46 FutureImpactsofClimateChangeAcrossEurope.CEPSWorkingDocumentNo.324/February2010.A.Behrens,A.GeorgievandM.Carraro.Centre forEuropeanPolicyStudies,Brussels. chApter 5 49 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations MetLife: "MetLife currently has over $2.5 billion invested in renewable energy projects and evaluates opportunities to invest as advances in technology make these alternative energy sources attractive investments." The TIAA Family of Companies: "For our investments in public equities, our corporate governance group assesses climate change risk for certain portfolio companies on a caseby-case basis. We have an ongoing commitment to implementing cost effective energy efficiency improvements in our global real estate portfolio, including setting quantitative goals for energy efficiency." Torchmark Group: "Underwriting for industries such as coal generation electric utilities has materially changed. A significant amount of extra time is now required to fully analyze the impact on an investment resulting from existing and potential new compliance with climate rules, regulations and laws...The company recently spent several months researching the potential purchase of an infrastructure fund which primarily held wind and solar power generation assets." Sentry Insurance Group: "Because of Sentry's sizable investment positions in 'Green Technology' companies, it has access to additional information resources provided by various constituencies within the 'Green Technology' industry." Principal Life Insurance: "We feel there are three primary benefits of green properties which offset any additional cost: 1. People benefits including higher productivity, lower absenteeism, increased job satisfaction, and higher retention. 2. Financial benefits include lower operating expenses, enhanced leasing activity and increased asset value. 3. Our natural environment also benefits because of a reduced environmental impact and greater environmental stewardship." Lincoln Financial: "We consider climate change where appropriate e.g. utilities, industrials regarding operational, regulatory, market, liability, policy risks. Limited disclosure hampers the scope of analysis." Innovation ThereissomeinnovationamongL&Ainsurersinthearenaofinvestmentinnovation,asthe examplesbelowshow,particularly'green'realestate.Oneinsurerisconsideringthe'carbon sink'aspectsofagri-forestryassets.Afewareinvestingincatastrophebonds. Allianz Real Estate carried out research which showed Sustainable Buildings could yield savings of up to 23 percent in energy consumption and related carbon emissions with relatively small investments, and has now "initiated a comprehensive sustainability program for all Allianz real estate investments." Genworth Life Insurance: "Genworth invests in 'catastrophe bonds'. Genworth has strict limits on its overall investment in catastrophe bonds. Genworth currently uses conservative risk models that assume a warmer climate rather than other models that use average weather history over longer periods of time. Finally, Genworth has risk limits on type of exposure (geography and type of natural catastrophe)." John Hancock Group: "As a result of global warming and national and industry objectives for GHG reduction in some jurisdictions, there are potential opportunities to trade carbon credits using timber and agricultural investments to report emission sinks from sequestered CO2e." chApter 5 50 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 5.3 health InSuReR CoRe FunCtIonS Key Findings: ? Despite predictions of heat waves, expansion of insect-borne disease and poorer air and water quality, few health companies describe climate change as a factor relevant to their risk assessment. ? Only a handful of health insurers discuss how they can reduce the effect of climate change on their customers. ? On the question of asset management, health insurers generally leave this to external, professional managers. They believe that the standard approach of diversification is sufficient, and do not cite any specific way in which portfolios have been modified in the light of climate change. Thereare27insurerstransactinghealthinsuranceasamainclassofbusinessamongthe respondents.Figure10showstheircumulativescoresfortheircoreoperationsofunderwriting andinvestment.Onlyaminorityofhealthinsurerstakeactiononclimatechange. Despite predictions of heat waves, expansion of insectborne disease and poorer air and water quality, few health products companies describe climate Despitepredictionsofheatwavesandpoorerairandwaterquality,fewhealthcompanies change as a factor relevant to describeclimatechangeasafactorrelevanttotheirriskassessment. their risk assessment. Excellus states: "the Company is not aware of any conclusive data that there are health effects directly (or indirectly) related to climate change." Even when they recognize that extreme events are material, firms seem unaware of the ways that extreme events may change. As with life insurers, health insurers believe that it will be sufficient to react to the effects of climate change as it unfolds and do not have practices in place to identify or anticipate changes. Only a handful of health insurers discuss how they can reduce the effect of climate change on their customers. For example Group Health Cooperative states: "Our medical care is linked with a wellness approach for all members, employees and providers. These steps support healthier and more resilient policy holders which may reduce risks from future climate change-influenced events such as the deterioration of air quality." insurer's operations FIguRe 10: health InSuReR aCtIonS on ClImate Change In CoRe opeRatIonS products investment - carbon investment - weather 0 chApter 5 1 2 3 4 5 6 7 percent cumulative score 51 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 8 9 10 Investment Onthequestionofassetmanagement,Healthinsurersgenerallyleavethistoexternal, professionalmanagersandgenerallybelievethatmarketpricingandassetdiversification willappropriatelymanagetherisksposedbyclimatechangetotheirinvestmentportfolios. Thethreeexamplesbelowillustratecommonattitudes: Cambia Group: "We believe any risks or opportunities associated with climate change, such as carbon and water restrictions, are generally priced into the cost of the investment through the market; any potential arbitrage opportunities would have imbedded investment risk which we believe to be inappropriate for us to take." United Health Group: "Climate change impacts have been taken into account in our investment policy through traditional credit analysis and investment portfolio methods. Those methods emphasize portfolio diversification across industries and issuers, and each security is evaluated on a case by case basis." Independent Blue Cross: "Since approximately 75-80% of the Company's portfolio is managed by external investment managers and they (the managers) generally have not made macro decisions to incorporate this specific risk in the management of investment portfolios, the Company does not see the need to react at this time." Innovation Onlyoneonlyexampleofinnovationwasfound:"TheKaiserPermanenteResearchProgram onGenes,Environment,andHealth(RPGEH)waslaunchedin2005,withthegoalofbuilding thelargestandmostcomprehensiveresourceintheUnitedStatesforresearchontheinfluence ofbothinheritedandenvironmentalfactorsonpeople'shealth." chApter 5 52 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Engagement Key Findings: ? Most L&A and Health insurers and a number of P&C insurers do not believe they should engage on climate change, as they do not believe there is sufficient evidence of its causes, effects or relationship to their business. ? 47 out of 102 P&C writers do engage with clients on loss prevention, mostly by mailing leaflets, and providing website information, though this is largely related to present-day risks and not explicitly related to climate change. Small companies are generally much less active than medium or large firms. ? Insurers often engage with employees on sustainability in general, but rarely on climate change specifically. Insurers rarely mention their agents or brokers, yet they are important links to the client. The main interaction with suppliers in the P&C segment is in the use of catastrophe models. A second, much less active engagement node is between insurers across segments and their asset managers. In both these cases, insurers tend to accept the decisions of the supplier, as being the technical expert, and often do not even know how their providers are tackling climate change risks. Smaller insurers rely ? Very few insurers intervene in the policy-making arena. 17 companies make upon external parties for a major contribution to policy formulation on disaster risk reduction via collective critical services such as initiatives, single-insurer projects, or advocacy. Just 11 insurers are involved in catastrophe modeling, energy conservation initiatives in a significant way, and only 10 insurers are reinsurance strategies and heavily involved in initiatives on climate change. asset management, yet the survey findings suggest that these insurers often do not understand whether their advisors and suppliers are Inthischapterweexaminehowcompaniesareengagingwithfiveimportantstakeholder factoring climate change groups:employees,distributors,suppliers,clients,andindustryactiongroups. into their decisions. Fewinsurersdescribeeffortstoengagestakeholderssuchasregulators,policymakers, customers,employees,assetmanagersorvendorsonclimatechange.Thedearthofexternal engagementlimitstheinfluenceofinsurersinshapingapublicviewofclimatechangerisk. Becauseinsurershaveunevenresourcestoassesstheirownclimaterisk,theinward-facing approachofmuchoftheindustryalsosuggeststhatsmallercompaniesmaybedisproportionately unpreparedforclimatechange. Smallerinsurersrelyuponexternalpartiesforcriticalservicessuchascatastrophemodeling, reinsurancestrategiesandassetmanagement,yetthesurveyfindingssuggestthatthese insurersoftendonotunderstandwhethertheiradvisorsandsuppliersarefactoringclimate changeintotheirdecisions. chApter 6 53 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Manyinsurershaveadoptedproductsdesignedtoenablelow-carbonactivities.Abouthalf oflargeandmedium-sizedpropertyinsurersofferinsuranceproductsdesignedforlowcarbonactivitiessuchasgreenbuildingsorrenewableenergyprojects.Someofthelarge Life&Annuitycompaniesofferinvestmentproductsallocatedtolow-carbontechnologies. However,sincemostproductdevelopmenthasbeenundertakenbymultinationalcompanies headquarteredoverseas,mostproductstendtobedevelopedforaninternationalmarketand areoflimitedrelevanceintheUnitedStatesmarket. Figure11showsthatoutof184companies,mostarenotactiveonstakeholderengagement orfailtoreporttheiractivities.Notshowninthegraphicisthatsmallcompaniesaregenerally muchlessactivethanmediumorlargefirms. indicators of stakeholder engagement FIguRe 11: numbeR oF CompanIeS aCtIvely aDDReSSIng SpeCIFIC InDICatoRS oF StaKeholDeR engagement client: loss prevention staff training public policy: losses public policy: energy public policy: climate client: ghg reduction staff incentives supplier: ghg reduction distributor: loss prevention staff in community supplier: loss prevention distributor: ghg reduction 0 10 20 30 40 50 cumulative number of Firms VI property & casualty insurers VI life & health insurers 60 ThedataissplitbetweenfirmsthattransactProperty&Casualtybusiness,andthosecarrying outonlyLifeorHealth,sinceaswehaveseenintheOperationsChapter,LifeandHealth insuranceisperceivedtobemuchlesssensitivetotheeffectsofclimatechangeorclimate variability.Thisisborneoutbythestakeholderdata,whereP&Ccompaniesdominatethe responsesforlossprevention.Ontheotherhand,L&Hcompaniesareaheadinpublicpolicy actiononenergyconservation,andalsoongreeningthesupplychain. 6.1 StaKeholDeRS Insurersmentionfourgroupsofstakeholdersintheirresponses:mostfrequentlyclients, followedbystaff,andrarelydistributorsandsuppliers.Shareholdersarehardlymentioned (thoughofcourseinthecaseofmutualinsurers,thepolicyholdersare theowners.) Clients Giventhecloselinkbetweenpropertypoliciesandweatherdamage,itisnotsurprisingthat manyP&Cinsurersengagewiththeirpolicyholdersontheissueoflossprevention.Infact 47outof102insurerstransactingP&Cdothis,andthisisalsothestakeholderissuewhere smallinsurersareactive.Mostly,theactionisconfinedtomailingleaflets,andproviding websiteinformation.Industrialclientsdoreceivecustomizedriskadviceinsomecases. chApter 6 54 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Threeexamplesshowthetypeofsupportthatinsurersareproviding: ? CincinnatiInsuranceusesitslosscontrolrepresentatives,claimsrepresentativesand underwriterstoprovideinformation,inspectionsandassistancetopolicyholdersregarding improvementstheycanmaketotheirpropertiestoreducethelossescausedbyclimate changeinfluencedevents. ? TokioFire&Marine(PHLY)usesitsLossControlDepartmenttoofferseminarsthroughout thecountrytoprovideinsuredswithinformationregardinghowtopreventandmitigate lossesintheeventofacatastrophicevent.Topicscoveredincludenaturalhazards, lightningprotection,coldweatherfreeze-ups,andwindandwaterdamage. ? Duringstormevents,AlfausessocialmediasiteslikeFacebookandTwittertoinform customersaboutsignificantweatherevents.Thecompanyhasalsouploadedseveral videosonYouTubetodemonstrateAlfa'sresponseinhandlingclaimsafteracatastrophic eventsuchasatornado. Someinsurerscitetheuseofelectroniccommunicationwithpolicyholdersashelpingto reduceemissions,whichistypicallydescribedasabusinessefficiencyimprovement,with emissionssavingsasaco-benefit.AfewP&Cinsurers(7outof102)alsoprovidesome advicetopolicyholdersonenergyconservation. AAA: "The AAA membership magazine, VIA, sent by the Motor Club to millions of AAA members, regularly showcases how motorists can reduce gasoline consumption to reduce their own carbon footprint. Online resources for AAA members and Company insureds also highlight 'green' endeavors. They help members/insureds understand the differences, and the benefits, of purchasing hybrid fuel vehicles, how best to drive them for fuel efficiency, and the automobile insurance that we make available for owners of such hybrid vehicles." AlmostallLifeandHeathinsurers,aswellasanumberofP&Cinsurers,donotbelievethey shouldcommunicatewithclientsonclimatechange,astheydonotbelievethereisreliable orrelevantinformation.AtypicalresponseisfromOld Republic: "Until such time as Old Republic believes there is more specific evidence of (1) the effects of climate change on Old Republic's business and (2) appropriate responses to limit that exposure have been developed, Old Republic sees no constructive purpose in engaging its policyholders in such a dialogue." Staff Thereareplentyofexamplesofinsurersengagingwithemployeesonsustainability,for exampleGreenDays,assistedcommutingandcar-sharingbutlittlespecificallyonclimate change.Ingeneral,incentivesarelinkedtofulfillingenergyefficiencytargets.Manyinsurers donotseemtoprovidebusiness-relatedinformationonclimatechangetostaff.Thesefour examplesshowgoodpractice: Allianz (including Fireman's Fund): "A corporate climate change awareness campaign was developed in 2010 and rolled out across the Group in 2011." Axa: "The Companies require each employee to complete an annual transportation survey that measures their individual carbon foot print." Group Health Cooperative: "Our Commute Solutions program was selected for its innovative and successful efforts to reduce commute trips in single occupancy vehicles, along with its comprehensive intranet information, and personalized services for Group Health's workforce." chApter 6 55 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations The Hartford Insurance Group: "Creation and sales of 'low carbon' products may be rewarded monetarily. The Hartford has introduced a growing range of such products." Distributors Insurersrarelymentiontheiragentsorbrokers,yettheyareimportantlinkstotheclient. Threeexamplesofactiveengagementare: The Hartford: "The Hartford is also seeking new affinity partners to engage with to sell our personal lines coverages to these partners' members. A standard component of our discussion with these potential affinity partners is an explanation of The Hartford's public commitments regarding climate change, and our current efforts. The feedback suggests that this information is considered valuable by our potential business partners." Mutual of Enumclaw: "Mutual of Enumclaw provides education to our agents on how policyholders can reduce loss potential from weather related loss events. Examples are the requirements of 'buffer' zones or 'defensible space' in wildfire prone areas." Central Mutual: "Our direction [on underwriting] is shared openly with our agency partners so they understand and partner with us on the need to protect Policyholder Surplus while being competitive in the market with both coverages and pricing." Suppliers Insurers tend to accept the views of the supplier as the technical expert, and generally do not seek to influence them. Themaininteractionwithsuppliersrelatedtoclimatechangeisintheuseofcatastrophe modelsbyProperty&Casualtyinsurers,whichwasdiscussedmorefullyinChapter5. Asecond,lessactiveinterfaceisbetweeninsurersandtheirassetmanagers,alsocovered inChapter5.Inboththesecases,insurerstendtoaccepttheviewsofthesupplierasthe technicalexpert,andgenerallydonotseektoinfluencethem.Inmanycasestheydonot evenknowwhattheirviewsare,asthesetwoexcerptsshow: Mutual of Enumclaw: "We are unaware whether our asset manager has policies around climate change. We have not mandated any such rules as we simply provide return and yield benchmarks that we desire to be met by our manager." XL: "XL implements its strategy using a variety of investment management service providers. They consider a variety of factors and risks when making decisions on XL's portfolios, which are likely to include some consideration of climate-related risks." Therearefrequentreferencestointroducingorusingelectroniccommunicationwithsuppliers, butlittlerealengagementonclimatechangeperse.Onecompanyreferstocheckingemissions upthesupplychain.KaiserFoundationHealthPlansays:"Suppliersmustdiscloseiftheir companyhasapublicly-availableclimateactionplan,includingagreenhousegasreductiontarget, andthepercentageoftheirenergyconsumptionthatisgeneratedfromrenewablesources." chApter 6 56 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 6.2 publIC polICy Publicpolicyeffortsfocusonindustryinitiativesinthreeareas:disasterlossreduction,energy conservation,andclimatechangespecifically. Disaster loss Reduction ManyP&CcompaniesnotethattheysupporttheInstituteforBusinessandHomeSafety(IBHS), adisastermitigationresearchandpolicyinstitutelargelysupportedbytheinsuranceindustry. Wehaveonlycounted17companiesmakingamajorcontributiontopolicyformulationin collectiveinitiatives,single-insurerprojects,oradvocacyatthelevelshowninthesethreecases. Allstate: "Since 2005, ProtectingAmerica.org has been working to advance a comprehensive, integrated solution to deal more effectively and efficiently with megacatastrophes. A senior member of Allstate's law and regulation department serves as national director of ProtectingAmerica.org. We are also working for changes in the regulatory environment, including recognizing the need for better catastrophe preparedness, improving appropriate risk based pricing and promoting the creation of government sponsored, privately funded solutions for mega-catastrophes that will make insurance more available and affordable." Travelers: "A current key initiative of the Travelers Institute is the Travelers Coastal Wind Zone Plan, our proposal to improve the availability and affordability of catastrophic wind coverage in communities along the Gulf and Atlantic coasts. This initiative promotes risk mitigation strategies such as better building codes and prudent land use planning and advocates for rating transparency and a consistent regulatory environment to address the insurance availability crisis in vulnerable coastal areas." Mutual of Enumclaw: "Mutual of Enumclaw annually meets with Washington State Senators and Congressmen to promote laws that will improve our ability to sustain climate change related losses and to reduce the overall costs to our policyholders. We have informed them on various topics such as better building codes, long term renewal of the federal flood program, less subsidy for risks located in hurricane prone areas." energy Conservation ManyinsurersseekcertificationforLEEDbuildings,andpursueotheravenuestowardshigher energyefficiency,ascanbeseeninChapter2,wherethedriversofenergyefficiencyand carbonfootprintareexamined.However,only11insurersareinvolvedinenergyconservation initiativesinasignificantway.Thefollowingextracthighlightscommitment. AAA: "...over the years has actively supported the Clean Air Act, policies around clean vehicles and clean fuels, and the development of public transit systems. AAA has a longstanding partnership with the Institute of Transportation Studies at the University of California at Davis, partnering with them on on-going research into improving fuel-efficient driver behavior, as well as the largest consumer study of plug-in hybrid vehicles ever undertaken." Climate Change Only10insurersareheavilyinvolvedininitiativesonclimatechange.Thisrangesfrom involvementatthenationallevel,forexampleCongressionaltestimonyorpressconferences byAllianz,MunichReandSwissRe,toparticipationintaskforcessponsoredbystate Governors--forexample,TheHanoverparticipatedintheGovernor'sNewHampshireClimate ChangePolicyTaskForce. chApter 6 57 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Reporting Disclosureisanopportunityforcompaniestosharewithregulatorsandotherstakeholders theactionsbeingtakenbythecompanytomanageclimatechange.Unlessacompany explicitlystatesthatithasundertakenspecificactivities,stakeholders,includinginvestors andclients,cannotassumethatitisdoingso.Forthatreason,thequalityofdisclosureis animportantindicatoroftheactionsbeingtakenbycompaniesandtheirintentiontoshare thebenefitsoftheseactionswithstakeholdersoutsideofthecompany. Outof184companies,onlyelevenprovideddisclosureofsufficientqualityanddetailtotally morethanhalftheeligiblepointsintwoofthefourdomains:Management,Drivers,Core Functions,andEngagement.TheseareACE,AllianzGroup(includingFireman'sFund), Farmers,GenworthLifeInsurance,HartfordInsurance,LibertyMutual,MunichRe, PrudentialGroup,SwissRe,TravelersGroup,andZurich.Theyarealmostalllarge,and mostareinvolvedintheproperty/casualtybusiness. The quality of disclosure is an important indicator of the actions being taken by companies and their intention to share the benefits of these actions with stakeholders outside of the company. Severalresponsesdidnotappeartobeinkeepingwiththespiritofcooperativedisclosure thatonemighthopetosee: StateFarm:"Withrespecttoriskmanagement,StateFarmisnotawareofanindustrystandard thatdefinesa'climaterisk','climatechange'or'climatechange-relatedrisk.'Assuch,State Farmhasnobasistoinsureforauniqueperillabeleda'climatechangerisk'ora'climate changerelatedrisk'oraccountforclimatechangeinriskmanagement." However,itshouldbenotedthatinthesamedisclosurefilingthecompanystates:"State Farmisconcernedabouttheprospectofglobalclimatechange,itspotentialimpacton severeweatherpatterns,andhowthatpotentialimpactmayaffectthebusinessofinsurance." USAAsimplyresubmitteditspreviousyear'sresponse,onthebasisthatnothinghaschanged. EverestNationalrefusedtorespond,saying:"publicationcouldresultinwaiversofprivilege relatingtoclaimsmatters,sincethesurveyrequiresdisclosureofclaimsrelatedprotocols. Further,theSurveyrequiresdisclosureofcompetitiveinformationrelatingtoEverest's products,rates,geographicexposures,losscontrolpracticesandclaimsasrelatedto'climate change'.Thisinformationisconfidentialandifmadepubliccouldcauseirreparableharm toEverest'sbusiness.ManyoftheSurvey'squestionsarevagueandambiguous.Wedecline torespondtothesurvey." AsnotedinChapter3,aroundtenpercentofinsurers,mainlysmalllifecompanies,tookthe linethatthesurveywasnotrelevant,andthereforegavenosubstantiveinformation. Disclosurecouldbesignificantlyimprovedifinsurersandregulatorstookthefollowingsteps. chApter 7 58 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Insurers ? Providecompleteresponsesrelatedtoeachsignificantsegmentofbusiness.Forexample, multi-linesshoulddisclosehowtheirLife&Annuitysegmentmaybeaffectedinaddition totheirProperty&Casualtysegment,andGroupfilingsshouldprovidesufficientdetailon howGroup-levelpoliciesareimplementedatsubsidiariesintheUnitedStates. ? Disclosurefilingsshouldlimittheamountofinformationincorporatedbyreferenceto externaldocuments.Somedisclosurefilingsaredifficulttonavigate:forexample, TheHartfordsubmissionsimplyconsistedoftheirvoluminousresponsetotheCarbon DisclosureProject,cross-referencedtotheir10-Kfiling,withoutlinkingtheinformation totheNAICsurveyquestions. ? Filingsshouldnotconsistofmonosyllabicresponsesthatoffernorealinformation onthecompany'sapproachtoassessingclimaterisk. Regulators ? Regulatorsshouldclarifyhowtheyplantouseinformationmadeavailableinsurvey responses,whichmayimprovethequalityoffilingssubmitted. ? Thelackofqualityinresponsesmaybeattributableinparttothesurveyquestions themselves,whicharenotdesignedtosolicitspecificresponses,andasaconsequence tendtoresultincross-referralsbetweenmultiplequestions. ? Betterresponsesmayresultifregulatorsweretoofferdisclosureguidanceexplainingthe expectedsubstanceoftheresponses,forexample,definingwhatismeantby"climate change-influencedevents"and"keyconstituencies."Therewereseveralinstancesin whichthesephrasesweremisunderstood,orusedasareasonfornotreplying. ? Thesurveyshouldfocusonriskstothecorefunctionsofinsurers--underwriting,claims andinvestment.Thecurrentformstartswithaquestiononemissions,whichisaless importantareaofconcernasinsuranceitselfisalow-carbonindustry. ? Giventhenumberofmonosyllabic,insubstantialandevenantagonisticfilings,regulators shouldconsideramechanismtoaddressunsatisfactoryresponses. chApter 7 59 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Recommendations Substantialroomforimprovementremainsforinsurerclimateriskdisclosureandmanagement. Insurersandregulatorscaneachplayaroleindrivingthatimprovement. 8.1 Key ReCommenDatIonS FoR InSuReRS ? Treat climate change as a corporate-wide strategic issue, affecting all functions, at all levels, and formalize this in a public corporate policy statement. Climatechangehas thepotentialtodamagevalueacrosstheinsuranceenterprise--managingitdemands acomparablescopeofcoordination. ? Evaluate the potential for changes in future risk exposure due to climate change. Insurersneedtoassesshowachangingclimatecouldalterextremeweatherevents, diseasevectors,politicalriskandinfrastructureresilience,andadaptaccordingly. Climate change has the potential to damage value across the insurance enterprise--managing it demands a comparable scope of coordination. o Support research on the influence of a warming climate on human systems, including forecasting of future catastrophe trends, disease pathways, population migration, infrastructure failure and adaptive responses. Whilethereisstrongscientificconsensus onclimatechange,thereisaparticularneedtoadvanceourunderstandingofthelikely impactsofwarmingtemperaturesonphenomenaincludingthefrequencyandseverityof hurricanesandconvectivestorms;thehumanhealtheffectsofmoreintenseheatwaves andexpansionofinsect-bornediseases;andtheeconomicandpoliticalrepercussionsof failedinfrastructureandinundationofdevelopedlands. o Develop catastrophe models that anticipate the probable effects of climate change on extreme weather events. Insurerswithdeepscientificresourcesshouldpartnerdirectly withclimatescientiststodevelopnewmodelingcapabilities.Formanycarriers,withless scientificexpertise,itisequallyimportantthattheimpactofclimatechangeonextreme inlandandcoastalweathereventsbearoutinepartoftheconversationwithcatastrophe modelvendorsandreinsurancebrokers. o Engage with regulators about how to ensure that rates and loss reserves adequately reflect changes in loss trends due to climate change. Insurersshouldalsoincrease theireffortstoofferpreferentialpricingthatreflectsclimate-resilientbehavior. o Ensure that investment advisors and asset managers have established expertise on climate change risk assessment and management. Climatechangeisalreadyaltering extremeeventtrends,withimplicationsforequity,bond,infrastructure,realestateand commoditiesinvestors.Insurersinvestingintheseassetclassesarenolesssubjectto climate-relatedlossesthanotherinstitutionalinvestors,andconsequentlyitisimperative thatinsurersconsiderclimatechangeexpertisewhenselectinginvestmentprofessionals. ? Provide transparent, useful disclosure. Disclosureshouldreflectthecompany'sbest effortstoassessandmanageclimatechange--itshouldthereforeprovideenoughdetail toassistregulatorsinunderstandingwhythecompanytakesacertainviewonclimate change,includingtheassessmentsundertakentoarriveatthatviewpoint.Forglobal enterprises,disclosureshouldclearlydifferentiateactivitiesbeingundertakeninthe UnitedStatesmarketfromthosebeingundertakeninEuropeorothersignificantmarkets. ? Inform Public Policy: Promotetheneedforactiontopreventclimatechangeandwork withpolicymakersatthefederal,stateandlocallevelstohelpthembuildandmaintain aneconomythatisresilienttoclimaterisk. chApter 8 60 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 8.2 Key ReCommenDatIonS FoR InSuRanCe RegulatoRS ? Continue to mandate annual, public disclosure to foster more active engagement by insurers on the issue of climate change. Giventhepotentiallysignificantimpactsof climatechangeoninsuranceavailabilityandaffordability,aswellasoninsurerfinancial health,theimportanceofmandatorydisclosureforregulatorsseekingtounderstand climateactivitiesinthemarketcannotbeunderstated.Thisinformationprovidedin mandatory,publicdisclosurecanhelpothermarketactorsidentifymarket-widefailures inriskmanagementandpushformarketcorrections.Inthisrespect,disclosureresults shouldbeusednotonlybyregulatorsbutalsobyreinsurers,primariesandbrokersto understandthedirectionthemarketismovingwithrespecttoariskfactorthatwill profoundlyshapeindustryperformanceinthecomingyears. ? Clarify disclosure expectations. Regulatorscandotheirparttoimproveinsurerdisclosure byputtingforthguidancedefiningtheimportantconceptsanddescribingtheexpected substanceofinsurerresponsestotheclimateriskdisclosuresurvey.Inaddition,regulators shouldredesignthesurveyformtoelicitmoreusefulresponses--aparticulareffortshouldbe madetolimittheopportunityformultiplequestionstoelicitthesameresponses,andtofocus questionsonriskstothecoreoperationsofinsurers--underwriting,claimsandinvestment. ? Build climate risk considerations into the financial oversight process throughtheaddition ofclimatechange-relatedquestionstotheFinancialConditionExaminersHandbook. Changinglosstrendsillustratetheneedforfinancialexaminationthatconsidersadjustments toreinsurancecoverageandotherriskmanagementpracticesthatinfluencesolvencytests. ? Create more shared resources to help insurers analyze and respond to climate-related risks and opportunities, including investment risks and opportunities, correlatedrisksand lossmodeling.Relativelyfewinsurershavetheabilitytoproducefundamentalresearchon thewaysthatclimatechangemayaffecttheirbusiness.Regulatorsshouldhelptoimprove market-wideunderstandingofthewaysclimatecanaffectdifferentareasoftheinsurance enterprise,andincorporatethesetrendsintocompanyexaminationstoprotectmarket capacity.Insurersandregulatorsalikewouldbenefitfrommorefundamentalresearchinthe followingareas,whichemergedasareasofweaknessinthisyear'sdisclosureresponses: o Investment Risks and Opportunities. Insurerportfolioexposureandclimate-sensitive assetallocationstrategiesareaparticularneed. o Correlated Risks. Anassessmentofthepotentialforemergentcorrelatedrisksbetween investmentsandunderwritingportfolioscouldinformfutureexaminationprocedures. o Loss Modeling. Regulatorsandcarrierswouldmutuallybenefitfromclarificationonhow today'slossmodelsincorporateclimateparameters. o Health and Life Loss Potential. Fundamentalresearchonthetemperaturesensitivityof morbidity/mortalitystatisticswouldlikelybebeneficialtoinsurers,regulatorsandpublic healthprofessionals. o Customer Resilience. Regulatorsandinsurershaveamutualinterestinimprovingcustomers' resiliencetoextremeevents,andidentifyingthemostsuccessfulmethodsofdrivingresilience. ? Engage with insurers, consumers and other policymakers to better understand the nature of climate change risks, includinghowratesshouldadjusttoreflectchanging risks,andthestepsinsurersandregulatorsneedtotaketobetterincentivizeconsumers toreducetheirvulnerabilitytotheserisks. chApter 8 61 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Insurer Climate Risk Disclosure Survey Questions InStRuCtIonS group Filers: IfyourfilingisbeingmadeonagroupbasiscompleteSectionA,theninSectionBprovide therequiredinformationforeachcompanycoveredbythisreport.Addasmanyadditional linesasnecessarytoincludeallcompanies. Individual Company Filers: ProvidetheinformationforyourcompanyinSectionB. Section a GroupName: GroupNo.: Section b NAICNo.: CompanyName: NationwideDirectPremiumsWritten noteS: o Ifavailable,ComparableCDPQuestionsarelistedaftereachquestionasareference. o Ifyouhaveadditionalinformationtosubmit,pleaseincludetheseasattachments,alongwith thecompletedsurvey,inthee-mailtotheNewYorkStateDepartmentofFinancialServices. o Thesurveybeginsbelow. 1. Doesthecompanyhaveaplantoassess,reduceormitigateitsemissionsinitsoperations ororganizations?Ifyes,pleasesummarize. CDP:Performance Question21 2. Doesthecompanyhaveaclimatechangepolicywithrespecttoriskmanagementand investmentmanagement?Ifyes,pleasesummarize.Ifno,howdoyouaccountforclimate changeinyourriskmanagement? Appendix 1 62 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations 3. Describeyourcompany'sprocessforidentifyingclimatechange-relatedrisksand assessingthedegreethattheycouldaffectyourbusiness,includingfinancialimplications. CDP:Risks and Opportunities Questions1-3 4. Summarizethecurrentoranticipatedrisksthatclimatechangeposestoyourcompany. Explainthewaysthattheseriskscouldaffectyourbusiness.Includeidentificationofthe geographicalareasaffectedbytheserisks. CDP:Risks and Opportunities Questions1-3 5. Hasthecompanyconsideredtheimpactofclimatechangeonitsinvestmentportfolio? Hasitaltereditsinvestmentstrategyinresponsetotheseconsiderations?Ifso,please summarizestepsyouhavetaken. CDP:Risks and Opportunities Question3:"OtherRisks",Question6:"OtherOpportunities" 6. Summarizestepsthecompanyhastakentoencouragepolicyholderstoreducethelosses causedbyclimatechange-influencedevents. CDP:Risks and Opportunities Questions4-6 7. Discusssteps,ifany,thecompanyhastakentoengagekeyconstituenciesonthetopicof climatechange. CDP:Governance Question24,26,27 8. Describeactionsyourcompanyistakingtomanagetherisksclimatechangeposesto yourbusinessincluding,ingeneralterms,theuseofcomputermodeling. CDP:Risks and Opportunities Questions1-3 Appendix 1 63 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Scoring Methodology Theframeworkforassessinginsurers'responsesisdesignedtocoverthekeyissuesaround climatechangeofwhichinsurersintheAmericanmarketshouldbeawareandthestepsthat aprudentinsurershouldbetakingtoaddressthem. Itwasderivedfromacombinationofthreesources: ? PreviousworkbyCeresoninsurersandclimatechange, ? PreviousworkbyDr.Dlugoleckioninsurersandclimatechange,and ? Areviewofotherassessmentstructures,particularlyClimateWise,theCarbonDisclosure Project,andtheInvestors'GlobalFrameworkforClimateRiskDisclosure. Thisresultedinaframeworkanalyzingthesubmissionsacrossfourdomains ofinterest: ? Management: howthecompaniesmanageclimatechangeissues, ? Drivers: whatconcernsshapetheirstrategies, ? Actions: whatstepstheytakeintheircorefunctionsoroperations48,and ? Stakeholders: howtheyinteractwithkeyparties49, includingtheirinvolvementinpublic policyandthequalityofthereport. Atotalof50pointswasallocated:9forManagement;12forDrivers;15forActions;and 14forStakeholders.Inturnthesefourdomainsweresplitintoindicators,asdescribedbelow andinTableA1,togivethenecessarygranularityforthereview.Eachresponsewasthen markedoutof50.,Tosupportthelearninganddevelopmentpurposeofthisexercise,the individualscoreswillnotbepublished. management. The maximum score is 9 points. Thisdomainisaboutthefirm'soverallapproachtoclimatechange:howsenioristhelevelat whichclimatechangepolicyisdetermined;whichfunctions ofthecompanyarecoveredby thepolicy;andwhataspects ofclimatechangearedealtwith. Scoring Level: IstheissueofCCexplicitlyacceptedasatopbusinessissueandsupervised? ....3 points Functions: Doesthepolicycoverclient-facingaswellasback-officefunctions? ......3 points Aspects: Does'climatechange'meanclientimpacts,regulation,andin-housework?....3 points Thesepointsarethemaximumforeachindicator.Lesserscoresaregivenforpartialcoverage ofthedomain. 48 Corefunctionsforinsurersaredefinedasproductdesign,riskassessment,lossreduction,claimshandlingandinvestment. 49 Keypartiesareclients,distributors,suppliers,andstaff. Appendix 2 64 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations DRIveRS. The maximum score is 12 points. Thereare12drivers,worthonepointeach,whichfallintotwobroadgroups;sixinternalor reflexivemotivators,concernedwiththecompanyitself,withoutspecificallyconsidering insurancerisk,andsixexternaldrivers,focussedontherisktotheclient(orclient'sassets). Scoring - Internal Drivers Emerging Risk: Noriskidentifiedyet,butrecognitionthatpotentialexists ...........1 point Reputation: Beliefthatapositiononclimatechangeisimportantforthebrand .......1 point Security: Businesscontinuityplan/self-reinsurance/costofcapital ...............1 point Sustainability: Generalconcernforsustainability .............................1 point Energy Efficiency: Majorusesofenergyaddressed............................1 point Greenhouse Gas Emissions: Corporatetargetsandreports.......................1 point Scoring - external Drivers (effects of extreme weather on the firm's clients) Hurricanes: Hurricanehazardreviewedknowledgeably ........................1 point Other Extreme Weather: Atleastonenon-hurricaneriskreviewedknowledgeably .....1 point Climate in General: Awarenessthatclimatechangemayaffectrelevanthazards ......1 point Liability: Clientsmaybesued ...........................................1 point GHG Emissions Controls: Awarenessofhowclientsmaybeaffected ...............1 point Societal Change: Viewsonbehaviorchange(clients,insuranceregulators)..........1 point aCtIonS. The maximum score is 15 points. Thisdomaindealswiththestepsthattheinsureristakingtoaddressclimatechangeinits coreactivitiesofproductdesign(acceptanceofphysicalrisktotheclient,promotingloss reductionbytheclient,andsupportingemissionsreductionbytheclient);claims-handling; andassetmanagement.Theframeworkvariesdependingonthelinesofbusiness:Property &Casualty,Life&AnnuitiesorHealth.Thisisbecausetheimportanceofthefunctionsdiffers, withmoreattentiontoproductdesigninP&C,andmorefocusoninvestmentinL&A. Theintentionistohaveamaximumscoreof15pointsforactionsforanyinsurer.Thusfor insurersorgroupswhichreportinonereplyasmulti-line(normallyP&CwithL&A;P&C withHealth;orL&AwithHealth),thescoresarescaleddownforthevariousportfolios. Forexample,foraninsurerwithP&CandL&A,theP&Cscoreishalvedto7.5points, andtheL&Ascoreishalvedto7.5point.Thatiswhysomescoresincludehalf-points. Appendix 2 65 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations property & Casualty Risk Acceptance: 1persignificantproductfeaturedealing withclimateriskacceptance .....................(maximum 3 points) Loss Reduction: 1persignificantproductfeaturedealing withclimatelossreduction .......................(maximum 3 points) Emissions Reduction: 1persignificantproductfeaturedealing withGHGreduction.........................(maximum 3 points) Claims-Handling: Significantactionbeyondnormallossreduction ................1 point SignificantactiontoreduceGHGemissionsbeyondnormalefficiency ..1 point Investment: Significantactiontoavoidclimate-relatedrisk beyondnormalriskmanagementoffunds .........................1 point SignificantactiontopromoteGHGemissionsreduction beyondnormalriskmanagementoffunds .........................1 point Innovation: 1pointpermajorproductinnovation withtheaimofmanagingCCbetter ....................(maximum 2 points) life and annuities Risk Acceptance: 2foranysignificantproductfeaturedealing withclimateriskacceptance .....................(maximum 2 points) Loss Reduction: 2foranysignificantproductfeaturedealingwithclimatelossreduction (maximum 2 points) Investment: 2foreachsignificantactiontoavoidclimate-relatedrisk beyondnormalriskmanagementoffunds ...............(maximum 4 points) 2foreachsignificantactiontopromoteGHGemissions reductionbeyondnormalriskmanagementoffunds........(maximum 4 points) Innovation: 3pointsforanymajorproductinnovationwith theaimofmanagingCCbetter ........................(maximum 3 points) health Risk Acceptance: 2foranysignificantproductfeaturedealing withclimateriskacceptance .....................(maximum 4 points) Loss Reduction: 2foranysignificantproductfeaturedealing withclimatelossreduction ........................(maximum 4 points) Claims-handling: Significantactionbeyondnormallossreduction ................3 points Investment: Significantactiontoavoidclimate-relatedrisk beyondnormalriskmanagementoffunds .........................1 point SignificantactiontopromoteGHGemissionsreduction beyondnormalriskmanagementoffunds .........................1 point Innovation: 2pointsforanymajorproductinnovationwith theaimofmanagingclimatechangebetter ...............(maximum 2 points) Appendix 2 66 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations StaKeholDeRS. The maximum score is 14 points. Thisdomainisaboutinteractionsonclimatechangewithkeypartiesinvolvedwiththefirm: staff;businesspartners;clients;policymakers;andregulators(throughthesurvey). Staff (engaging on climate change with employees and associates) Training: provisionofinformationonclimatechangerelevanttowork (notonlyresourceefficiency).....................................1 point Incentives: staffareofferedbenefitslinkedtoactionsonclimatechange ...........1 point Community Activities: staffareencouragedandsupportedtoengage inoutsideprojectsonclimatechange.....................1 point business partners (engaging on climate change along the supply chain) Distributors: actionsonclimateimpactsinrelationtodistributors .................1 point actionsonGHGreductioninrelationtodistributors .................1 point Suppliers*: actionsonCCimpactsinrelationtosuppliers ......................1 point actionsonGHGemissionsreductioninrelationtosuppliers............1 point Clients: actionsandinformationonclimateimpactsforclients ...................1 point actionsandinformationonGHGemissionsreductionforclients ...........1 point multi-Stakeholder Initiatives germane to Climate Change Disaster Reduction: significantroleininitiativestomanageweatherrisks ...........1 point Energy Conservation: significantroleininitiativestoreduceenergyuse.............1 point Climate Change: significantroleininitiativesexplicitlyonclimatechange ...........1 point Reply to naIC Survey Meaningful: significantresponseontwoofthefourdomains ....................1 point Comprehensive: significantresponseonthirdand/orfourthdomains ..............1 point *Suppliersincludesexternalassetmanagersusedforinvestment Appendix 2 67 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations table a1 Company SCoRIng FRamewoRK Domain max. Indicator pts. Criterion pts. Definition management of Climate Change Issues Level 3 climate change explicitly accepted as a top business issue and supervised. max.Score: 9 Functions 3 with actions that cover client facing as well as back office functions. The firm's overall approach to climate change Aspects of CC 3 across client impacts, regulatory aspects, inhouse operations Emergent Risk 1 no risk identified yet, but recognition that potential exists Reputation 1 belief that a position on climate change is important for the brand Security 1 business continuity plan & self-reinsurance/cost of protection Eco-Efficiency 1 general concern for sustainability Cost Efficiency 1 actions on major energy uses, own premises, transport and officework processes Carbon Footprint 1 potential regulatory concern/the firm sets GHG objectives and reports progress Hurricanes 1 hurricane hazard reviewed knowledgeably Other Weather 1 at least one non-hurricane hazard reviewed knowledgeably Other Impacts 1 awareness that climate change may affect relevant hazards somehow Liability to Others 1 awareness of the issue Regulations Related to Greenhouse Gases 1 knowledgeable review of the issue Behavior Change 1 behavior change (clients, regulators etc)/impact on economic conditions Risk Acceptance 3 1 per significant product feature dealing with climate risk acceptance (max 3) Loss Reduction 3 1 per significant product feature dealing with climate loss reduction (max 3) GHG Reduction 3 1 per significant product feature dealing with GHG reduction (max 3) Loss Reduction 1 significant action beyond normal loss reduction GHG reduction 1 significant action beyond normal efficiency CC impacts 1 significant action beyond normal risk management of funds GHG Reduction 1 significant action beyond normal risk management of funds As for Criterion 2 1 point per major product innovation with the aim of managing CC better (max 2) Risk Acceptance 2 any significant action aimed at improving acceptance of CC risk in products Loss Reduction 2 any significant action aimed at reducing losses from CC on products CC Impacts 4 2 per significant action beyond normal risk management of funds (max 4) GHG Reduction 4 2 per significant action beyond normal risk management of funds (max 4) As for Criterion 3 any significant product innovation with the aim of managing CC better Generic Enterprise Risk climate change as a general (non-insurance) business issue 3 Sustainability 1 Energy Concerns Drivers attention to the firm's own GHG emissions 2 max. Score: 12 Motives for approach to climate change Weather Impact on Clients & Clients' Assets 3 knock-on effects of extreme weather on the firm's clients Societal Impact on Clients & Clients' Assets knock-on effects of actions by other parties on the firm's clients 3 Products operations* max. Score: 15 Actions that deal with climate change issues on core activities. (a) property/ Casualty/Specialty concerning insurance products 9 Claims 2 concerning claims handling processes Investment concerning fund management Innovation Regarding these lines of insurance. 2 2 Products operations* max. Score: 15 (b) life & annuities 4 concerning insurance products Investment 8 Innovation Regarding these lines of insurance. concerning investment of funds for clients 3 * (UsuallyoneofAorBorC):Ifboth(A)and(B)arecoveredinonereport,scorehalfmarksfor(A)andhalfmarksfor(B),tomaintainthetotalscoreat15 foroperations.Similarlyfor(B)and(C). Appendix 2 68 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations table a1 Company SCoRIng FRamewoRK (con't.) Domain max. Indicator pts. Criterion Products pts. Definition Risk Acceptance max. Score: 15 (C) health Regarding these lines of insurance. Loss Reduction Loss Reduction 3 significant action beyond normal loss reduction 1 significant action beyond normal risk management of funds GHG Reduction 1 significant action beyond normal risk management of funds As for Criterion 2 any significant product innovation with the aim of managing CC better Training 1 information relevant to employment ( not simply resource efficiency) Incentives 1 staff are offered benefits linked to climate change Community Activities 1 staff are encouraged and supported to engage in outside projects on CC 1 information and actions on CC impacts in co-operation with distributors Distributors: GHG Reduction 1 information and actions on GHG reduction in co-operation with distributors Suppliers+: CC Impacts 1 information and actions on CC impacts in co-operation with suppliers Suppliers+: GHG Reduction 1 information and actions on GHG reduction in co-operation with suppliers CC Impacts 1 information on CC impacts/disaster risk reduction for clients GHG Reduction 1 information on GHG reduction for clients Disaster Reduction 1 initiatives to manage weather disaster risks Energy Conservation 1 initiatives to reduce energy use CC Specifically 1 initiatives explicitly adressed at CC Meaningful 1 significant response on two of the 4 domains Comprehensive Investment concerning fund management 1 significant response on third and/or fourth domains 2 2 engaging on CC with employees and associates 3 Business Partners engaging on CC along the supply chain 4 max. Score: 14 Clients purchasers of goods and services from the firm 2 Public Policy a significant (steering) position in multistakeholder initiatives germane to CC 3 Reporting quality of reply to NAIC survey total possible Score 2 per significant product feature dealing with climate loss reduction (max 4) CC Impacts 3 concerning claims handling processes Staff Key parties involved with the firm. 4 Claims Innovation Stakeholders 2 per significant product feature dealing with climate risk acceptance (max 4) Distributors: CC Impacts operations* 4 8 concerning insurance products 2 50 * (UsuallyoneofA,BorC):Ifboth(A)and(B)arecoveredinonereport,scorehalfmarksfor(A)andhalfmarksfor(B),tomaintainthetotalscoreat15for operations.Similarlyfor(B)and(C). + Suppliersincludesexternalassetmanagersusedforinvestment Appendix 2 69 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Insurer Respondents to Climate Survey list of Companies 1 AAA LIFE INSURANCE COMPANY 2 ACCIDENT FUND INSURANCE COMPANY OF AMERICA 3 ACE GROUP 4 ACUITY A MUT INS CO 5 AETNA LIFE INSURANCE COMPANY 6 ALFA MUTUAL 7 ALLIANZ GROUP 8 ALLSTATE GROUP 9 AMERICAN AGRI-BUSINESS INSURANCE COMPANY 10 AMERICAN FAMILY LIFE ASSURANCE CO. (CA) 11 AMERICAN FAMILY LIFE ASSURANCE CO. (WA) 12 AMERICAN FAMILY LIFE ASSURANCE CO. OF NY 13 AMERICAN FAMILY MUT INS CO 14 AMERICAN FIDELITY 15 "AMERICAN INTERNATIONAL GROUP, INC." 16 AMERICAN NATIONAL INSURANCE COMPANY 17 AMERICAN NATIONAL PROPERTY AND CASUALTY CO 18 AMERICAN UNITED LIFE INSURANCE COMPANY 19 AMERICO FINANCIAL LIFE AND ANNUITY INSURANCE CO 20 AMERITAS LIFE INSURANCE CORP. 21 AMICA MUTUAL GROUP 22 ANNUITY INVESTORS LIFE INSURANCE COMPANY 23 ANTHEM BLUE CROSS LIFE AND HEALTH INSURANCE CO 24 ARCH INSURANCE GROUP 25 ASSURANT GROUP 26 ASSURED GUARANTY 27 ATHENE ANNUITY & LIFE ASSURANCE CO 28 AUTO OWNERS INS CO 29 AUTOMOBILE CLUB INSURANCE ASSOCIATION 30 AVIVA LIFE AND ANNUITY COMPANY 31 AXA GROUP 32 AXIS INSURANCE COMPANY 33 BALBOA GROUP 34 BANNER LIFE INSURANCE COMPANY 35 BERKSHIRE HATHAWAY GROUP 36 BLUE SHIELD OF CALIFORNIA LIFE & HEALTH INS CO 37 CALIFORNIA STATE AUTO GROUP 38 CAMBIA GROUP 39 CENTRAL MUTUAL INSURANCE COMPANY 40 CHUBB GROUP OF INSURANCE COMPANIES 41 CIGNA GROUP 42 CINCINNATI INSURANCE COMPANY (THE) 43 CNA GROUP Appendix 3 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 CNO INSURANCE COMPANIES COMMERCE INS CO COMPANION LIFE INSURANCE COMPANY COMPANION PROPERTY AND CASUALTY INSURANCE CO CONTINENTAL WESTERN INSURANCE COMPANY COUNTRY MUTUAL GROUP COUNTRY PREFERRED INSURANCE COMPANY CUNA MUTUAL GROUP DELTA DENTAL INSURANCE COMPANY DOCTORS' COMPANY, (THE) ELECTRIC INSURANCE COMPANY EMBLEM HEALTH INC EMPLOYERS MUTUAL CASUALTY COMPANY EQUITRUST LIFE INSURANCE COMPANY ERIE INSURANCE GROUP EVEREST NATIONAL INSURANCE COMPANY EXCELLUS FARM BUREAU LIFE INS CO FARM BUREAU PROP & CAS INS CO FARM FAMILY CASUALTY INSURANCE COMPANY FARMERS GROUP FEDERATED MUTUAL GROUP FIDELITY INVESTMENTS LIFE FIDELITY NATIONAL INDEMNITY FIDELITY NATIONAL TITLE FIRST AMERICAN TITLE INSURANCE COMPANY FIRST HEALTH FM GLOBAL GROUP FRANKENMUTH MUT INS CO GENWORTH GROUP GMAC INSURANCE GREAT AMERICAN INSURANCE COMPANY GROUP HEALTH GROUP HANOVER GROUP HARLEYSVILLE MUTUAL INSURANCE HARTFORD INSURANCE GROUP HCC LIFE INSURANCE COMPANY HEALTH NET LIFE INSURANCE COMPANY HM LIFE INSURANCE COMPANY HOMESTEADERS LIFE COMPANY HORACE MANN LIFE INSURANCE COMPANY HUDSON INSURANCE COMPANY IDS PROPERTY CASUALTY INSURANCE COMPANY 70 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations list of Companies 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 Appendix INFINITY INSURANCE COMPANY ING AMERICA INSURANCE HOLDINGS INC INTERINSURANCE EXCHANGE OF THE AUTOMOBILE CLUB JACKSON NATIONAL LIFE INSURANCE COMPANY JEFFERSON NATIONAL LIFE JOHN DEERE INSURANCE COMPANY JOHN HANCOCK GROUP KAISER FOUNDATION HLTH PLAN OF THE NW KEMPER INDEPENDENCE INSURANCE COMPANY LIBERTY MUTUAL GROUP LINCOLN FINANCIAL GROUP LINCOLN HERITAGE LIFE INSURANCE COMPANY MARKEL INSURANCE COMPANY MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY MEDICAL PROTECTIVE COMPANY (THE) MERCURY CASUALTY COMPANY MET LIFE GROUP MINNESOTA LIFE INSURANCE COMPANY MORTGAGE GUARANTY INSURANCE CORPORATION MUNICH RE MUTUAL OF AMERICA LIFE INSURANCE COMPANY MUTUAL OF ENUMCLAW INS CO MUTUAL OF OMAHA INSURANCE COMPANY MVP HEALTH CARE NATIONAL INTEGRITY LIFE INSURANCE COMPANY NATIONAL INTERSTATE INSURANCE COMPANY NATIONAL LIFE GROUP NATIONAL WESTERN LIFE INSURANCE COMPANY NATIONWIDE MUTUAL INSURANCE COMPANY NAVIGATORS INSURANCE COMPANY NEW JERSEY MANUFACTURERS INS CO NEW YORK LIFE NGM INS CO NORTHWESTERN MUTUAL GROUP NYCM INSURANCE GROUP OCCIDENTAL FIRE & CASUALTY CO OF NTH CAROLINA OLD REPUBLIC GROUP ONEBEACON AMER INS CO PACIFIC LIFE GROUP PACIFICSOURCE HLTH PLANS PENNSYLVANIA LIFE INSURANCE COMPANY PHILADELPHIA CONSOLIDATED HOLDING PHYSICIANS RECIP INSURERS PREMERA BLUE CROSS PRIMERICA LIFE INSURANCE COMPANY PRINCIPAL LIFE INSURANCE COMPANY PROGRESSIVE INSURANCE GROUP PROTECTIVE LIFE PROVIDENCE HLTH PLAN 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 PYRAMID LIFE INSURANCE COMPANY (THE) Q-CARE INSURANCE COMPANY QBE GROUP RADIAN GUARANTY INC. RIVERSOURCE LIFE INSURANCE CO. OF NEW YORK RLI GROUP RSUI INDEMNITY COMPANY RURAL COMMUNITY INSURANCE COMPANY SAFETY NATIONAL CASUALTY CORPORATION SECURITY BENEFIT LIFE INSURANCE COMPANY SECURITY MUT LIFE INS CO OF NY SELECTIVE INSURANCE GROUP, INC. SENTRY GROUP STARR IND & LIAB CO STATE AUTO GROUP STATE COMPENSATION INSURANCE FUND STATE FARM GROUP STATE LIFE INSURANCE COMPANY (THE) STATE NATIONAL INSURANCE COMPANY, INC. SUN LIFE GROUP SWISS RE GROUP SYMETRA FINANCIAL THE GUARDIAN THE PENN MUTUAL LIFE GROUP THE PHOENIX LIFE INSURANCE COMPANY THE PRUDENTIAL GROUP THE STANDARD THE TIAA FAMILY OF COMPANIES TOKIO MARINE BRANCH TORCHMARK GROUP TOWER INSURANCE CO TRAVELERS GROUP U.S. SPECIALTY INSURANCE COMPANY UNION CENTRAL LIFE INSURANCE COMPANY (THE) UNITED FIRE GROUP UNITED HEALTH GROUP, INC. UNITED STATES FIRE INSURANCE COMPANY UNITRIN AUTO AND HOME INSURANCE COMPANY UNUM HEALTH GROUP USAA GROUP VERMONT MUTUAL INSURANCE GROUP VISION SERV PLAN INS CO WASHINGTON DENTAL SERV WESTERN AND SOUTHERN GROUP WESTERN UNITED INSURANCE COMPANY WILLIAM PENN LIFE INSURANCE CO OF NEW YORK XL GROUP ZENITH INSURANCE COMPANY ZURICH US POOL 71 | insurer cliMAte risk disclosure survey: 2012 Findings & recommendations Ceres 99 Chauncy Street Boston, MA 02111 T: 617-247-0700 F: 617-267-5400 www.ceres.org (C)2013 Ceres FPOUnionLabel